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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A-3
AMENDMENT TO
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-7067
UNITED COMPANIES FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
LOUISIANA 71-0430414
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4041 ESSEN LANE
BATON ROUGE, LOUISIANA 70809
(Address of principal executive office) (ZIP CODE)
Registrant's telephone number, including area code (504) 924-6007
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $2.00
(Title of Class)
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6-3/4% PRIDES(SM), Convertible Preferred Stock, Par Value $2.00
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of voting stock held by non-affiliates of the
registrant as reported by the National Association of Securities Dealers
Automated Quotation System/National Stock Market, as of March 11, 1996 was
$589,182,237.
The number of shares of $2.00 par value stock issued and outstanding as of
March 11, 1996 was 28,146,480 excluding 1,159,682 treasury shares.
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2
PART I
ITEM 1. BUSINESS
GENERAL
United Companies Financial Corporation (the "Company" or "UCFC"), founded
in 1946, is a financial services holding company historically engaged in
mortgage and insurance operations. In July, 1996, the Company sold all of the
outstanding capital stock of its life insurance subsidiary, United Companies
Life Insurance Company ("UCLIC") pursuant to an agreement which had been signed
on February 2, 1996, which agreement had been subject to the approval of the
Company's shareholders and regulatory authorities and the satisfaction of
certain other conditions. In June, 1996, the Company's shareholders approved the
sale, and in July 1996, regulatory approval was obtained and the remaining
conditions to closing the transaction were satisfied. For additional information
regarding the sale and the business of UCLIC see Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Discontinued
operations -- UCLIC and Note 11 to the Notes to Consolidated Financial
Statements.
The Company's mortgage operations are focused on the origination, purchase,
sale and servicing of first mortgage, non-conventional, home equity loans which
are typically not loans for the purchase of homes. These loans, which are fixed
and variable rate mortgage loans, are made primarily to individuals who may not
otherwise qualify for conventional loans which are readily marketable to
government-sponsored mortgage agencies or conduits and available through most
commercial banks and many other lending institutions. Home equity loan
production in 1995, 1994, and 1993 was $1.5 billion, $909 million and $540
million, respectively. The Company sells substantially all of its home equity
loan production through loan securitizations pursuant to which mortgage-backed
securities are issued and publicly sold under a Company sponsored shelf
registration statement. The operating income before income taxes of the
Company's mortgage operations increased from $46.3 million in 1993 to $81.2
million in 1994 and to $107.7 million in 1995.
The Company was incorporated in the State of Louisiana in 1946 and its
principal offices are located in Baton Rouge, Louisiana. It currently has
approximately 1,900 employees.
Distribution network. At December 31, 1995, the Company's mortgage
activities were primarily conducted through the following distribution channels:
Retail. The Company's retail operations are conducted through United
Companies Lending Corporation ("UCLC") which consists of a branch network
of 150 offices in 39 states.
Wholesale. The wholesale loan distribution network consists of two
separate divisions of UCLC which offer home equity loans through distinct
distribution channels. Both of these divisions, UNICOR MORTGAGE(R)
("UNICOR") and GINGER MAE(R) ("GINGER MAE") , operate under registered
service marks. UNICOR offers home equity loan products through
correspondents and brokers in 44 states, while GINGER MAE offers these
products to financial institutions, which include banks, savings and loan
associations and credit unions, in 23 states. UNICOR began operating as a
separate subsidiary of the Company in January, 1996.
Bulk purchasing. The Company also conducts a bulk loan purchase
program through Southern Mortgage Acquisition, Inc. ("SMA"), which from
time to time purchases pools of home equity loans from other lenders.
Manufactured housing finance. During the fourth quarter of 1995 the
Company expanded its lending operations to include additional manufactured
housing loan products. The manufactured housing lending is conducted
through a wholly owned subsidiary, United Companies Funding, Inc., based in
Minneapolis, Minnesota, with servicing provided by UCLC.
Products and Production. The Company's principal products are home equity
loans with a fixed amount and term to maturity, which are secured by a first
lien mortgage on the borrower's residence. Typically the proceeds of the loan
will be used by the borrower to refinance an existing first mortgage in order to
finance home improvements or for debt consolidation. These types of loans are
commonly referred to as "B" and "C" grade loans. These loans are distinct from
home equity revolving lines of credit, not offered by the Company,
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which are generally secured by a second mortgage and typically carry a floating
interest rate. The Company offers fixed rate and adjustable rate ("ARM") home
equity loan products.
The following table reflects home equity loan production by distribution
network by product type:
1995 1994 1993
--------------------- --------------------- ---------------------
AVERAGE AVERAGE AVERAGE
LOAN LOAN LOAN
AMOUNT SIZE AMOUNT SIZE AMOUNT SIZE
---------- ------- ---------- ------- ---------- -------
(IN THOUSANDS)
Retail
Fixed....................... $ 740,707 37 $ 679,466 38 $ 460,164 36
ARM......................... 198,369 78 11,560 90 23,037 83
Wholesale
UNICOR
Fixed....................... 337,802 50 146,832 48 40,736 53
ARM......................... 85,208 104 45,248 97 15,931 103
GINGER MAE
Fixed....................... 44,497 59 9,864 55 -- --
ARM......................... 6,351 115 201 101 -- --
Bulk Purchase
Fixed....................... 7,709 50 1,739 38 -- --
ARM......................... 120,894 156 13,911 58 -- --
---------- ---------- ----------
Total Production....... $1,541,537 $ 908,821 $ 539,868
========== ========== ==========
As of December 31, 1995, approximately 96.5% in aggregate principal amount
of the home equity loans owned and/or serviced by the Company were secured by a
first mortgage with the remaining 3.5% in aggregate principal amount secured by
second or multi-property mortgages. During 1995, approximately $1,486 million
first mortgage home equity loans were originated and $56 million in second and
multi-property mortgage loans. On most home equity loans for home improvements,
the loan proceeds are disbursed to an escrow agent which, according to
guidelines established by the Company, releases such proceeds upon completion of
the improvements or in draws as the work on the improvements progresses. The
weighted average interest rate on home equity loans produced during 1995 was
11.6%, compared to 11.7% during 1994. Costs incurred by the borrower for loan
origination, including origination points and appraisal, legal and title fees,
are often included in the amount financed. Over the past five years, contractual
maturities have generally ranged from seven to twenty years, and the weighted
average effective life using the historical constant prepayment rate for the
Company's home equity loans has been approximately three and one-half years.
Prior to July, 1991, the Company actively originated commercial real estate
loans for sale to United Companies Life Insurance Company ("UCLIC") with
servicing rights retained by the lending operations of the Company. From July
1991 to early 1995, the Company limited commercial real estate originations due
to a change in UCLIC's investment demand and lack of a secondary market for this
product. However, in 1995, originations of commercial real estate loans on
behalf of UCLIC resumed with $21.3 million of such loans being originated. The
servicing of the commercial loans owned by UCLIC and pass-through certificates
owned by third parties and UCLIC, which are backed by commercial real estate
loans originated by UCLC, were transferred from UCLC to UCLIC under the terms of
the sale of UCLIC. At December 31, 1995, the principal balance of such loans and
pass-through certificates was approximately $251 million.
The Company's principal market for its home equity loans is individuals who
may not otherwise qualify for conventional loans which are readily marketable to
the government-sponsored mortgage agencies or conduits and available through
most commercial banks and many other lending institutions. Loans to such
borrowers may present a greater credit risk and therefore produce higher loan
origination fees and interest rates as compared to loans to customers of banks
and thrifts. The Company believes that its customers generally place a higher
priority on the amount of the monthly payment and prompt credit approval than on
the interest rate and origination fees associated with the loan. Management of
the Company believes that any greater credit risk arising out of making loans to
these borrowers is compensated by higher fees and interest rates. There are
generally numerous competitors for these borrowers in each of the Company's
geographic
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markets. Principal competitors include recognized national and regional lenders.
The Company believes that prompt underwriting and response to loan applications
provides a competitive advantage in loan originations.
Underwriting. Regardless of the manner of origination, all home equity
loans are underwritten (or, in the case of bulk purchases are re-underwritten)
prior to approval and funding utilizing substantially similar underwriting
guidelines. The underwriting function is centralized at the home office.
Underwriting guidelines are modified from time to time. The following is a
description of the current underwriting guidelines, which are not materially
different from prior guidelines.
The underwriting process is intended to assess primarily the prospective
borrower's ability and willingness to repay the loan and secondarily the
adequacy of the real property security as collateral for the loan granted. A
credit package is submitted to the home office which includes a current
appraisal from an independent appraiser on the Company's approved list, a
property inspection, a credit report and a verification of employment. On a
case-by-case basis, after review and approval by home office underwriters, home
equity loans may be made which vary from the underwriting guidelines. However,
variations from guidelines with respect to home equity loans primarily are
approved by the home office underwriting department.
The Company originates fixed-rate home equity loans which generally fully
amortize over a period not to exceed: 360 months for single family, owner
occupied first mortgages; 360 months for single family, non-owner occupied first
mortgages; 240 months for single family, combination owner occupied/rental
property first mortgages; and 180 months for single family, owner occupied
second mortgages. The fixed-rate loan amounts generally do not exceed $500,000
unless a higher amount is specifically approved by the home office. The Company
also originates a fixed rate loan product with an original term to maturity of
180 months and an amortization schedule of 360 months ("Balloon Loans"). Balloon
loans must be secured by first liens on single family, owner occupied
residential properties. Fixed-rate home equity loans secured by second mortgages
generally do not exceed $150,000. Adjustable-rate home equity loans, in general,
fully amortize over a period not to exceed 360 months. The maximum amount for
adjustable-rate home equity loans is $500,000 unless a higher amount is
specifically approved by home office.
The homes used for collateral to secure the home equity loans may be owner
occupied, non-owner occupied rental properties or a combination of owner
occupied rental properties, which in any case are one-to-four family residences
(which may be a detached or semi-detached row house, townhouse, a condominium
unit or a unit in a planned unit development). In addition, fixed rate home
equity loans may be secured by single-family owner occupied manufactured or
mobile homes with land if the manufactured or mobile homes are permanently
affixed and defined as real estate under applicable state law. Second mortgages
are generally permitted only for fixed-rate home equity loans and generally are
limited to one-to-four family owner occupied property. Such a loan secured by a
second mortgage typically will not be made if the first mortgage is a balloon or
an individual or owner financed mortgage.
In general, the value of each property proposed as security for a home
equity loan is required to be determined by a current appraisal from an
independent appraiser who has been approved by the home office. The originator
selects the appraiser and orders the appraisal. The Company requires that the
appraisal provide an adequately supported estimate of the value of the property
proposed as security for the requested home equity loan and a complete, accurate
description of the property. In some cases, the appraisal is subject to
completion of improvements which are to be made with the proceeds of the home
equity loan. The property is analyzed, based on the appraisal, to determine its
acceptability as security for the loan requested.
Loan-to-Value. The total amount of a home equity loan generally includes
origination fees, credit life insurance premium, if any, prepaid interest and
other closing costs (such as the cost of an appraisal report and title insurance
premiums). Loan-to-value is the percentage equal to the note amount divided by
the lesser of appraised value or the purchase price of the real estate. For
fixed-rate and adjustable rate home equity loans originated through the
wholesale loan programs, the maximum loan-to-value is 90%, with the maximum for
rural properties generally being 80%. For home equity loans originated through
the branch network, an Underwriting Loan-to-Value Ratio, as described below, is
utilized. The total amount of a home equity loan, net of the origination fees,
credit life insurance premium, if any, prepaid tax and insurance escrow, real
estate tax service fee, loan application fee and prepaid interest, is defined as
the "Cash Out." The "Underwriting Loan-to-Value Ratio" for underwriting purposes
is the Cash Out divided by the appraised value or purchase price of the
property, whichever is less. The Cash Out with respect to fixed-rate and
adjustable-rate loans
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originated through the branch network is limited to 90% of the lesser of the
applicable appraised value or purchase price of the property.
Generally, the maximum Underwriting Loan-to-Value Ratio is 80% for a loan
with a second mortgage on the property. With respect to rural properties, the
maximum Underwriting Loan-to-Value Ratio (utilizing only up to ten acres and the
improvements thereon) is 80%. The maximum Underwriting Loan-to-Value Ratio
generally applicable to non-owner occupied homes is 75% and is generally 80% for
owner occupied manufactured/mobile homes with land. Because the Underwriting
Loan-to-Value Ratio is based on the Cash Out rather than the actual principal
balance of the related loan, the Loan-to-Value Ratio of such loan will be higher
and could be substantially higher than the Underwriting Loan-to-Value Ratio.
Creditworthiness. Verification of personal financial information for each
applicant is required. The applicant's total monthly obligations (including
principal and interest on each mortgage, tax assessments, other loans, charge
accounts and all scheduled indebtedness) generally should not exceed 50% of a
borrower's gross monthly income. In the case of adjustable-rate home equity
loans, the debt ratio calculation is based upon the principal and interest
payment amount utilizing the maximum rate on the second change date. Generally,
the borrowers are required to have two years of employment with their current
employer or two years of like experience. Applicants who are salaried employees
must provide current employment information in addition to recent employment
history. This information is verified for salaried borrowers based on written
confirmation from employers, or a combination of a telephone confirmation from
the employer and the most recent pay stub and the most recent W-2 tax form. A
self-employed applicant is generally required to provide copies of complete
federal income tax returns filed for the most recent two years. Re-verification
of the foregoing information is generally not undertaken for home equity loans
purchased through the bulk purchase program of the Company.
A credit report by an independent, nationally recognized credit reporting
agency reflecting the applicant's credit history is required. The credit report
should reflect all delinquencies of 30 days or more, repossessions, judgments,
foreclosures, garnishments, bankruptcies and similar instances of adverse credit
that can be discovered by a search of public records. Verification is required
to be obtained of the first mortgage balance, if any, its status and whether
local taxes, interest, insurance and assessments are included in the applicant's
monthly payment. All taxes and assessments not included in the payment are
required to be verified as current. A borrower's mortgage payment history should
generally reflect no more than three payments over 30 days delinquent in the
last twelve months; however, in some cases, a borrower is permitted to have no
more than five payments over 30 days delinquent in the last twelve months and
one payment over 60 days delinquent in the last twelve months. Credit analysis
is subjective and subject to interpretation in the underwriting process.
Certain laws protect loan applicants by offering them a timeframe after
loan documents are signed, called the "rescission period," during which the
applicant has the right to cancel the loan. The rescission period must have
expired prior to funding a loan and may not be waived by the applicant except as
permitted by law.
The Company generally requires title insurance coverage on each home equity
loan it originates. The Company and its assignees are generally named as the
insured on the title insurance policies and the addressee of the title opinion.
The borrower is required to obtain property insurance in an amount
sufficient to cover, in the case of a first mortgage, the new loan and in the
case of a fixed-rate second mortgage, the new loan and any prior mortgage. If
the sum of an outstanding first mortgage, if any, and the fixed-rate home equity
loan exceeds the lesser of replacement or insurable value, insurance equal to
the lesser of replacement or insurable value may be accepted. The Company
requires that its name and address are properly added to the "mortgagee clause"
of the insurance policy. In the event the policy does not provide for written
notice of policy changes or cancellation, an endorsement adding such provision
is required. The borrower is required to obtain flood insurance to the extent
such insurance is available under the Flood Disaster Protection Act of 1973, as
amended.
After a loan is underwritten, approved and funded, the mortgage loan
packages are reviewed by home office loan review personnel. A random sample of
the mortgage loan packages are subsequently subjected to a quality control
audit.
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Loan sales and securitizations. Substantially all of the loans originated
or purchased by the Company are sold. Since 1985, the Company has sold loans
originated by it in the secondary market, initially in transactions with
government-sponsored mortgage agencies or conduits, later in private placement
transactions with financial institutions and, since the second quarter of 1993,
through a shelf registration statement filed with the Securities and Exchange
Commission by a subsidiary of the Company. Approximately $2.9 billion of
mortgage-backed pass-through certificates backed primarily by first mortgage
home equity loans originated directly or through correspondents or mortgage
brokers, or purchased and re-underwritten have been registered under the
registration statement and publicly sold since 1993. The Company intends to
continue to effect securitization transactions on a quarterly basis, but the
amount and timing of sales of securities under the shelf registration statement
will depend upon market and other conditions affecting the operations of the
Company.
The following table reflects certain information regarding home equity loan
production, sales and securitizations during the indicated periods:
1995 1994 1993
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Home equity loan production........................ $1,541,537 $908,821 $539,868
Home equity loan sales............................. $1,471,868 $977,653 $462,873
Average coupon on loans sold....................... 11.67% 11.80% 12.00%
Interest spread retained on loans sold............. 4.98% 4.49% 6.06%
The weighted average interest spread on loans sold (the difference between
the stated rate on the loan and the rate paid to purchasers, less certain
recurring fees) is determined without regard to expected credit losses.
Servicing rights are retained on substantially all loans sold.
The Company's securitization transactions are credit enhanced and the
certificates issued pursuant thereto have received ratings of "Aaa" from Moody's
Investors Service, Inc. and "AAA" (or "AAAr" in the case of variable rate
certificates) from Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. Credit enhancement is achieved in part through a guaranty provided by a
third party insurer and by subordinating an amount (the "Subordinated Amount")
of the excess interest spread retained by the Company to the payment of
scheduled principal and interest on the certificates should there be a shortfall
in collections from borrowers in the form of monthly mortgage payments during
any given period. If cumulative payment defaults exceed the Subordinated Amount,
the third party insurer is obligated to pay any further losses experienced by
the owners of the pass-through certificates. The Company has, from time to time,
used the Financial Guaranty Insurance Company ("FGIC") and MBIA Insurance
Corporation ("MBIA") as third party insurers. In connection with the issuance of
approximately $2.9 billion in pass-through certificates discussed above, the
Subordinated Amounts aggregate approximately $426 million.
Each pooling and servicing agreement that governs the distribution of cash
flows from the pooled loans requires the establishment of an account (the
"Reserve Account") that may require an initial deposit by the Company.
Thereafter, a portion of the excess interest is deposited in the Reserve
Account. There are no events that will require the aggregate deposits to the
Reserve Account to exceed the related Subordinated Amount. To the extent that
losses are incurred on the loans underlying the pass-through certificates issued
in a securitization transaction, such losses are paid out of the related Reserve
Account to the extent that funds are available.
The Company derives a significant portion of its income by realizing gains
upon the sale of loans due to the excess servicing income of such loans. Excess
servicing income represents the excess of the interest rate payable by a
borrower on a loan over the interest rate passed through to the investor
acquiring an interest in such loan, less the Company's normal servicing fee and
other applicable recurring fees. When loans are sold, the Company recognizes as
current income the present value of the excess servicing income expected to be
realized over the anticipated average life of the loans sold less future
estimated credit losses relating to the loans sold. At December 31, 1995, the
Company's balance sheet reflected capitalized excess servicing income of
approximately $281 million. The Company's allowance for loan losses includes an
allowance of approximately $49.3 million for loans serviced. The capitalized
excess servicing income is computed using prepayment, default and interest rate
assumptions that the Company believes market participants would use for similar
instruments at the time of sale. The weighted average discount rate used to
determine the present
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value of the balance of capitalized excess servicing income on home equity loans
reflected on the Company's balance sheet at December 31, 1995, was approximately
10%. The Company is not aware of an active market for this kind of receivable.
No assurance can be given that this receivable could in fact be sold at its
stated value on the balance sheet.
Capitalized excess servicing income is amortized over the lesser of the
estimated or actual remaining life of the underlying loans as an offset against
the excess servicing income component of servicing income actually received in
connection with such loans. Although management of the Company believes that it
has made reasonable estimates of the excess servicing income likely to be
realized, it should be recognized that the rate of prepayment and the amount of
defaults utilized by the Company are estimates and actual experience may vary
from these estimates. The Company periodically reviews its prepayment
assumptions in relation to current rates of prepayment and, if necessary, writes
down the remaining asset to the net present value of the estimated remaining
future excess servicing income. Rapid increases in interest rates or competitive
pressures may result in a reduction of excess servicing income, thereby reducing
the gains recognized by the Company upon the sale of loans in the future.
The gain recognized by the Company upon the sale of loans will have been
overstated if the excess servicing income actually received by the Company is
less than originally assumed. An acceleration of future prepayments and/or
delinquencies could result in capitalized excess servicing income amortization
expense exceeding realized excess servicing income, thereby adversely affecting
the Company's servicing income.
The ability of the Company to sell loans and/or mortgage-backed securities
in the secondary market, or an alternative source of funding loan production, is
essential for continuation of the Company's loan origination operations. A
prolonged, substantial reduction in the size of the secondary market for home
equity loans may adversely affect the Company's ability to sell its loan
originations and/or mortgage-backed securities in the secondary market with
consequent adverse impact on the Company's profitability and future
originations. Moreover, market and other considerations could affect the timing
of the Company's securitization transactions and delays in such sales could
reduce the amount of gains recognized from the sale of loans in a given quarter.
Loan Servicing. The Company retains the servicing on substantially all
loans it originates, including approximately 69,700 home equity loans with an
aggregate principal balance of $2.7 billion owned and/or serviced at December
31, 1995, up 60% from the prior year-end. The following services are performed
for investors to whom the Company has sold loans and for which it has retained
servicing: investor reporting; collecting and remitting periodic principal and
interest payments to investors and performing other administrative services,
including maintaining required escrow accounts for payment of real estate taxes
and standard hazard insurance; determining the adequacy of standard hazard
insurance; advising investors of delinquent loans; conducting foreclosure
proceedings, and inspecting and reporting on the physical condition of the
mortgaged properties securing the mortgage loans; and disposing of foreclosed
properties. The Company is generally obligated to advance interest on delinquent
loans to the secondary market investors at the applicable pass-through rate
until satisfaction of the note, liquidation of the mortgaged property or charge
off of the loan. To the extent that the amount recovered through liquidation of
collateral is insufficient to cover the unpaid balance of the loan, the Company
incurs a loss until such losses aggregate the limit specified in the related
loan sale agreement. In connection with its servicing activities, the Company
sends to borrowers payment coupon books that specify the fixed payment amount
and due date in the case of fixed-rate home equity loans and the adjusted
payment amount and due date in the case of adjustable-rate home equity loans and
the late payment amount, if any. Due dates for payments generally occur on the
first day of the calendar month. With respect to adjustable-rate home equity
loans, the Company provides written notices to borrowers of upcoming rate
adjustments along with new payment coupon books reflecting the adjusted payment
amounts.
The Company, as master servicer, is required under each loan sale agreement
to service the mortgage loans either directly or through sub-servicers.
Substantially all servicing activities are centralized at the home office.
Under the terms of the sale of UCLIC, servicing of commercial real estate
loans owned by UCLIC and passthrough certificates owned by third parties and
UCLIC which are backed by commercial real estate loans originated by UCLC were
transferred from UCLC to UCLIC at the closing of the sale in July, 1996.
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The contractual balance of loans owned and/or serviced by UCLC,
substantially all of which it originated, were as follows for the dates
indicated:
DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
Owned and serviced:
Home equity.................................. $2,701,481 $1,683,698 $1,125,139
Commercial................................... 251,241 274,413 345,365
Conventional................................. 58,554 74,294 98,277
Manufactured housing......................... 888 -- --
---------- ---------- ----------
Total................................ $3,012,164 $2,032,405 $1,568,781
========== ========== ==========
Total serviced for third party
investors.......................... $2,941,607 $1,988,247 $1,512,567
========== ========== ==========
Owned by the Company:
Home equity.................................. $ 68,852 $ 43,513 $ 54,106
Commercial................................... 479 481 2,020
Conventional................................. 338 163 88
Manufactured housing......................... 888 -- --
---------- ---------- ----------
Total................................ $ 70,557 $ 44,157 $ 56,214
========== ========== ==========
At December 31, 1995, the Company's home equity portfolio of properties
acquired in foreclosure or for which deeds in lieu of foreclosure have been
accepted and held by the Company pending disposition represented approximately
$8.5 million (excluding the allowance for loan losses attributable to these
properties). This amount may include the first mortgage balance, delinquent
first mortgage payments and certain advances made on the property.
When the Company believes that borrowers with existing loans with the
Company are likely to refinance such loans due to interest rate changes, equity
build-up or other reasons, the Company actively attempts to retain such
borrowers through solicitations of such borrowers to refinance with the Company.
Such refinancings generate fee income and servicing income for the Company.
Delinquency and Loss Experience. The following two tables set forth
information relating to delinquency, loan loss and foreclosure experience for
the home equity loan portfolio serviced by the Company (including loans owned by
the Company) as of the dates and for the periods indicated:
DECEMBER 31,
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1995 1994 1993
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Number of home equity loans..................... 69,723 52,289 41,854
Dollar amount of home equity loans.............. $2,701,481 $1,683,698 $1,125,139
Delinquency period(1)
30-59 days.................................... 2.93% 2.40% 2.32%
60-89 days.................................... 0.91% 0.91% 1.02%
90 days and over.............................. 4.31% 4.36% 4.92%
Foreclosed properties(2)
Owned by the Company.......................... 0.31% 0.52% 1.51%
Serviced for third parties.................... 0.80% 0.70% 0.74%
Net write-offs -- for the year ended............ 0.56% 0.84% 0.88%
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(1) The dollar amount of delinquent home equity loans as a percentage of the
total "dollar amount of home equity loans" as of the date indicated.
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(2) Foreclosed property as a percentage of home equity loans serviced.
DECEMBER 31,
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1995 1994 1993
---------- ---------- --------
(IN THOUSANDS)
Average dollar amount of home equity loans
outstanding during period...................... $2,192,590 $1,404,419 $972,294
Net losses
Gross Losses(1)................................ $ 13,818 $ 12,745 $ 9,114
Recoveries(2).................................. $ (1,597) $ (1,051) $ (566)
---------- ---------- --------
Net Losses(3).................................. $ 12,221 $ 11,694 $ 8,548
========== ========== ========
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(1) "Gross Losses" are amounts which have been determined to be uncollectible
relating to home equity loans for each respective period.
(2) "Recoveries" are recoveries from liquidation proceeds and deficiency
judgments.
(3) "Net Losses" means "Gross Losses" minus "Recoveries".
Loans are placed on a nonaccrual status when they are past due 150 days.
The above delinquency and loan loss experience represents the Company's
recent experience. However, the delinquency, foreclosure and net loss
percentages may be affected by the increase in the size and relative lack of
seasoning of a substantial portion of the portfolio. In addition, the Company
can neither quantify the impact of property value declines, if any, on the home
equity loans nor predict whether, to what extent or how long, such declines may
exist. In a period of such declines, the rates of delinquencies, foreclosures
and losses on the home equity loans could be higher than those theretofore
experienced in the mortgage lending industry in general. Adverse economic
conditions (which may or may not affect real property values) may affect the
timely payment by borrowers of scheduled payments of principal and interest on
the home equity loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses. As a result, the information in the above tables should
not be considered as a basis for assessing the likelihood, amount or severity of
delinquencies or losses in the future on home equity loans and no assurance can
be given that the delinquency and loss experience presented in the tables will
be indicative of such experience on home equity loans.
OTHER OPERATIONS
The Company has developed an office park that includes its home office
building, which has approximately 94,000 square feet. In addition to its home
office building completed in 1981, the Company constructed a 200,000 square foot
office building in the park in 1984 at a cost of $12.8 million. This building
was approximately 100% leased at December 31, 1995. During 1990, construction of
a 100,000 square foot office building in the office park was completed by a
partnership in which United Companies Realty and Development Co., Inc. ("UC
Realty"), a wholly-owned subsidiary of the Company, is a general partner. The
office building was 94% leased at December 31, 1995. During 1995, UC Realty
completed construction of a 60,000 square feet office building on property also
located in the office park.
The Company also engages in telecommunications business and property
management with respect to its office park and a homeowners insurance agency,
none of which are material to its operations.
DISCONTINUED OPERATIONS
For a discussion of Discontinued Operations see Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
"Discontinued Operations" and Note 11 in the Notes to Consolidated Financial
Statements.
GOVERNMENT REGULATION AND LEGISLATION
The Company's mortgage operations are subject to extensive regulation,
supervision and licensing by federal and state authorities. Regulated matters
include, without limitation, maximum interest rates and fees which may be
charged by the Company, disclosure in connection with loan originations, credit
reporting
9
10
requirements, servicing requirements, federal and state taxation, and multiple
qualification and licensing requirements for doing business in various
jurisdictions. The Company believes that it maintains all requisite licenses,
permits and approvals and is in compliance in all material respects with
applicable federal and state regulations.
The Company's loan origination activities are subject to the laws and
regulations in each of the states in which those activities are conducted. The
Company's activities as a lender are also subject to various federal laws
including the Truth-in-Lending Act, the Real Estate Settlement Procedures Act,
the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act and the Fair
Credit Reporting Act.
In the course of its business, the Company may acquire properties securing
loans that are in default. There is a risk that hazardous or toxic waste could
be found on such properties. In such event, the Company could be held
responsible for the cost of cleaning up or removing such waste, and such cost
could exceed the value of the underlying properties.
There are currently proposed various laws, rules and regulations which, if
adopted, could impact the Company. There can be no assurance that these proposed
laws, rules and regulations, or other such laws, rules or regulations, will not
be adopted in the future which could make compliance much more difficult or
expensive, restrict the Company's ability to originate, broker or sell loans,
further limit or restrict the amount of commissions, interest and other charges
earned on loans originated or sold by the Company, or otherwise adversely affect
the business or prospects of the Company.
COMPETITION
As a marketer of credit products, the Company faces intense competition.
Traditional competitors in the financial services business include other
mortgage banking companies, commercial banks, credit unions, thrift
institutions, credit card issuers and finance companies. Many of these
competitors in the financial services business are substantially larger and have
more capital and other resources than the Company. Competition can take many
forms including convenience in obtaining a loan, customer service, marketing and
distribution channels and interest rates. In addition, the current level of
gains realized by the Company and its existing competitors on the sale of its
and their non-conventional loans could attract additional competitors into this
market with the possible effect of lowering gains on future loan sales as the
result of increased loan origination competition.
ITEM 2. PROPERTIES
The Company's executive offices are located in its home office building in
Baton Rouge, Louisiana. The Company occupies all of its home office building
which has approximately 94,000 square feet. The executive offices of the
Company's mortgage lending subsidiaries are located at the Company's home office
building and adjacent investment property. At December 31, 1995, the retail
division of the Company's mortgage lending operations were conducted in 39
states from 5 locations owned by the Company in 5 cities and from 145 additional
leased offices in 142 cities. The offices owned or leased range in size from
approximately 600 square feet to 3,200 square feet; leases expire from 1996 to
2001, excluding renewal options. During 1995, aggregate annual rental expense
for leased office space was approximately $5.0 million. Management believes that
the properties are adequately maintained and insured, and satisfactorily meet
the requirements of the business conducted therein.
ITEM 3. LEGAL PROCEEDINGS
The nature of the Company's business is such that it is routinely involved
in litigation and is a party to or subject to other items of pending or
threatened litigation. Although the outcome of certain of these matters cannot
be predicted, management of the Company believes, based upon information
currently available, that the resolution of these various matters will not
result in any material adverse effect on its consolidated financial condition.
The remaining affairs of the Company's subsidiary, Foster Mortgage
Corporation ("FMC"), a discontinued operation, are now being concluded under the
supervision of a bankruptcy court. On December 21, 1993, the institutional
lenders under FMC's primary credit facility (the "FMC Institutional Lenders")
filed a
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petition in the U.S. bankruptcy court to cause the remaining affairs of FMC to
be concluded under the supervision of the bankruptcy court. The FMC
Institutional Lenders filed and the bankruptcy court approved a plan of
liquidation for FMC providing for the appointment of a trustee selected by the
FMC Institutional Lenders. The FMC Institutional Lenders allege that FMC has
certain claims against the Company, including a claim with respect to the
Company's alleged failure to remit all sums due FMC regarding federal income
taxes under a tax agreement among the Company and its subsidiaries, including
FMC, estimated by the FMC Institutional Lenders to range from $2.1 million to
$29 million. FMC and the Company executed, subject to the approval of the
bankruptcy court, a settlement agreement relating to payments between FMC and
the Company in connection with the federal income tax benefits resulting from
FMC's losses and to certain prior intercompany payments between FMC and the
Company. The settlement agreement included a release by FMC in favor of the
Company of any and all claims relating to federal income taxes. The FMC
Institutional Lenders opposed the proposed settlement agreement. At the
conclusion of a hearing on the proposed settlement on August 18, 1994, the
bankruptcy court approved the portion of the settlement providing for a net
payment by the Company of $1.65 million to FMC in satisfaction of the federal
income tax benefits resulting from FMC's losses and the release of any claims
regarding federal income taxes. The bankruptcy court declined to approve the
other portion of the proposed settlement relating to payments received by the
Company from FMC within twelve months of the bankruptcy filing. If the Company
were required to refund such payments, the Company has estimated the potential
additional loss to be $1.9 million, net of tax benefits. The decision of the
bankruptcy court on the settlement was appealed by the FMC Institutional Lenders
to the U.S. District Court which affirmed the bankruptcy court's decision. The
FMC Institutional Lenders then appealed this decision to the U.S. Fifth Circuit
Court of Appeals. In a decision rendered on November 9, 1995, the U.S. Fifth
Circuit Court of Appeals reversed the district court, vacated the settlement
between FMC and the Company and remanded the matter for further proceedings. The
trustee under the plan of liquidation has filed an adversary proceeding in the
bankruptcy proceedings against the Company seeking avoidance of alleged
preferential payments totaling $3.72 million and has also instituted a suit in
federal court against the Company alleging claims under the tax agreement
estimated to range from $2 million to $29 million. Management of the Company
does not believe that any additional amounts are owed by the Company to FMC or
the trustee and intends to vigorously contest the claims which have been brought
against it for such amounts by the trustee under the plan of liquidation. The
Company did not guarantee any debt of FMC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Common Stock Prices and Dividends
The Company's Common Stock is traded on the National Association of
Securities Dealers Automated Quotation System/National Stock Market ("the Nasdaq
Stock Market") under the symbol "UCFC". The following table sets forth for the
periods indicated the high and low sale prices of the Company's Common Stock as
reported on the National Stock Market and the per share cash dividends declared.
All amounts have been adjusted for stock dividends.
SALES PRICES
--------------------- CASH
HIGH LOW DIVIDENDS
------- ------- ---------
1995
First Quarter................................... $18.250 $11.375 $ .05
Second Quarter.................................. 23.375 11.375 .05
Third Quarter(1)................................ 36.750 22.125 .05
Fourth Quarter.................................. 37.375 25.500 .05
-------
Total................................... $ .20
=======
1994
First Quarter................................... $21.821 $17.161 $ .0455
Second Quarter.................................. 19.093 14.320 .0455
Third Quarter................................... 20.116 14.433 .0455
Fourth Quarter (2).............................. 15.911 11.000 .0455
-------
Total................................... $ .1820
=======
- ---------------
(1) On August 23, 1995, the Company announced a 100% Common Stock dividend
payable on October 20, 1995, to stockholders of record on October 9, 1995.
(2) On October 26, 1994, the Company announced a 10% Common Stock dividend
payable on January 10, 1995, to stockholders of record on December 22, 1994.
The Company has declared and paid regular quarterly cash dividends on its
Common Stock since 1974. While the Company intends to continue to pay regular
quarterly cash dividends on its Common Stock, its ability to do so will be
subject to its earnings, financial condition, capital and regulatory
requirements, credit facility restrictions and such other factors as the
Company's Board of Directors may consider relevant. (See Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.)
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
APPROXIMATE NUMBER OF SHAREHOLDERS
TITLE OF CLASS AS OF MARCH 12, 1996
- ------------------------------ ----------------------------------
Common Stock, $2.00 par value 3,084
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below are derived from the Company's
audited Consolidated Financial Statements.
YEAR ENDED DECEMBER 31, (1)(2)
-------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Income Statement Data:
Total revenues................. $ 260,289 $ 182,538 $ 123,876 $ 84,814 $ 86,585
Total expenses................. 157,624 107,544 83,450 68,014 79,165
--------- --------- --------- --------- ---------
Income from continuing
operations before income
taxes....................... 102,665 74,994 40,426 16,800 7,420
Provision for income taxes..... 37,740 26,298 13,751 6,164 2,965
--------- --------- --------- --------- ---------
Income from continuing
operations.................. 64,925 48,696 26,675 10,636 4,455
Income (loss) from discontinued
operations.................. 4,543 838 (15,100) (390) 7,021
--------- --------- --------- --------- ---------
Net income............. $ 69,468 $ 49,534 $ 11,575 $ 10,246 $ 11,476
========= ========= ========= ========= =========
Per Share Data (3):
Primary:
Income from continuing
operations................ $ 2.13 $ 1.71 $ 1.19 $ .54 $ .23
Income (loss) from
discontinued operations... .15 .03 (.68) (.02) .35
--------- --------- --------- --------- ---------
Net income............. $ 2.28 $ 1.74 $ .51 $ .52 $ .58
========= ========= ========= ========= =========
Fully Diluted:
Income from continuing
operations................ $ 2.10 $ 1.71 $ 1.13 $ .54 $ .23
Income (loss) from
discontinued operations... .15 .03 (.64) (.02) .35
--------- --------- --------- --------- ---------
Net income............. $ 2.25 $ 1.74 $ .49 $ .52 $ .58
========= ========= ========= ========= =========
Weighted average shares
outstanding
Primary..................... 30,501 28,490 22,208 19,834 19,766
Fully diluted............... 30,903 28,490 23,706 19,834 19,766
Cash dividends................. $ .20 $ .1818 $ .1546 $ .1364 $ .1278
Stockholders' equity --
year end.................... $ 12.52 $ 7.38 $ 5.73 $ 4.85 $ 4.47
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YEAR ENDED DECEMBER 31
-------------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Balance Sheet Data -- Year End:
Temporary
investments -- reserve
accounts.................... $ 155,254 $ 81,980 $ 27,672 $ 7,627 $ --
Loans.......................... 74,877 51,598 66,417 70,067 87,510
Capitalized excess servicing
income...................... 280,985 174,031 105,907 60,678 41,070
Total assets................... 760,184 514,197 389,499 323,001 311,964
Notes payable.................. 265,756 223,668 165,500 191,100 182,000
Total liabilities.............. 407,710 312,112 236,132 226,744 223,529
Stockholders' equity........... 352,474 202,085 153,368 96,258 88,434
Other Data:
Total loan production.......... $1,563,537 $ 913,319 $ 545,229 $ 321,198 $ 328,184
Home equity loan production.... 1,541,537 908,821 539,868 301,234 253,613
Average home equity loan
size........................ 49 41 39 28 24
Home equity loans
serviced -- year end........ 2,701,481 1,683,698 1,125,139 819,448 703,922
Total loans serviced --
year end.................... 3,012,164 2,032,405 1,568,781 1,367,822 1,344,388
Average coupon on home equity
loans produced.............. 11.6% 11.7% 11.8% 13.4% N/A
Loan origination fees as % of
home equity loans........... 4.4% 5.9% 7.0% 7.9% 8.2%
Weighted average interest
spread retained on home
equity loans sold........... 4.98% 4.49% 6.06% 4.56% 4.42%
- ---------------
(1) On July 24, 1996, the Company sold 100% of the capital stock of its
wholly-owned life insurance subsidiary, United Companies Life Insurance
Company ("UCLIC") and on February 29, 1996, the Company sold 100% of the
capital stock of its wholly-owned title insurance subsidiary, United General
Title Insurance Company ("UGTIC"). Previously, on May 7, 1993, the Company
announced its decision to dispose of the net assets and operations of Foster
Mortgage Corporation ("FMC"), a wholly-owned subsidiary of the Company. The
operations of UCLIC, UGTIC and FMC have been reclassified as discontinued
operations and the prior years' financial statements of the Company included
herewith have been restated accordingly.
(2) During the third quarter of 1995, the Company implemented, on a prospective
basis, the provisions of FASB Statement of Financial Accounting Standards
No. 122 ("SFAS 122") which revised the method of accounting for mortgage
servicing rights on loans originated by the Company. SFAS requires that a
mortgage banking enterprise recognize as separate assets rights to service
mortgage loans for others that have been acquired through either the
purchase or origination of such loans. Prior to the adoption of SFAS 122,
the Company recognized late charges and other ancillary income when
collected and charged costs to service mortgage loans when incurred. Net
income for 1995 was increased by $3.9 million or $.13 per share on a fully
diluted basis as the result of the Company's implementation of SFAS 122. The
amount capitalized is included in "Other assets".
(3) All share and per share data have been adjusted to reflect stock dividends.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis should be read in conjunction with the Company's
Consolidated Financial Statements and accompanying Notes presented elsewhere
herein.
The following summary identifies the major factors which influenced the
results of operations of the Company's primary operating divisions during the
indicated periods.
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15
The Company's mortgage operations primarily consist of the production (by
origination or purchase), sale and servicing of first mortgage,
non-conventional, home equity loans. In the fourth quarter of 1995, the Company
expanded its lending operations to include additional manufactured housing loan
products. Fundamental to the profitability and funding of the Company's mortgage
operations is the sale of loans with servicing rights retained. The majority of
the revenue of the mortgage segment is derived from gain recognized on the sale
of loans and the recognition of net loan fees at the time of sale of the loans.
Net loan fees on loans owned by the Company are recognized over the lives of the
loans.
Prior to 1991, the Company had either held the home equity loans it
originated in its own portfolio or sold them to financial institutions. Since
the fourth quarter of 1991, the Company has pooled and sold large numbers of
loans in mortgage-backed securitization transactions. In late 1991 and 1992,
this was accomplished primarily through private placement transactions. In 1993,
the Company began selling its loans in public securitization transactions
through its own shelf registration statement and sold publicly $1.5 billion,
$973 million and $451 million of home equity loans during 1995, 1994 and 1993,
respectively.
The Company's mortgage operations are interest rate sensitive and,
therefore, fluctuations in and the level of interest rates can have a variety of
effects on the Company's profitability. In particular, significant changes in
interest rates may impact the volume of loans produced, and will influence the
funding costs of such production and the amount of gain recognized on loans sold
in the secondary market. During periods of declining interest rates the mortgage
operations will generally experience an increase in profitability as the
interest spread should widen both on loans held by the Company as an investment
and on loans sold in the secondary market.
During 1993, the positive effect on income of the mortgage operations
resulted primarily from a wider interest margin retained on loans sold than
experienced in 1994 and 1995. The weighted average interest spread on loans sold
to third parties (the difference between the stated rate on the loan and the
rate paid to purchasers, less recurring fees) was 6.06% in 1993, declined to
4.49% in 1994 and increased to 4.98% in 1995 due to changes in the interest rate
environment. The weighted average interest spread on loans sold is determined
without regard to credit losses, which are provided for separately by the
Company. The lower interest spread on loans sold during 1994 and 1995 was
somewhat offset by an increased volume of loans produced and sold.
Although historically a lower interest rate environment has not resulted in
a significant increase in the level of prepayment of loans originated and
serviced by the Company, a significant and sustained reduction in interest rates
could cause prepayments to increase, and thereby result in a contraction of the
amount of loans owned and serviced and an accelerated amortization of
capitalized excess servicing income. Increased prepayments reduce the time
period during which the Company receives excess servicing income and other
servicing income with respect to prepaid loans. Increased amortization of
capitalized excess servicing income is a current charge to earnings. Likewise,
if delinquencies or liquidations were to occur sooner in the portfolio of loans
sold by the Company and/or with greater frequency than was initially assumed,
capitalized excess servicing income amortization would occur more quickly than
originally anticipated, which would have an adverse effect on servicing income
in the period of such adjustment. In contrast, an increase in the level of
interest rates for an extended period of time could adversely affect the ability
of the Company to originate loans, as well as the profitability of the loan
origination program, by increasing the cost of funding and reducing the interest
spread on loans retained and loans sold. If actual prepayments with respect to
loans sold occur more slowly than estimated at the time of sale, total income
would exceed previously estimated amounts; however, no adjustments would be made
to capitalized excess servicing income on the Company's consolidated balance
sheet as such income would be recognized prospectively. (For further discussion
of loan sale gains and capitalized excess servicing income see Note 1.2 to Notes
to the Consolidated Financial Statements.)
DISCONTINUED OPERATIONS
United Companies Life Insurance Company
On February 2, 1996, the Company signed an agreement to sell all of the
outstanding capital stock of its wholly-owned life insurance subsidiary, United
Companies Life Insurance Company ("UCLIC"), subject to approval by the Company's
shareholders, regulatory authorities and the satisfaction of certain other
conditions. In June, 1996, the Company's shareholders approved the sale, and in
July, 1996, regulatory approval was
15
16
obtained and the remaining conditions to closing the transaction were satisfied.
The sale was concluded on July 24, 1996. The sales price of $167.6 was comprised
of approximately $110 million in cash (including a $10 million cash dividend
paid by UCLIC immediately prior to the closing) and UCLIC real estate and other
assets which were distributed to the Company prior to the closing. The real
estate distributed includes portions of the United Plaza office park, including
the Company's home office. In addition, the company purchased a convertible
promissory note from PennCorp Financial Group, Inc. ("PennCorp"), the parent of
the purchaser, for $15 million in cash and converted the note into 483,839
shares of the common stock of PennCorp. The Company recorded a net loss of $6.8
million on the transaction. As a result of the sale, the assets (including $67
million of assets transferred to the Company by UCLIC immediately prior to
closing) and the operations of UCLIC have been classified as discontinued
operations.
UCLIC, domiciled in Louisiana and organized in 1955, is currently
authorized to conduct business in 47 states, the District of Columbia and Puerto
Rico. The primary products of UCLIC are deferred annuities marketed on a
commission basis principally through financial institutions and independent
general agents and are generally sold to middle income customers seeking tax
deferred insurance products, primarily to provide savings for retirement. During
the fourth quarter of 1995, UCLIC added variable annuities to its product line.
At December 31, 1995, the invested assets of UCLIC consisted of $1.1
billion in investment grade fixed maturity securities (at amortized cost), $169
million of residential first mortgage loans and $170 million of commercial
mortgage loans. At December 31, 1995, the weighted average rating of its
publicly traded bond portfolio was "AA", the assets allocated to investments in
mortgage-backed securities were $778 million and the amount of non-investment
grade bonds in the portfolio was $22 million or 1.9% of the portfolio. During
1995, the net interest spread on the Company's annuity business was 2.37%
compared to 2.73% during 1994.
Reserves for annuity policies constitute the Company's primary liabilities.
At December 31, 1995 total annuity reserves were $1.4 billion. The duration of
these liabilities is affected by a number of factors, including interest rates,
surrender penalties, ratings, public confidence in the insurance industry
generally and in the Company specifically, governmental regulations and tax
laws. Since insurance commissions incurred at the origination of annuity
policies are generally deferred and recognized over the estimated life of the
policies, any unexpected increase in surrenders of annuity contracts would
require more rapid recognition of these expenses, thereby adversely impacting
profitability.
During 1995, 1994 and 1993 revenues of UCLIC were $144.5 million, $138.1
million and $140.2 million, respectively, and net income (loss) of UCLIC was
$8.0 million, $5.9 million and $(8.3) million, respectively. The loss incurred
in 1993 was primarily the result of a $9.9 million loss on its investment in
Foster Mortgage Corporation discussed below.
United General Title Insurance Company.
On April 10, 1995, the Company made a decision to dispose of its investment
in United General Title Insurance Company ("UGTIC"), a wholly owned subsidiary
of the Company, and, on May 1, 1995, approved a formal plan of disposal. The
decision to dispose of UGTIC was independent of the consummation of the sale
thereof pursuant to the definitive stock sale agreement signed on August 11,
1995. As a result, the operations of UGTIC have been classified as discontinued
operations, and, accordingly, the consolidated financial statements and the
related notes of the Company segregate continuing and discontinued operations.
The sale was concluded on February 29, 1996.
The definitive stock sale agreement provided for the sale of 100% of the
stock of UGTIC and contains a provision making the Company liable to UGTIC for
claims from defalcations and fraud losses incurred by UGTIC which are unknown
and occur prior to closing and are discovered within 24 months thereafter. The
Company is also liable, up to $4.2 million, for policy claims paid over a ten
year period after closing that exceed certain specified levels. The Company
recorded a loss from discontinued operations (net of income tax benefit) of $3.5
million in 1995 in connection with the sale of UGTIC.
UGTIC was formed in 1983 in part to compliment the Company's mortgage
operations; however, underwriting of affiliated transactions represented only
approximately 3% of UGTIC's business in 1994 and 1995. At December 31, 1995
UGTIC was licensed in 29 states, was represented by approximately 948
independent general agents and had no direct operations. Key markets for UGTIC
are Colorado, Louisiana, Florida and California. During 1995, 1994 and 1993,
title insurance premiums were $37.0 million, $44.7 mil-
16
17
lion and $24.4 million, respectively. During 1995 and 1994, UGTIC experienced a
net loss of $2.0 million and $5.0 million, respectively, compared to net income
of $.8 million in 1993. Operations in 1994 suffered severely as the result of
claims related to agency defalcations. In addition to the incurred losses, the
profitability of UGTIC in 1994 was negatively impacted by a $3.8 million
increase in its reserve for policy losses.
Foster Mortgage Corporation
On May 7, 1993, the Company decided to divest its subsidiary Foster
Mortgage Corporation ("FMC"). As of November 30, 1993, the servicing rights
owned by FMC, which constituted substantially all of its assets, were sold. On
December 21, 1993, the institutional lenders under FMC's primary credit facility
(the "FMC Institutional Lenders") filed a petition in the U.S. bankruptcy court
to cause the remaining affairs of FMC to be concluded under the supervision of
the bankruptcy court. The FMC Institutional Lenders filed and the bankruptcy
court approved a plan of liquidation for FMC providing for the appointment of a
trustee selected by the FMC Institutional Lenders. The FMC Institutional Lenders
allege that FMC has certain claims against the Company, including a claim with
respect to the Company's alleged failure to remit all sums due FMC regarding
federal income taxes under a tax agreement among the Company and its
subsidiaries, including FMC, estimated by the FMC Institutional Lenders to range
from $2.1 million to $29 million. FMC and the Company executed, subject to the
approval of the bankruptcy court, a settlement agreement relating to payments
between FMC and the Company in connection with the federal income tax benefits
resulting from FMC's losses and to certain prior intercompany payments between
FMC and the Company. The settlement agreement included a release by FMC in favor
of the Company of any and all claims relating to federal income taxes. The FMC
Institutional Lenders opposed the proposed settlement agreement. At the
conclusion of a hearing on the proposed settlement on August 18, 1994, the
bankruptcy court approved the portion of the settlement providing for a net
payment by the Company of $1.65 million to FMC in satisfaction of the federal
income tax benefits resulting from FMC's losses and the release of any claims
regarding federal income taxes. The bankruptcy court declined to approve the
other portion of the proposed settlement relating to payments received by the
Company from FMC within twelve months of the bankruptcy filing. If the Company
were required to refund such payments, the Company has estimated the potential
additional loss to be $1.9 million, net of tax benefits. The decision of the
bankruptcy court on the settlement was appealed by the FMC Institutional Lenders
to the U.S. District Court which affirmed the bankruptcy court's decision. The
FMC Institutional Lenders then appealed this decision to the U.S. Fifth Circuit
Court of Appeals. In a decision rendered on November 9, 1995, the U.S. Fifth
Circuit Court of Appeals reversed the district court, vacated the settlement
between FMC and the Company and remanded the matter for further proceedings. The
trustee under the plan of liquidation has filed an adversary proceeding in the
bankruptcy proceedings against the Company seeking avoidance of alleged
preferential payments totaling $3.72 million and has also instituted a suit in
federal court against the Company alleging claims under the tax agreement
estimated to range from $2 million to $29 million. Management of the Company
does not believe that any additional amounts are owed by the Company to FMC or
the trustee and intends to vigorously contest the claims which have been brought
against it for such amounts by the trustee under the plan of liquidation. The
Company did not guarantee any debt of FMC.
1995, 1994 AND 1993 RESULTS OF OPERATION
Net income for 1995 was $69.5 million ($2.25 per share based on 30.9
million weighted average shares outstanding) compared to $49.5 million for 1994
($1.74 per share based on 28.5 million weighted average shares outstanding) and
$11.6 million for 1993 ($.49 per share based on 23.7 million weighted average
shares outstanding). The increase in net income in 1995 resulted primarily from
an increase in the amount of loans sold and the gain and fees recognized in
connection therewith. As previously discussed in "Discontinued operations", net
income for 1995, 1994 and 1993 was reduced by losses of $3.5 million, $5.0
million and $16.7 million recognized in connection with the Company's decisions
to divest United General Title Insurance Company and Foster Mortgage Corporation
and increased by income of United Companies Life Insurance Company which totaled
$8.0 million, $5.9 million and $1.6 million (excluding the loss in 1993 incurred
on its investment in FMC.)
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Revenues. The following table sets forth information regarding the
components of the Company's revenues for the years ended December 31, 1995, 1994
and 1993.
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
Loan sale gains..................................... $142,156 $ 86,735 $ 59,441
Finance income, fees earned and other loan income... 105,398 89,172 60,280
Investment income................................... 7,403 2,963 1,408
Other............................................... 5,332 3,668 2,747
-------- -------- --------
Total..................................... $260,289 $182,538 $123,876
======== ======== ========
Loan sale gains were $142.2 million, $86.7 million and $59.4 million in
1995, 1994 and 1993, respectively. Loan sale gains approximate the present value
for the estimated lives of the loans of the excess of the contractual rates on
the loans sold over the sum of the pass-through rate paid to the buyer, a normal
servicing fee, a trustee fee, a surety bond fee, if any, in mortgage-backed
securitization transactions and an estimate of future credit losses. The
increase in the amount of loan sale gains was due primarily to a $494 million
and a $515 million increase in the amount of loans sold during 1995 and 1994,
respectively. Excess servicing income retained by the Company (i.e., the stated
interest rate on the loan less the pass-through rate and the normal servicing
fee and other applicable recurring fees) decreased in 1994 compared to 1993 but
increased in 1995 compared to 1994. Interest spread retained by the Company on
loans sold includes the normal servicing fee. During 1994, guidelines were
established which defined an industry accepted "normal servicing fee" as 50
basis points for servicing "B" and "C" quality home equity loans, such as those
originated by the Company. As the result of this industry data, the Company,
effective July 1, 1994, implemented a servicing fee rate in its loan
securitization transactions of 50 basis points. This resulted in an increase in
the amount of loan sale gain recognized on the home equity loans sold compared
to previous securitization transactions which included a servicing fee rate of
75 basis points. In addition, as further discussed in Note 1.8, during the third
quarter of 1995, the Company implemented a new accounting pronouncement related
to mortgage servicing rights on loans originated by the Company. The
implementation of the pronouncement increased loan sale gains by approximately
$6.0 million during 1995. Loan sale gains during 1995 were reduced by the use of
higher prepayment assumptions, primarily related to adjustable rate mortgage
loans, in calculating the gain on sale of loans compared to prior years. The
impact of the change in assumptions reduced loan sale gains by approximately
$12.4 million. In addition, loan sale gains during 1995 were reduced by
approximately $5.5 million as the result of the utilization of interest hedge
mechanisms to protect the Company against an increase in market interest rates
on the pass-through certificates sold in the second quarter of 1995
securitization transaction. The reduction in income resulted from a decline in
interest rates prior to the pricing of this securitization transaction.
The following table presents information regarding home equity loan sale
transactions for the periods indicated.
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---------- -------- --------
(DOLLARS IN THOUSANDS)
Home equity loans sold............................. $1,471,868 $977,653 $462,873
Average coupon on home equity loans sold........... 11.67% 11.80% 12.00%
Weighted interest spread retained on home equity
loans sold....................................... 4.98% 4.49% 6.06%
Home equity loan sale gains........................ $ 142,156 $ 86,735 $ 59,441
Fluctuations in and the level of market interest rates will impact the
interest spread retained by the Company on loans sold, and, potentially, the
amount of its loan sale gains. An increase in the level of market interest rates
will generally adversely affect the interest spread on loans sold, whereas such
interest spread generally widens during a declining interest rate environment.
The effect of actions which may be taken by the Company during a rising interest
rate environment to mitigate the impact on earnings of fluctuations in market
rates, such as increasing the coupon rate charged on its loan products, will
generally lag the impact of market
18
19
rate fluctuations. In connection with loan securitization transactions, the
Company has used a prefunding feature which "locks in" the pass-through rate
that the Company will pay to the investor on a predetermined amount of loans for
future delivery. The Company is obligated for the difference between the
earnings on the prefunded amount and the pass-through interest paid to the
investor during the period from the date of the closing of the securitization
transaction until the date of delivery of the loans. In connection with the home
equity loan securitization transaction which closed in the fourth quarter of
1995, approximately $3.7 million was held in a prefunding account for purchase
of the Company's home equity loans during the first quarter of 1996. Pursuant
thereto, home equity loans with a remaining principal balance of approximately
$3.7 million were delivered on January 10, 1996.
Finance income, fees earned and other loan income is comprised of the
following items:
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
Servicing fees earned................................ $ 89,410 $ 62,807 $ 39,885
Loan origination fees................................ 68,442 56,576 35,987
Mortgage loan interest............................... 6,475 685 493
Other loan income.................................... 11,339 7,347 4,724
Amortization......................................... (70,268) (38,243) (20,809)
-------- -------- --------
Total...................................... $105,398 $ 89,172 $ 60,280
======== ======== ========
The average portfolio of loans serviced for third party investors was $2.5
billion, $1.8 billion and $1.4 billion for 1995, 1994 and 1993, respectively. As
discussed above, the industry accepted "normal servicing fee" was defined during
the second quarter of 1994 as 50 basis points. Effective July 1, 1994, the
Company reduced its estimate of normal servicing fee and began using 50 basis
points in computing loan sale gains. The reduction in the normal servicing fee
for home equity loans from 75 to 50 basis points has the impact of increasing
current revenues (loan sale gains) while reducing future revenues (servicing
fees earned).
Loan origination fees in excess of direct origination costs on each loan
held by the Company are recognized over the life of the loan or earlier at the
time of sale of the loan to a third party. During 1995, 1994 and 1993, the
Company sold approximately $1.5 billion, $978 million and $463 million,
respectively, in home equity loans and recognized approximately $36.0 million,
$32.5 million and $18.9 million, respectively, in net loan origination fees
(which relate primarily to fixed rate retail production) in connection with
these sales.
The Company estimates that nonaccrual loans reduced mortgage loan interest
for 1995, 1994 and 1993 by approximately $13.3 million, $10.3 million and $9.5
million; respectively. During 1995 the average amount of nonaccrual loans owned
by the Company was $21.6 million compared to $25.5 million for 1994 and $31.7
million for 1993. In addition, the average balance of loans serviced for third
parties which were on a nonaccrual basis on in foreclosure was $83.1 million
during 1995, compared to $55.6 million and $43.4 million during 1994 and 1993,
respectively, representing 3.9%, 4.1% and 4.5%, respectively, of the average
amount of loans serviced for third parties. The Company is generally obligated
to advance interest on delinquent loans to the investor or holder of the
mortgage-backed security, as the case may be, at the pass-through rate until
satisfaction of the note, liquidation of the collateral or charge off of the
delinquent loan.
Other loan income primarily includes insurance commissions and ancillary
loan income.
Amortization of capitalized excess servicing income in 1995 was negatively
affected by a $6.3 million increase in the amortization of capitalized excess
servicing income as the result of an adjustment in the estimated prepayment
assumptions of certain mortgage loans serviced by the Company, primarily
adjustable rate mortgage loans.
Investment income totaled $7.4 million for 1995 compared to investment
income of $3.0 million and $1.4 million during 1994 and 1993, respectively.
Investment income is primarily related to interest earned on temporary
investments reserve accounts.
19
20
Other income relates to income earned by the Company's telecommunications
business and property management with respect to its office park and overhead
reimbursement from discontinued operations prior to their disposition.
Expenses. The following table presents the components of the Company's
expenses for the periods indicated.
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
Personnel............................................ $ 70,762 $ 52,421 $36,906
Interest............................................. 25,559 13,362 9,881
Loan loss provision.................................. 11,973 8,398 12,349
Other operating...................................... 49,330 33,363 24,314
-------- -------- -------
Total...................................... $157,624 $107,544 $83,450
======== ======== =======
Personnel expenses were $70.8 million, $52.4 million and $36.9 million in
1995, 1994 and 1993, respectively. The increase in personnel costs are primarily
associated with the expansion of the Company's mortgage operations, including
start-up costs for the manufactured housing lending program, loan production
related incentives and an increase in the cost of the Company's employee benefit
and incentive plans.
The Company's loan loss provision on owned loans and loans serviced for
third party investors was $29.3 million, $22.3 million and $18.3 million in
1995, 1994 and 1993, respectively. The Company's loan sale agreements generally
provide for the subordination of cash and excess interest spread relating to the
loans sold. Such subordination relates to credit losses which may occur after
the sale of the loans and continues until the earlier of the payment in full of
the loans or the termination of the agreement pursuant to which the loans were
sold. On certain loan sale transactions prior to 1991, the loan sale agreements
provided limited recourse against the Company for credit losses. Regardless of
the structure of the loan sale transaction, the Company estimates the amount of
future losses under the loan sale agreements and provides a reserve for such
loss by reducing the amount of loan sale gain recognized. For estimated losses
on the Company's owned portfolio, the Company establishes an allowance for loan
losses through a charge to earnings.
Interest expense for 1995 increased approximately $12.2 million compared to
1994 primarily as the result of an increase in the weighted average interest
rate charged on debt and an increase in the average amount of debt outstanding.
The $3.5 million increase in interest expense from 1993 to 1994 was likewise
attributed to an increase in the weighted average interest rate charged on debt.
Other operating expenses increased approximately $16.0 million and $9.0
million during 1995 and 1994, respectively, primarily as the result of costs
associated with the expansion of the Company's mortgage operations. During 1995,
1994 and 1993, advertising expense totaled $9.0 million, $3.1 million and $.8
million and occupancy and equipment expenses were $10.9 million, $8.0 million
and $6.8 million, respectively. Other operating expenses in 1993 included a $2.3
million accrual for the estimated cost of a legal settlement.
ASSET QUALITY AND RESERVES
The quality of the Company's loan portfolio and of the loan portfolio
serviced for third parties significantly affects the profitability of the
Company. The values of and markets for these assets are dependent on a number of
factors, including general economic conditions, interest rates and governmental
regulations. Adverse changes in such factors, which become more pronounced in
periods of economic decline, may affect the quality of these assets and the
Company's resulting ability to sell these assets for acceptable prices. General
economic deterioration can result in increased delinquencies on existing loans
and reductions in collateral values.
Substantially all of the loans owned by the Company were produced through
the Company's branch (i.e., retail) network or wholesale loan programs. In
connection with its origination of home equity loans, the Company relies on
specified underwriting and credit review procedures, a mortgage on the
borrower's residence and, in some cases, other security, and, in its retail
origination program, contact with borrowers through its branch office system to
manage credit risk on its loans. In addition to servicing the loans owned by
20
21
the Company, the mortgage division serviced approximately $2.9 billion in loans
for third parties at December 31, 1995, $2.6 billion of which are home equity
loans. Substantially all of the home equity loans serviced for third parties
were publicly sold as mortgage backed securities ("pass-through certificates").
The purchasers of the pass-through certificates receive a credit enhanced
security which is achieved in part through a guaranty provided by a third party
insurer and by subordinating the excess interest spread retained by the Company
to the payment of scheduled principal and interest on the certificates. The
Company has, from time to time, used the Financial Guaranty Insurance Company
("FGIC") and MBIA Insurance Corporation ("MBIA") as third party insurers. The
subordination of the excess interest spread retained by the Company relates to
credit losses which may occur after the sale of the loans and continues until
the earlier of the payment in full of the loans or termination of the agreement
pursuant to which the loans were sold. If cumulative payment defaults exceed the
amount subordinated, the third party insurer is obligated to pay any further
losses experienced by the owners of the pass-through certificates.
The Company is also obligated to cure, repurchase or replace loans which
may be determined after the sale to violate representations and warranties
relating to them and which are made by the Company at the time of the sale. The
Company regularly evaluates the quality of the loan portfolio and estimates its
risk of loss based upon historical loss experience, prevailing economic
conditions, estimated collateral value and such other factors which, in
management's judgment, are relevant in estimating the credit risk in owned
and/or serviced loans. Estimated losses on the owned portfolio are provided for
by an increase in the allowance for loan losses through a charge to current
operating income. At December 31, 1995, the Company's allowance for loan losses
for loans owned was $2.1 million. For loans sold, the Company reduces the amount
of gain recognized on the sale by the estimated amount of credit losses, and
also records such amount on its balance sheet in the allowance for loan losses
which, at December 31, 1995, included an allowance of $49.3 million for
estimated future losses on loans serviced. The maximum recourse associated with
sales of home equity loans according to terms of the loan sale agreements
totaled approximately $475 million, of which amount approximately $466 million
relates to the subordinated cash and excess interest spread. Should credit
losses on loans sold materially exceed the Company's estimates for such losses,
such consequence will have a material adverse impact on the Company's financial
statements.
21
22
At December 31, 1995, the contractual balance of loans serviced was
approximately $3.0 billion comprised of approximately $70 million serviced for
the Company and approximately $2.9 billion serviced for investors. The portfolio
is geographically diversified. Although the Company services loans in 48 states,
at December 31, 1995 a substantial portion of the loans serviced were originated
in Florida (10.5%), Ohio (10.0%) and Louisiana (8.8%), respectively, and no
other state accounted for more than 7.5% of the serviced portfolio. Included in
the serviced portfolio are commercial loans originated by the Company, a
substantial portion of which were originated in Florida (25.9%), Georgia (19.4%)
and Colorado (10.9%) and no other state accounted for more than 8.0% of the
commercial loans serviced. The risk inherent in such concentrations is dependent
not only upon regional and general economic stability which affects property
values, but also the financial well-being and creditworthiness of the borrower.
The following table provides a summary of loans owned and/or serviced which are
past due 30 days or more, foreclosed properties and loans charged off as of the
dates indicated.
FORECLOSED PROPERTIES
-----------------------
CONTRACTUAL DELINQUENCIES % OF OWNED SERVICED FOR NET LOANS % OF
BALANCE CONTRACTUAL CONTRACTUAL BY THE THIRD PARTY CHARGED AVERAGE
YEAR ENDED OF LOANS BALANCE BALANCE COMPANY INVESTORS OFF LOANS
- ------------------------------ ----------- ------------ ----------- ------- ------------ --------- -------
(DOLLARS IN THOUSANDS)
December 31, 1995
Home equity................. $2,701,481 $220,145 8.15% $8,469 $ 21,604 $12,221 0.56%
Commercial.................. 251,241 4,518 1.80% 2,982 18,890 -- --
Conventional................ 58,554 2,734 4.67% -- -- 51 --
Manufactured housing........ 888 -- -- -- -- -- --
---------- -------- ------- ------- -------
Total................. $3,012,164 $227,397 7.55% $11,451 $ 40,494 $12,272
========== ======== ======= ======= =======
December 31, 1994
Home equity................. $1,683,698 $129,203 7.67% $8,791 $ 11,837 $11,694 0.84%
Commercial.................. 274,413 5,377 1.96% 2,943 27,972 -- --
Conventional................ 74,294 2,672 3.60% -- 35 92 --
---------- -------- ------- ------- -------
Total................. $2,032,405 $137,252 6.75% $11,734 $ 39,844 $11,786
========== ======== ======= ======= =======
December 31, 1993
Home equity................. $1,125,139 $ 92,974 8.26% $17,014 $ 8,355 $ 8,548 0.88%
Commercial.................. 345,365 19,292 5.59% 1,952 28,194 144 0.95%
Conventional................ 98,277 3,747 3.81% -- 148 (3) 0.09%
---------- -------- ------- ------- -------
Total................. $1,568,781 $116,013 7.40% $18,966 $ 36,697 $ 8,689
========== ======== ======= ======= =======
In connection with the sale of UCLIC discussed above in "Discontinued
Operations", the servicing of substantially all of the commercial real estate
mortgage loans and commercial pass through certificates was transferred to
UCLIC. Prior to this transfer of servicing the Company serviced these loans and
pass through certificates without recourse.
Management continues to focus on reducing the level of non-earning assets
owned and/or serviced by expediting the foreclosure process. The balance of
foreclosed home equity loans owned and/or serviced as a percentage of the home
equity loans owned and/or serviced was 1.1%, 1.2% and 2.3% at December 31, 1995,
1994 and 1993, respectively.
The above delinquency and loan loss experience represents the Company's
recent experience. However, the delinquency, foreclosure and net loss
percentages may be affected by the increase in the size and relative lack of
seasoning of a substantial portion of the portfolio. In addition, the Company
can neither quantify the impact of property value declines, if any, on the home
equity loans nor predict whether to what extent or how long such declines may
exist. In a period of such declines, the rates of delinquencies, foreclosures
and losses on the home equity loans could be higher than those theretofore
experienced in the mortgage lending industry in general. Adverse economic
conditions (which may or may not affect real property values) may affect the
timely payment by borrowers of scheduled payments of principal and interest on
the home equity loans and, accordingly, the actual rates of delinquencies,
foreclosures and losses. As a result, the information in the above tables should
not be considered as a basis for assessing the likelihood, amount or severity of
delinquencies or losses in the future on home equity loans and no assurance can
be given that the delinquency and loss experience presented in the tables will
be indicative of such experience on home equity loans.
22
23
A summary analysis of the changes in the Company's allowance for loan
losses is shown in Note 3.3 of the Notes to the Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements consist of funding loan
production in its mortgage operations. The Company's mortgage operations require
continued access to short and long-term sources of debt financing and the sale
of loans and asset-backed securities.
Prior to 1994, the Company's primary debt facility was a revolving credit
facility (the "Bank Facility") dated as of October 11, 1988. On November 2, 1994
the Company publicly sold $125 million of its senior unsecured notes and used
the net proceeds from the sale of the senior notes to repay a portion of the
principal amount of the indebtedness outstanding under the Bank Facility. During
1995, the Company publicly sold $100 million of its senior unsecured notes and
used a portion of the net proceeds from the sale of the senior notes to repay
the remaining balance outstanding under the Bank Facility, which was scheduled
to mature on December 31, 1996. The remainder of the proceeds were used for
general corporate purposes. The Company terminated the Bank Facility effective
July 25, 1995. In addition, the Company maintains short-term credit facilities
with various financial institutions. As of December 31, 1995, $65 million in
such credit facilities were available to the Company and no amounts were
outstanding thereunder.
During 1995, the Company sold 1,955,000 shares of its Preferred Redeemable
Increased Dividend Equity Securities(SM), 6 3/4% PRIDES, Convertible Preferred
Stock ("PRIDES ") at a price per share of $44.00. Net proceeds to the Company
were approximately $83.3 million. The net proceeds from the sale of the shares
of PRIDES were used for general corporate purposes.
At December 31, 1995, the Company had secured warehouse facilities
available from (i) a syndicate of commercial banks (the "Commercial Bank
Warehouse") and (ii) the investment bank that acted as lead underwriter for the
Company's fourth quarter securitization (the "Investment Bank Warehouse"). The
Commercial Bank Warehouse initially permitted certain of the Company's mortgage
lending subsidiaries to borrow up to $150 million on a revolving basis secured
by home equity loans eligible thereunder. The facility was increased to $350
million in June, 1996. Loans under this facility are subject to the satisfaction
of certain borrowing conditions, including a minimum borrowing base and will
bear interest at a floating rate. Borrowings under this facility are required to
be repaid from the proceeds of the sale or other disposition of the home equity
loan collateral. The lenders' commitment under this facility is scheduled to
terminate in 1998. At December 31, 1995, $19.3 million was outstanding under the
Commercial Bank Warehouse.
The Investment Bank Warehouse was directly related to the 1995 fourth
quarter securitization and initially provided funding for up to $250 million of
eligible home equity loans for such securitization and terminated with the
closing of the last delivery of loans under the prefunding accounts relative to
this securitization. As of December 31, 1995, $75 million was available and no
amounts were outstanding under the Investment Bank Warehouse. The Company
expects to have facilities similar to the Investment Bank Warehouse available in
conjunction with its future securitizations.
In addition to the facilities discussed above, UCLIC has historically
purchased loans from UCLC as a temporary investment pending the securitization
and sale of the loans and as a long term investment of funds received from the
sale of its annuity products. In connection with the sale of UCLIC, the Company
entered into an agreement with UCLIC which will provide a facility for the
purchase of up to $300 million in first mortgage home equity loans. The
agreement provides that the Company shall have the right for a limited time to
repurchase certain loans which are eligible for securitization. The agreement
also has a sublimit of up to $150 million for loans that are not eligible for
securitization.
The following discussion reflects the primary sources of liquidity and
capital for the Company's operations.
The principal cash requirements of the Company's mortgage operations arise
from loan production, deposits to reserve accounts, repayments of intercompany
debt borrowed under the Company's senior notes, payments of operating and
interest expenses, and income taxes related to loan sale transactions. Loan
production is funded principally through proceeds from the issuance of the
Company's senior notes, short-term bank facilities and warehouse facilities
pending loan sales.
23
24
Substantially all of the loans originated or acquired by the Company are
sold. Net cash used by operating activities of the Company in 1995 and 1994,
respectively, reflects approximately $2.7 billion and $1.9 billion,
respectively, in cash used for loan originations and acquisitions. The primary
source of funding for loan originations is derived from the reinvestment of
proceeds from the ultimate sale of loans which totaled approximately $2.7
billion and $1.9 billion in 1995 and 1994, respectively. In connection with the
loan sale transactions in the secondary market, third-party surety bonds and
cash deposits by the Company as credit enhancements were provided. The loan sale
transactions required the subordination of certain cash flows payable to UCLC
and its subsidiaries to the payment of principal and interest due to certificate
holders. In connection with these transactions, UCLC has been required, in some
instances, to fund an initial deposit, and thereafter, in each transaction, a
portion of the amounts receivable by UCLC and its subsidiaries from the excess
interest spread has been required to be placed and maintained in a reserve
account to the extent of the subordination requirements. The subordination
requirements generally provide that the excess interest spread is payable to a
reserve account until a specified level of cash, which is less than the maximum
subordination amount, is accumulated therein. The capitalized excess servicing
income of the Company is subject to being utilized first to replenish cash paid
from the reserve account to fund shortfalls in collections from borrowers who
default on the payment of principal or interest on the loans underlying the
pass-through certificates issued until the total of the Company's deposits into
the reserve account equal the maximum subordination amount. In connection with
the issuance and sale of approximately $3.2 billion of pass-through certificates
through December 31, 1995, the subordination amounts aggregate approximately
$466 million. After the Company's deposits into the reserve account equal the
maximum subordination amount for a transaction, the subordination of the related
excess interest spread (including the guarantee fee payable therefrom) for these
purposes is terminated. The excess interest spread required to be deposited and
maintained in the respective reserve accounts will not be available to support
the cash flow requirements of the Company until such amount exceeds the maximum
subordinated amount (other than amounts, if any, in excess of the specified
levels required to be maintained in the reserve accounts, which may be
distributed periodically to the Company). At December 31, 1995, the amounts on
deposit in such reserve accounts totaled $155 million.
RATINGS
During 1994, the Company sold publicly $125 million of its unsecured and
unsubordinated 9.35% senior notes due November 1, 1999. Duff and Phelps Credit
Rating Co. ("D&P") rated the issue BBB, Standard and Poor's, a division of The
McGraw-Hill Companies, Inc. ("S&P"), rated the notes BBB- and Moody's Investor
Services, Inc. ("Moody's") rated the notes Ba2, respectively. D&P previously
assigned a rating of BBB to the Bank Facility.
On July 25, 1995 the Company issued $100 million of its unsecured and
unsubordinated 7% senior notes due July 15, 1998. The notes received ratings of
"BBB" from D&P, "BBB-" from S&P and "Ba2" from Moody's.
24
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
United Companies Financial Corporation:
We have audited the accompanying consolidated balance sheets of United
Companies Financial Corporation and its subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements 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, such consolidated financial statements present fairly, in
all material respects, the financial position of United Companies Financial
Corporation and its subsidiaries at December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 1.8 of the Notes to the Consolidated Financial
Statements, in 1995 the Company changed its method of accounting for mortgage
servicing rights to conform with Statement of Financial Accounting Standards No.
122.
As discussed in Note 11 of the Notes to the Consolidated Financial
Statements, on July 24, 1996, the Company sold all of the outstanding capital
stock of its wholly-owned subsidiary, United Companies Life Insurance Company.
As a result, the accompanying Consolidated Financial Statements have been
restated to present the accounts of United Companies Life Insurance Company as
discontinued operations.
DELOITTE & TOUCHE LLP
Baton Rouge, Louisiana
February 29, 1996
(July 24, 1996 as to Notes 3.4, 6 and 11)
25
26
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
Cash and cash equivalents.............................................. $ 5,284 $ 1,695
Temporary investments -- reserve accounts.............................. 155,254 81,980
Capitalized excess servicing income.................................... 280,985 174,031
Loans.................................................................. 74,877 51,598
Accrued interest receivable............................................ 36,897 22,294
Property -- net........................................................ 15,239 7,193
Net assets of discontinued operations.................................. 163,293 158,750
Other assets........................................................... 28,355 16,656
-------- --------
Total assets................................................. $760,184 $514,197
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable.......................................................... $265,756 $223,668
Deferred income taxes payable.......................................... 41,692 9,708
Allowance for loan losses.............................................. 51,454 34,478
Managed cash overdraft................................................. 27,052 25,952
Other liabilities...................................................... 21,756 18,306
-------- --------
Total liabilities............................................ 407,710 312,112
-------- --------
Stockholders' equity:
Preferred stock, $2 par value;
Authorized -- 20,000,000 shares; Issued -- 1,955,000 shares of
6 3/4% PRIDES(SM) ($44 per share liquidation preference)......... 3,910 --
Common stock, $2 par value;
Authorized -- 100,000,000 shares; Issued -- 29,302,246 and
28,541,154 shares................................................ 58,604 57,082
Additional paid-in capital........................................... 179,848 94,129
Net unrealized gain (loss) on securities............................. 37 (23)
Retained earnings.................................................... 122,816 62,025
Treasury stock and ESOP debt......................................... (12,741) (11,128)
-------- --------
Total stockholders' equity................................... 352,474 202,085
-------- --------
Total liabilities and stockholders' equity................. $760,184 $514,197
======== ========
See notes to consolidated financial statements.
26
27
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Loan sale gains.......................................... $142,156 $ 86,735 $ 59,441
Finance income, fees earned and other loan income........ 105,398 89,172 60,280
Investment income........................................ 7,403 2,963 1,408
Other.................................................... 5,332 3,668 2,747
-------- -------- --------
Total............................................ 260,289 182,538 123,876
-------- -------- --------
Expenses:
Personnel................................................ 70,762 52,421 36,906
Interest................................................. 25,559 13,362 9,881
Loan loss provision...................................... 11,973 8,398 12,349
Other operating.......................................... 49,330 33,363 24,314
-------- -------- --------
Total............................................ 157,624 107,544 83,450
-------- -------- --------
Income from continuing operations before income taxes...... 102,665 74,994 40,426
Provision for income taxes................................. 37,740 26,298 13,751
-------- -------- --------
Income from continuing operations.......................... 64,925 48,696 26,675
Gain (loss) from discontinued operations:
Gain from discontinued operations, net of income tax
expense of $2,980, $491 and $679, respectively........ 6,020 838 966
Loss on disposal, net of income tax benefit of $794 and
$8,326, respectively.................................. (1,477) -- (16,066)
-------- -------- --------
Total............................................ 4,543 838 (15,100)
-------- -------- --------
Net income................................................. $ 69,468 $ 49,534 $ 11,575
======== ======== ========
Per share data:
Income from continuing operations........................ $ 2.10 $ 1.71 $ 1.13
Gain (loss) from discontinued operations................. .15 .03 (.64)
-------- -------- --------
Net income............................................... $ 2.25 $ 1.74 $ .49
======== ======== ========
See notes to consolidated financial statements.
27
28
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS)
Cash flows from continuing operating activities:
Income from continuing operations................................. $ 64,925 $ 48,696 $ 26,675
Adjustments to reconcile income from continuing operations to net
cash provided by continuing operating activities:
Increase in accrued interest receivable........................ (14,603) (6,535) (3,353)
Decrease (increase) in other assets............................ 819 (9,437) (942)
(Decrease) increase in other liabilities....................... (5,843) (1,425) 12,401
Capitalized excess servicing income............................ (187,866) (112,029) (69,487)
Amortization of capitalized excess servicing income............ 80,842 43,707 24,127
Investment losses.............................................. 56 29 4
Loan loss provision............................................ 29,311 22,282 18,272
Capitalized mortgage servicing rights.......................... (5,986) -- --
Amortization and depreciation.................................. 2,815 1,504 1,711
Deferred income taxes.......................................... 31,952 15,022 (1,688)
Proceeds from sales and principal collections of loans held for
sale.......................................................... 2,677,990 1,892,077 1,048,141
Originations and purchases of loans held for sale.............. (2,707,549) (1,889,043) (1,053,244)
----------- ----------- -----------
Net cash provided (used) by continuing operating
activities.............................................. (33,137) 4,848 2,617
----------- ----------- -----------
Cash flows provided (used) by discontinued operations............... 1,569 (2,934) (5,825)
----------- ----------- -----------
Cash flows from investing activities:
Increase in reserve accounts...................................... (73,274) (54,308) (20,046)
Proceeds from sales of investment securities...................... 95 -- 38
Purchase of available for sale securities......................... (76) -- (37)
Investment in discontinued operations............................. -- -- (15,000)
Capital expenditures.............................................. (9,627) (4,037) (760)
----------- ----------- -----------
Net cash used by investing activities..................... (82,882) (58,345) (35,805)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from senior debt and mortgage loan....................... 103,219 125,192 --
Decrease in revolving credit debt................................. (72,163) (82,838) (35,000)
Proceeds from subordinated debentures............................. -- -- 10,000
(Decrease) increase in debt with maturities of three months or
less........................................................... (14,750) 14,250 (600)
Increase in warehouse loan facility............................... 19,321 -- --
Proceeds from ESOP debt........................................... 6,283 -- --
Payments on ESOP debt............................................. (321) -- --
Cash dividends paid............................................... (8,677) (5,050) (3,624)
Increase in managed cash overdraft................................ 1,100 828 16,117
Proceeds from issuance of stock................................... 83,254 4,545 48,714
Increase in unearned ESOP compensation............................ (2,313) (2,434) --
Proceeds from exercise of stock options and warrants.............. 3,086 542 298
----------- ----------- -----------
Net cash provided by financing activities................. 118,039 55,035 35,905
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents.................... 3,589 (1,396) (3,108)
Cash and cash equivalents at beginning of period.................... 1,695 3,091 6,199
----------- ----------- -----------
Cash and cash equivalents at end of period.......................... $ 5,284 $ 1,695 $ 3,091
=========== =========== ===========
See notes to consolidated financial statements.
28
29
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NET TREASURY
ADDITIONAL UNREALIZED STOCK AND TOTAL
COMMON PREFERRED PAID-IN GAIN (LOSS) RETAINED ESOP STOCKHOLDERS'
STOCK STOCK CAPITAL ON SECURITIES EARNINGS DEBT EQUITY
------- --------- ---------- -------------- --------- --------- -------------
(IN THOUSANDS)
Balance, December 31, 1992, as
previously reported......... $18,730 $ 31,461 $ 52,037 $ (5,970) $ 96,258
Effect of 1995 stock split.... 18,730 (18,730) --
------- --------- --------- --------- ---------
Balance, December 31, 1992, as
restated.................... 37,460 12,731 52,037 (5,970) 96,258
Net income.................... 11,575 11,575
Dividends paid................ (3,624) (3,624)
Decrease in ESOP debt......... 147 147
Common stock options
exercised................... 1,476 1,301 2,777
Treasury shares acquired...... (2,479) (2,479)
Preferred stock issued........ $ 20,000 (1,239) 18,761
Preferred stock converted into
common stock................ 7,804 (20,000) 12,196 --
Common stock issued........... 4,000 25,953 29,953
------- --------- --------- --------- --------- ---------
Balance, December 31, 1993.... 50,740 -- 50,942 59,988 (8,302) 153,368
Net income.................... 49,534 49,534
Dividends paid................ 5,184 37,263 (47,497) (5,050)
Increase in ESOP debt......... (2,222) (2,222)
Common stock options
exercised................... 398 1,749 2,147
Treasury shares acquired...... (604) (604)
Common stock issued........... 600 3,945 4,545
Common stock warrants
exercised................... 160 230 390
Mark-to-market adjustment on
investments................. $(23) (23)
------- --------- --------- ---- --------- --------- ---------
Balance, December 31, 1994.... 57,082 -- 94,129 (23) 62,025 (11,128) 202,085
Net income.................... 69,468 69,468
Dividends paid................ (8,677) (8,677)
Increase in ESOP debt......... (1,613) (1,613)
Common stock warrants
exercised................... 704 696 1,400
Common stock options
exercised................... 818 5,386 6,204
Preferred stock issued........ 3,910 79,344 83,254
Release of ESOP shares........ 293 293
Mark-to-market adjustment on
investments................. 60 60
------- --------- --------- ---- --------- --------- ---------
Balance, December 31, 1995.... $58,604 $ 3,910 $ 179,848 $ 37 $ 122,816 $ (12,741) $ 352,474
======= ========= ========= ==== ========= ========= =========
See notes to consolidated financial statements.
29
30
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. ACCOUNTING POLICIES
1.1 Principles of Consolidation. The consolidated financial statements
include United Companies Financial Corporation (the "Company" or "United
Companies") and subsidiaries, all of which are wholly-owned. All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
1.2 Loan Accounting. The Company originates loans for its own portfolio
and for sale and/or securitization in the secondary market. Loans held for sale
are carried at lower of cost or market.
1.2(a) Loan Sales. The Company sells substantially all loans which it
originates and generally retains the servicing rights on loans sold. At the time
of sale, the Company recognizes a gain on loans sold in an amount equal to the
present value of the difference between the interest spread retained by the
Company and a normal servicing fee and other expenses over the estimated life of
the loan. Under the sales/servicing agreements, the buyer receives the principal
collected on the loan and an agreed upon rate of return on the outstanding
principal balance; the Company retains the excess of the interest at the
contractual rate over the sum of the rate paid to the buyer (the "pass-through"
rate) and, where applicable, the trustee fee and surety bond fee. Generally,
this interest spread retained by the Company differs significantly from a normal
servicing fee and is reflected on the Company's balance sheet as a receivable,
capitalized excess servicing income. Capitalized excess servicing income is
calculated using prepayment, default and interest rate assumptions that the
Company believes market participants would use for similar financial instruments
at the time of the sale but is not reduced for estimated credit losses under
recourse provisions of the sale. Such estimated credit losses are provided at
the time of sale by reducing the amount of gain recognized and are included in a
liability on the Company's balance sheet as allowance for loan losses. The
Company has developed its assumptions based on experience with its own loan
portfolio and available market data. For fixed rate loans the Company uses
prepayment assumptions based on the prepayment experience of its owned and
serviced loan portfolio. Prepayment rates for adjustable rate loans are derived
from available market data and prepayment experience of the Company's owned and
serviced portfolio. The weighted average discount rate used by the Company to
determine the present value of expected cash flows from excess servicing arising
from loan sale transactions occurring in 1995, 1994 and 1993 was 10%. Gains from
partial sales of loans are adjusted based on fair value on the date that the
loan was acquired or, if not practicable, the date of the sale. The Company
believes that the capitalized excess servicing income recognized at the time of
sale does not exceed the amount that would have been received if it were sold in
the marketplace.
In calculating loan sale gains, the Company considers current economic and
market conditions at the date of sale. In subsequent periods, the Company
reviews as of each balance sheet date its prepayment assumptions in relation to
current rate of prepayment and, if necessary, revises its estimates using the
original discount rate. Any losses arising from adverse prepayment experience
are recognized immediately. Favorable experience is recognized prospectively.
1.2(b) Nonrefundable Loan Fees. Loan origination fees and incremental
direct costs associated with loan originations are deferred and recognized over
the lives of the loans as an adjustment to yield, using the interest method.
Unamortized costs and fees are recognized upon sale of the loan or related
mortgage-backed securities to third parties.
1.2(c) Loan Servicing. The Company generally retains the right to service
loans it originates and subsequently sells or securitizes in the secondary
market. Fees for servicing loans and mortgage-backed securities relating to
loans originated by the Company and sold with servicing rights retained are
generally based on a stipulated percentage of the outstanding principal balance
of such loans and are recognized when earned. Interest received on loans sold,
less amounts paid to investors, is reported as loan servicing income.
Capitalized excess servicing income is amortized systematically to reduce loan
servicing income to an amount representing normal servicing income and the
present value discount. Prior to the adoption of Statement of Financial
Accounting Standards No. 122 ("SFAS 122"), "Accounting for Mortgage Servicing
Rights", the Company recognized late charges and other ancillary income when
collected and charged costs to service mortgage loans when incurred. As further
discussed in Note 1.8, the Company implemented the provisions of
30
31
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS 122 in the third quarter of 1995 and, in connection therewith, changed its
method of accounting for mortgage servicing rights to recognize as separate
assets rights to service mortgage loans for others that have been acquired
through either the purchase or origination of such loans.
1.2(d) Allowance for Loan Losses.
The Company's loan sale agreements generally provide for the subordination
of cash and excess interest spread relating to the loans sold. Such
subordination relates to credit losses which may occur after the sale of the
loans and continues until the earlier of the payment in full of the loans or the
termination of the agreement pursuant to which the loans were sold. In
connection with the securitization and sale of home equity pass-through
certificates, the interest retained by the Company is subordinated to a limited
extent to the sold certificates and will be used to fund a reserve account,
thereby providing a credit enhancement to the holders of the certificates. On
certain loan sale transactions prior to 1991, the loan sale agreements provided
limited recourse against the Company for credit losses. Regardless of the
structure of the loan sale transaction, the Company estimates the amount of
future losses under the loan sale agreements and provides a reserve for such
loss in determining the amount of gain recorded on the sale.
The Company provides for estimated loan losses on loans owned by the
Company by establishing an allowance for loan losses through a charge to
earnings. The Company conducts periodic reviews of the quality of the loan
portfolio and estimates the risk of loss based upon historical loss experience,
prevailing economic conditions, estimated collateral value and such other
factors which, in management's judgment, are relevant in estimating the adequacy
of the Company's allowance for loan losses. While management uses the best
information available in conducting its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions, collateral value or other elements used in conducting the review.
1.2(e) Other. Loans are placed on a nonaccrual status when they are past
due 150 days.
1.2(f) Property Acquired in Satisfaction of Debt. The Company records
properties received in settlement of loans ("foreclosed property") at the lower
of their market value less estimated costs to sell ("market") or the outstanding
loan amount plus accrued interest ("cost"). The Company accomplishes this by
providing a specific reserve, on a property by property basis, for the
difference between market and cost. Market value is determined by property
appraisals performed either by Company personnel or independent appraisers. The
related adjustments are included in the Company's provision for loan losses.
1.3 Temporary Investments -- Reserve Accounts. In connection with its loan
sale transactions, the Company has made initial cash deposits and has
subordinated certain cash flows (excess servicing income) payable to the Company
to the payment of scheduled principal and interest to investors. The amounts on
deposit are invested in certain instruments as permitted by the trustee and
earnings thereon accrue to the Company. To the extent amounts on deposit exceed
specified levels required by the subordination requirements, distributions are
made to the Company, and, at the termination of the transaction, any remaining
amounts on deposit will be distributed to the Company.
1.4 Property. Property is stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line and accelerated methods over the
estimated useful lives of the assets.
1.5 Income Taxes. The Company and its subsidiaries file a consolidated
federal income tax return. The Company allocates to its subsidiaries their
proportionate share of the consolidated tax liability under a tax allocation
agreement whereby each affiliate's federal income tax provision is computed on a
separate return basis. Deferred income taxes are provided for the effect of
revenues and expenses which are reported in different periods for financial
reporting purposes than for tax purposes. Such differences result primarily from
deferring policy acquisition costs, providing for bond and loan losses,
differences in the methods of computing reserves, loan income, loan sale gains
and depreciation.
31
32
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1.6 Cash Equivalents. For purposes of the Statements of Cash Flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. At December 31, 1995,
cash equivalents totaled $5.3 million, $4.3 million of which had an interest
rate of 5.2% and the balance of which had interest rates ranging from 2.4% to
8.0% per annum.
1.7 Financial instruments. The Company from time to time enters into
interest rate hedge mechanisms to manage its exposure to interest rate changes
in connection with the securitization and sale of its home equity loans. The
Company closes out the hedge position to coincide with the related loan sale and
recognizes the results of the hedge transaction in determining the amount of the
related loan sale gain. The Company did not have any open hedge positions at
December 31, 1994 or 1995.
1.8 Accounting Standards. In May 1993 and in October 1994, the FASB issued
Statements of Financial Accounting Standards Nos. 114 and 118 ("SFAS 114" and
"SFAS 118") which address the accounting by creditors for impairment of loans
and specify how allowances for credit losses related to certain loans should be
determined. The statements also address the accounting by creditors for all
loans that are restructured in a troubled debt restructuring involving
modification of terms of a receivable. The implementation of the provisions of
SFAS 114 and SFAS 118 in the first quarter of 1995 did not have a material
effect on the financial statements of the Company.
On May 12, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" ("SFAS No. 122"). SFAS No. 122 requires that a mortgage banking
enterprise recognize as separate assets rights to service mortgage loans for
others that have been acquired through either the purchase or origination of
such loans. With respect to loans originated, this is accomplished by allocating
total costs incurred between the loan and the servicing rights based on their
relative fair values. The estimated fair value of the servicing rights is
determined by discounting expected future cash flows using a discount rate
commensurate with the risk involved. Prior to the adoption of SFAS No. 122, the
Company recognized late charges and other ancillary income when collected and
charged costs to service mortgage loans when incurred. The Company elected to
implement the provisions of this statement on a prospective basis during the
third quarter of 1995. The assumptions used by the Company included estimates of
the cost of servicing the loans, the discount rate, float value, inflation rate,
ancillary income per loan, prepayment speeds and default rates. The amount
capitalized at December 31, 1995 was $5.8 million and is included in "other
assets". Net income for 1995 was increased by $3.9 million, or $.13 per share,
respectively, on a fully diluted basis as a result of the Company's
implementation of SFAS No. 122.
On October 23, 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS
123 encourages, but does not require, the recognition of compensation expense
for grants of stock, stock options and other equity instruments to employees
based on a fair value method of accounting. Companies are permitted to continue
to apply the existing accounting rules contained in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"); however,
companies that choose to retain this method of accounting will be required to
provide expanded disclosures of pro forma net income and earnings per share in
the notes to financial statements as if the new fair value method of accounting
had been adopted. The provisions of SFAS 123 are effective for fiscal years
beginning after December 15, 1995. The Company has elected to continue to apply
the accounting rules contained in APB 25 and to comply with the additional
disclosure requirements as set forth in SFAS 123.
1.9 Reclassifications. Certain prior year amounts have been reclassified
to conform with the current year presentation. Such reclassifications had no
effect on net income.
1.10 Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
32
33
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. CAPITALIZED EXCESS SERVICING INCOME
A summary analysis of the changes in the Company's Capitalized excess
servicing income is as follows:
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
Balance, beginning of year.......................... $174,031 $105,917 $ 60,678
Capitalized excess servicing income................. 187,866 112,029 69,487
Amortization of capitalized excess servicing
income............................................ (80,842) (43,707) (24,127)
Other............................................... (70) (208) (121)
-------- -------- --------
Balance, end of year................................ $280,985 $174,031 $105,917
======== ======== ========
The carrying value of Capitalized excess servicing income is analyzed
quarterly by the Company to determine if actual prepayment experience has had
any impact on the carrying value of this asset. If necessary, the Company
revises its prepayment estimates using the original discount rate. Any losses
arising from adverse prepayment experience are recognized immediately. Favorable
prepayment experience is recognized prospectively. The weighted average discount
rate used by the Company to determine the carrying value of capitalized excess
servicing income was 10% in 1995, 1994 and 1993.
3. LOANS
3.1 Loans Owned. The following schedule sets forth the components of Loans
owned by the Company at December 31, 1995 and 1994.
DECEMBER 31,
---------------------
1995 1994
------- -------
(IN THOUSANDS)
Home equity.................................................... $67,673 $43,513
Commercial..................................................... 479 481
Conventional................................................... 323 112
Foreclosed properties.......................................... 11,451 11,734
Nonrefundable loan fees........................................ (4,950) (4,538)
Consumer and other............................................. 251 988
Unearned discount.............................................. (350) (692)
------- -------
Total................................................ $74,877 $51,598
======= =======
Included in owned loans at December 31, 1995 and 1994 were nonaccrual loans
totaling $5.7 million and $3.5 million, respectively.
3.2 Loans Serviced. The following table sets forth the loans serviced by
the Company for third parties at December 31, 1995 and 1994, by type of loan.
Substantially all of these loans were originated by the Company.
DECEMBER 31,
----------------------
1995 1994
--------- ---------
(IN THOUSANDS)
Home equity.................................................. $2,632,630 $1,640,185
Commercial................................................... 250,762 273,932
Conventional................................................. 58,215 74,130
---------- ----------
Total.............................................. $2,941,607 $1,988,247
========== ==========
3.3 Loan Loss Allowance. The Company provides an estimate for future
credit losses in an Allowance for Loan Losses for loans owned by the Company and
for loans serviced for others.
33
34
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary analysis of the changes in the Company's Allowance for Loan
Losses is as follows:
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
Balance at beginning of period....................... $ 34,478 $ 24,190 $ 14,571
Loans charged to allowance
Home equity........................................ (13,818) (12,745) (9,114)
Commercial......................................... (144)
Conventional....................................... (97) (141) (62)
-------- -------- --------
Total...................................... (13,915) (12,886) (9,320)
Recoveries on loans previously charged to
allowance....................................... 1,643 1,100 631
-------- -------- --------
Net loans charged off.............................. (12,272) (11,786) (8,689)
Loan loss provision on owned and serviced loans...... 29,311 22,282 18,272
Reserve reclassification............................. (63) (208) 36
-------- -------- --------
Balance at end of year............................... $ 51,454 $ 34,478 $ 24,190
======== ======== ========
As of December 31, 1995, approximately $2.5 billion of home equity loans
sold were serviced under agreements substantially all of which provide for the
subordination of cash and excess interest spread owned by the Company for credit
losses. The maximum recourse associated with sales of home equity loans
according to terms of the loan sales agreements was approximately $475 million
at December 31, 1995, of which $466 million relates to the subordinated cash and
excess interest spread. The Company's estimate of its losses, based on
historical loan loss experience, was approximately $49.3 million at December 31,
1995 and is recorded in the Company's allowance for loan losses. Should credit
losses on loans sold with limited recourse, or subordination of cash and excess
interest spread owned by the Company, materially exceed the Company's estimate
for such losses, such consequence will have a material adverse impact on the
Company's operations.
3.4 Concentration of Credit Risk. The Company's serviced portfolio is
geographically diversified. Although the Company services mortgage loans in 48
states, at December 31, 1995, a substantial portion of loans serviced were
originated in Florida (10.5%), Ohio (10.0%) and Louisiana (8.8%) , respectively,
and no other state accounted for more than 7.5% of the serviced portfolio.
Included in the serviced portfolio are commercial loans originated by the
Company, a substantial portion of which were originated in Florida (25.9%),
Georgia (19.4%) and Colorado (10.9%) and no other state accounted for more than
8.0% of the commercial loans serviced. In connection with the sale of UCLIC
discussed below in Note 11 "Discontinued Operations", the servicing of
substantially all of the commercial real estate mortgage loans and commercial
pass through certificates was transferred to UCLIC. Prior to this transfer of
servicing the Company serviced these loans and pass through certificates without
recourse. The risk inherent in such concentrations is dependent not only upon
regional and general economic stability which affects property values, but also
the financial well-being and creditworthiness of the borrower.
3.5 Commitments. The Company uses a prefunding feature in connection with
loan securitization transactions. At December 31, 1995 approximately $3.7
million was held in a prefunding account for the purchase of the Company's home
equity loans during the first quarter of 1996. Pursuant to this commitment, home
equity loans with a remaining principal balance of approximately $3.7 million
were delivered January 10, 1996.
34
35
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY -- NET
Property is summarized as follows:
DECEMBER 31,
--------------------
1995 1994
-------- --------
(IN THOUSANDS)
Land and buildings.............................................. $ 10,603 $ 4,200
Furniture, fixtures and equipment............................... 19,511 16,859
-------- --------
Total................................................. 30,114 21,059
Less accumulated depreciation................................... (14,875) (13,866)
-------- --------
Total................................................. $ 15,239 $ 7,193
======== ========
Rental expense on operating leases, including real estate, computer
equipment and automobiles, totaled $7.7 million, $6.3 million and $4.3 million
during 1995, 1994 and 1993, respectively. Minimum annual commitments at December
31, 1995 under noncancellable operating leases are as follows (in thousands):
1996................................................ $ 5,621
1997................................................ 3,668
1998................................................ 1,544
1999................................................ 386
2000................................................ 108
Thereafter.......................................... 4
-------
Total..................................... $11,331
=======
5. OTHER ASSETS AND OTHER LIABILITIES
At December 31, 1995, Other assets included a federal income tax receivable
of $13.5 million and capitalized mortgage servicing rights of $5.8 million.
Included in other assets at December 31, 1994 was a federal income tax
receivable of $7.9 million.
Other liabilities at December 31, 1995 and 1994, included escrow balances
of $7.0 million and $4.5 million, respectively, and accrued interest payable of
$5.5 million and $2.9 million, respectively.
35
36
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTES PAYABLE
Notes payable consisted of the following:
DECEMBER 31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
9.35% Senior unsecured notes due 11/1/99........................ $125,000 $125,000
7% Senior unsecured notes due 7/15/98........................... 100,000 --
Revolving credit agreement...................................... -- 72,163
Mortgage loan................................................... 5,473 1,755
Warehouse facility.............................................. 19,321 --
ESOP debt....................................................... 5,962 --
Subordinated debentures......................................... 10,000 10,000
Short-term borrowings........................................... -- 14,750
-------- --------
Total................................................. $265,756 $223,668
======== ========
On July 25, 1995 and on November 2, 1994, the Company publicly sold $100
million and $125 million, respectively, of its senior unsecured notes. The notes
provide for interest payable semi-annually and are not redeemable prior to
maturity. The notes rank on a parity with other unsecured and unsubordinated
indebtedness of the Company. The net proceeds from the sale of the notes were
used primarily to repay the principal amount of indebtedness outstanding under
the Company's existing revolving credit facility with a group of banks.
At December 31, 1995, the Company had available a secured warehouse
facility provided by the investment bank that acted as lead underwriter of the
Company's fourth quarter public loan securitization transaction. The warehouse
facility was directly related to the public securitization and initially
provided funding for up to $250 million of eligible home equity loans for such
securitization and matured on January 10, 1996 with the closing of the last
delivery of loans for the securitization. In addition, the mortgage lending
subsidiaries of the Company entered into a credit agreement dated as of May 23,
1995 with First Union National Bank of North Carolina and certain other lenders
signatory thereto. Under this facility, the mortgage lending subsidiaries could
initially borrow up to $150 million on a revolving basis secured by home equity
loans eligible thereunder. In June, 1996 this facility was increased to $350
million and the lenders' commitment was extended from May, 1997 until May, 1998.
Loans under this facility are subject to the satisfaction of certain borrowing
conditions, including a minimum borrowing base and bear interest at a floating
rate. Borrowings under this warehouse facility are required to be repaid from
the proceeds of the sale or other disposition of the home equity loan
collateral. As of December 31, 1995, approximately $19.3 million was outstanding
under this warehouse facility.
The Company also has arrangements with banks providing for short-term
unsecured borrowings of up to $65 million, none of which was outstanding at
December 31, 1995. Borrowings under these lines of credit bear interest at
market or prime rates. Notes payable at December 31, 1995 include a $5.5 million
mortgage loan for the construction of an office building adjacent to the
Company's home office building and is secured by a mortgage on the property.
In May, 1993, United Companies Lending Corporation ("UCLC"), a wholly owned
subsidiary of the Company, entered into a Subordinated Debenture agreement with
United Companies Life Insurance Company ("UCLIC"). In connection with this
agreement, UCLC borrowed $10 million from UCLIC, $3 million of which matures in
1998 and bears an interest rate of 6.05%, $3 million of which matures in 2000
and bears an interest rate of 6.64% per annum and $4 million of which matures in
2003 and bears an interest rate of 7.18% per annum.
The Company made payments for interest of $23.0 million, $11.8 million and
$9.8 million during the years ended December 31, 1995, 1994 and 1993,
respectively.
36
37
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The provision for income taxes attributable to continuing operations is as
follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
Current................................................ $ 5,788 $11,276 $15,439
Deferred............................................... 31,952 15,022 (1,688)
------- ------- -------
Total........................................ $37,740 $26,298 $13,751
======= ======= =======
Reported income tax expense attributable to continuing operations differs
from the amount computed by applying the statutory federal income tax rate to
consolidated income from continuing operations before income taxes for the
following reasons:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
Federal income tax at statutory rate................... $35,933 $26,248 $14,149
Differences resulting from:
Reversal of timing differences at prior tax rates.... -- -- (33)
State income taxes................................... 511 (72) 75
Other................................................ 1,296 122 (440)
------- ------- -------
Reported income tax provisions......................... $37,740 $26,298 $13,751
======= ======= =======
The significant components of the Company's net deferred income tax
liability at December 31, 1995 and 1994 are as follows:
DECEMBER 31,
-------------------
1995 1994
------- -------
(IN THOUSANDS)
Deferred income tax assets:
Allowance for loan losses....................................... $ 904 $ 1,011
Nonrefundable loan fees......................................... 1,732 1,588
Other........................................................... 850 808
------- -------
3,486 3,407
------- -------
Deferred income tax liabilities:
Loan income..................................................... 42,883 12,866
Mark-to-market adjustment....................................... 20 --
Mortgage servicing rights....................................... 2,034 --
Real estate..................................................... 241 249
------- -------
45,178 13,115
------- -------
Net deferred income tax liability................................. $41,692 $ 9,708
======= =======
Payments made for income taxes during the years ended December 31, 1995,
1994 and 1993 were $2.6 million, $26.9 million and $4.8 million, respectively.
At December 31, 1995 and 1994, the Company had a current income tax
receivable of $13.5 million and $7.9 million, respectively, which is included in
"Other assets".
37
38
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CAPITAL STOCK
The Company has authorization to issue up to 100,000,000 shares of its
$2.00 par value common stock. There were 28,142,564 and 27,381,472 shares
outstanding at December 31, 1995 and 1994, respectively, excluding 1,159,682
treasury shares. The Company also has authorization to issue 20,000,000 shares
of preferred stock of which 1,955,000 shares are currently issued (see
discussion of "PRIDES(SM)" below). Included in the authorized preferred stock
are 1,000,000 shares of Series A Junior Participating preferred stock and
800,000 shares of Cumulative Convertible preferred stock, none of which is
outstanding.
On June 16, 1995, the Company concluded the sale of 1,955,000 shares of its
Preferred Redeemable Increased Dividend Equity Securities(SM), 6 3/4%
PRIDES(SM), Convertible Preferred Stock, par value $2.00 per share
("PRIDES(SM)"), at a price per share of $44.00. Dividends on the PRIDES(SM) are
cumulative and are payable quarterly in arrears on each January 1, April 1, July
1 and October 1. Net proceeds to the Company were approximately $83.3 million.
The net proceeds from the sale of shares of PRIDES(SM) were used for general
corporate purposes.
The PRIDES(SM) rank prior to the Company's common stock as to payment of
dividends and distribution of assets upon liquidation. The shares of PRIDES(SM)
mandatorily convert into shares of common stock on July 1, 2000 (the "Mandatory
Conversion Date") on a two share to one share basis (as adjusted for the 100%
common stock dividend paid October 20, 1995), and the shares of PRIDES(SM) are
convertible into shares of common stock at the option of the holder at any time
prior to the Mandatory Conversion Date on the basis of 1.652 of a share of
common stock for each share of PRIDES(SM), in each case subject to adjustment in
certain events. In addition, the Company has the option to convert the shares of
PRIDES(SM), in whole or in part, on or after July 1, 1998 until the Mandatory
Conversion Date, into shares of its common stock according to a formula.
On October 26, 1994, the Company's Board of Directors declared a 10% common
stock dividend payable to shareholders of record on December 22, 1994. The
additional shares were distributed on January 10, 1995. On August 23, 1995, the
Company's Board of Directors declared a two-for-one common stock split effected
in the form of a 100% stock dividend on outstanding stock which was distributed
October 20, 1995, to stockholders of record on October 9, 1995. All per share
amounts, numbers of shares and related amounts for all periods presented in the
accompanying financial statements and notes thereto have been retroactively
adjusted to reflect these transactions. During 1995 and 1994, the Company paid
cash dividends on its common stock in the amount of $5.5 million and $5.1
million, or $.20 and $.182 per share, respectively. In addition, during 1995,
the Company paid cash dividends on its PRIDES(SM) in the amount of $3.1 million
or $1.61 per share.
On July 27, 1994, the Board of Directors authorized the redemption of the
rights under the rights plan of the Company adopted in 1989 (the "1989 Rights
Plan") and approved a new rights plan (the "1994 Rights Plan"). In connection
with the redemption, the rights under the 1989 Rights Plan (the "1989 Rights")
were redeemed at a price of $.0039526 per 1989 Right with the aggregate
redemption price payable to each holder of the 1989 Rights to be rounded up to
the nearest $.01. In approving the 1994 Rights Plan, the Board of Directors
declared a dividend distribution of one preferred share purchase right for each
outstanding share of the Company's Common Stock. The rights under the 1994
Rights Plan will become exercisable only upon the occurrence of certain events
as specified therein (primarily certain changes in ownership of the Company).
At December 31, 1995 and 1994, 1,159,682 shares of the Company's common
stock, or 4% of the issued common stock, were held as treasury stock at a cost
of $6.8 million.
9. EMPLOYEE BENEFIT PLANS
9.1 Employee Stock Ownership Plan. All employees who meet minimum age and
service requirements participate in the Company's Employee Stock Ownership Plan
("ESOP"). The Company makes annual tax deductible contributions to the ESOP
which are used to purchase additional shares of the Company's common stock or to
pay debt service on shares acquired with the proceeds of loans ("leveraged
shares"). The ESOP's
38
39
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
leveraged shares are initially pledged as collateral for the debt incurred in
connection with the acquisition of such shares. As the debt is repaid, the
shares are released from collateral and allocated to plan participants.
Contributions are allocated among participants based on years of service and
compensations. Upon retirement, death or disability, the employee or a
beneficiary receives the designated common stock.
The Company's cash contributions to the ESOP were $2.3 million, $2.2
million and $.9 million for the years ended December 31, 1995, 1994 and 1993,
respectively. Shares held by the ESOP at December 31, 1995, 1994 and 1993 were
approximately 4.0 million, 4.7 million and 4.3 million, respectively. At
December 31, 1994, the ESOP had borrowed $4.3 million from the Company bearing
interest at rates ranging from 7.85% to 9.50%. During 1995, the ESOP was granted
a $10 million line of credit from a financial institution. During 1995, the ESOP
borrowed $1.6 million under this line of credit and refinanced the amounts
previously borrowed from the Company. At December 31, 1995 the ESOP had notes
payable with a balance of $6.0 million under this line of credit. Because the
source of the loan payments is primarily contributions received by the ESOP from
the Company, such debt is included in the Company's notes payable with a
corresponding reduction of stockholder's equity. In accordance with Statement of
Position 93-6 ("SOP 93-6"), leveraged shares purchased subsequent to December
31, 1992 are, upon release, reflected as compensation expense based on the then
current market price of the shares. Shares which have not been committed to be
released are not considered outstanding for purposes of the computation of
earnings per share. During 1995, 165,000 shares of the Company's common stock
which were considered outstanding for earnings per share purposes in prior
periods were not considered outstanding. At December 31, 1995, approximately
8,000 shares of common stock were committed to be released resulting in
additional compensation expense of approximately $.2 million during 1995. At
December 31, 1995, the ESOP had approximately 800,000 leveraged shares, of which
approximately 288,000 were accounted for under the provisions of SOP 93-6. The
fair value of the 288,000 leveraged shares accounted for under the provisions of
SOP 93-6 was $7.6 million at December 31, 1995.
9.2 Stock Option Plans. The following is a summary of options granted,
exercised or canceled during 1993, 1994 and 1995.
OPTION PRICE
SHARES PER SHARE
--------- -----------------
January 1, 1993.......................................... 1,871,050 $ 2.77 to $ 4.55
Granted................................................ 847,880 $ 4.12 to $ 6.42
Exercised.............................................. (811,652) $ 2.77 to $ 4.13
Canceled............................................... (97,432)
---------
December 31, 1993........................................ 1,809,846 $ 2.77 to $ 6.42
Granted................................................ 138,596 $15.46 to $19.21
Exercised.............................................. (219,174) $ 2.77 to $ 4.13
Canceled............................................... (29,822)
---------
December 31, 1994........................................ 1,699,446 $ 2.77 to $19.21
Granted................................................ 670,600 $16.00 to $22.38
Exercised.............................................. (409,092) $ 2.77 to $ 6.42
Canceled............................................... (40,734)
---------
December 31, 1995........................................ 1,920,220
=========
At December 31, 1995 options for 522,084 of the Company's common stock were
exercisable and 914,396 shares were available for the granting of options.
During 1995 and 1994, the Company recognized a $4.4 million and a $1.4 million
federal income tax benefit, respectively, as a result of the exercise of non-
qualified stock options. This benefit resulted in a decrease in current income
taxes payable and an increase in additional paid-in capital.
39
40
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9.3 Employees' Savings Plan and Trust. The United Companies Financial
Corporation Employees' Savings Plan and Trust is designed to be a qualified plan
under Sections 401(a) and 401(k) of the Internal Revenue Code. Under the plan,
employees are allowed to defer income on a pre-tax basis through contributions
to the plan and the Company matches a portion of such contributions. The
Company's matching contributions totaled $1.3 million, $1.0 million and $.4
million during 1995, 1994 and 1993, respectively. Employees have five investment
options, one of which is to invest in the Company's common stock. The plan held
567,971 and 558,386 shares of the Company's common stock at December 31, 1995
and 1994, respectively.
9.4 Deferred Compensation Plans. Postretirement benefits are provided to
eligible executive and senior officers of the Company under a deferred
compensation plan. The cost of this plan during 1995 and 1994 was $.2 million
and $.3 million, respectively. The Company calculated its postretirement benefit
obligation as of December 31, 1995 using a weighted average discount rate of
6.5%. A reconciliation of the funded status of the deferred compensation plan as
of December 31, 1995 and 1994 is as follows:
DECEMBER 31, 1995 NET CHANGE DECEMBER 31, 1994
----------------- ---------- -----------------
(IN THOUSANDS)
Accumulated postretirement benefit
obligation............................. $(1,912) $ (90) $(1,822)
Plan assets.............................. -- -- --
------- ------ -------
Funded status............................ (1,912) (90) (1,822)
Unrecognized transition obligation....... 1,138 (66) 1,204
------- ------ -------
Accrued postretirement benefit cost...... $ (774) $ (156) $ (618)
======= ====== =======
10. DISCLOSURE ABOUT FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS 107") requires
that the Company disclose the estimated fair values of its financial
instruments, both assets and liabilities recognized and not recognized in its
financial statements.
SFAS 107 defines financial instruments as cash and contractual rights and
obligations that require settlement in cash or by exchange of financial
instruments. Fair value is defined as the amount at which the instrument could
be exchanged in a current transaction between willing parties other than in a
forced or liquidation sale.
The carrying value and fair value of the Company's financial assets and
liabilities at December 31, 1995 and 1994 were as follows:
1995 1994
------------------------ ------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS) (IN THOUSANDS)
Financial assets:
Cash and cash equivalents.......... $ 5,284 $ 5,284 $ 1,695 $ 1,695
Temporary investments -- reserve
accounts........................ 155,254 155,254 81,980 81,980
Loans.............................. 65,606 67,140 42,351 42,016
Capitalized excess servicing
income.......................... 280,985 280,985 174,031 174,031
Other assets....................... 19,332 20,044 7,879 7,879
Financial liabilities:
Notes payable...................... 265,756 280,277 223,668 221,263
Allowance for loan losses.......... 51,454 51,454 34,478 34,478
Other liabilities.................. 5,504 5,504 2,896 2,896
Managed cash overdraft............. 27,052 27,052 25,952 25,952
40
41
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The above values do not reflect any premium or discount from offering for
sale at one time the Company's entire holdings of a particular financial
instrument. Fair value estimates are made at a specific point in time based on
relevant market information, if available. Because no market exists for certain
of the Company's financial instruments, fair value estimates for these assets
and liabilities were based on subjective estimates of market conditions and
perceived risks of the financial instruments. Fair value estimates were also
based on judgments regarding future loss and prepayment experience and were
influenced by the Company's historical information.
The following methods and assumptions were used to estimate the fair value
of the Company's financial instruments:
Cash and cash equivalents. The carrying amount of cash and cash equivalents
approximates their fair values because these assets generally mature in 90 days
or less and do not present any significant credit concerns.
Temporary investments -- reserve accounts. The carrying value of temporary
investments is considered to be a reasonable estimate of fair value.
Loans. The fair value of the Company's loan portfolio was determined by
segregating the portfolio by type of loan and further by its performing and
nonperforming components. Performing loans were further segregated based on the
due date of their payments, an analysis of credit risk by category was performed
and a matrix of pricing by category was developed. Loans which had been
identified for sale were valued at their estimated sales price, which includes
the estimated value of the portion of the interest and fees which are not sold
with the securities backed by the loans. Loans which were current but not
identified for sale approximate the remaining principal balance which is
believed to represent an estimate of market discount from similar loans
identified for sale. The fair value of delinquent loans was estimated by using
the Company's historical recoverable amount on defaulted loans. Foreclosed
property is excluded from this disclosure because it is not considered a
financial instrument.
Capitalized excess servicing income. The value of capitalized excess
servicing, which relates to the excess interest retained on loans sold, was
estimated by discounting the future cash flows, adjusted for prepayments and
estimated losses on loans sold with recourse. The carrying value is considered
to be a reasonable estimate of fair value.
Allowance for loan losses. In estimating the fair value of the allowance
for loan losses, the Company estimated the timing of cash flows and discounted
these cash flows using a risk-free interest rate.
Other assets and other liabilities. Other assets include primarily current
income tax benefits and mortgage servicing rights. Other liabilities is
comprised primarily of accrued interest payable. In estimating the fair value of
these assets and liabilities, the Company scheduled the timing of their
estimated cash flows and discounted these cash flows based on a market rate of
interest.
Notes payable. Notes payable consists primarily of amounts payable for the
Company's senior unsecured notes. The fair value of the senior unsecured notes
is based upon the estimated current rate offered to the Company for debt of the
same remaining maturity.
The fair values presented herein are based on pertinent information
available to management as of December 31, 1995. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date and, therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
41
42
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. DISCONTINUED OPERATIONS
United Companies Life Insurance Company. On February 2, 1996, the Company
signed an agreement to sell all of the outstanding capital stock of its
wholly-owned life insurance subsidiary, United Companies Life Insurance Company
("UCLIC"), subject to approval by the Company's shareholders, regulatory
authorities and the satisfaction of certain other conditions. In June, 1996, the
Company's shareholders approved the sale, and in July, 1996, regulatory approval
was obtained and the remaining conditions to closing the transaction were
satisfied. The sale was concluded on July 24, 1996 and resulted in a loss on the
disposition of $6.8 million which was recorded in the Company's financial
statements for the three months and six months ended June 30, 1996. The sales
price of $167.6 million was comprised of approximately $110 million in cash
(including a $10 million dividend paid by UCLIC immediately prior to the
closing) and UCLIC real estate and other assets which were distributed to the
Company prior to the closing. The real estate distributed includes portions of
the United Plaza office park, including the Company's home office. In addition,
the Company purchased a convertible promissory note from PennCorp Financial
Group, Inc. ("PennCorp"), the parent of the purchaser, for $15 million in cash
and converted the note into 483,839 shares of the common stock of PennCorp, Inc.
As a result of the sale, the assets (including $67 million of assets transferred
to the Company by UCLIC immediately prior to closing) and the operations of
UCLIC have been classified as discontinued operations.
In connection with the sale of UCLIC, the Company entered into an agreement
with UCLIC which will provide a facility for the purchase of up to $300 million
in first mortgage home equity loans. The agreement provides that the Company
shall have the right for a limited time to repurchase certain loans which are
eligible for securitization. The agreement also has a sublimit of up to $150
million for loans that are not eligible for securitization.
During 1995, 1994 and 1993 revenues of UCLIC were $144.5 million, $138.1
million and $140.2 million, respectively, and net income (loss) of UCLIC was
$8.0 million, $5.9 million and $(8.3) million, respectively. The loss incurred
in 1993 was primarily the result of a $9.9 million loss on its investment in
Foster Mortgage Corporation discussed below. At December 31, 1995 total assets
and total liabilities of UCLIC were $1.8 billion and $1.6 billion, respectively.
United General Title Insurance Company. On April 10, 1995, the Company made
a decision to dispose of its investment in United General Title Insurance
Company ("UGTIC"), a wholly owned subsidiary of the Company, and, on May 1,
1995, approved a formal plan of disposal. The decision to dispose of UGTIC was
independent of the consummation of the sale thereof pursuant to the definitive
stock sale agreement signed on August 11, 1995. As a result, the operations of
UGTIC have been classified as discontinued operations, and, accordingly, the
consolidated financial statements and the related notes of the Company segregate
continuing and discontinued operations. The sale was concluded on February 29,
1996 at a sales price of approximately $5.1 million.
The definitive stock sale agreement provided for the sale of 100% of the
stock of UGTIC and contains a provision making the Company liable to UGTIC for
claims from defalcations and fraud losses incurred by UGTIC which are unknown
and occur prior to closing and are discovered within 24 months thereafter. The
Company is also liable, up to $4.2 million, for policy claims paid over a ten
year period after closing that exceed certain specified levels. The Company
recorded a loss from discontinued operations (net of income tax benefit) of $3.5
million in 1995 in connection with the sale of UGTIC.
Revenues for UGTIC for the years ended December 31, 1995, 1994 and 1993
were $37.8 million, $45.5 million and $25.1 million, respectively. At December
31, 1995, total assets and total liabilities of UGTIC were $16.8 million and
$8.3 million, respectively.
Foster Mortgage Corporation. On May 7, 1993, the Company decided to divest
its subsidiary Foster Mortgage Corporation ("FMC"). As of November 30, 1993, the
servicing rights owned by FMC, which constituted substantially all of its
assets, were sold. On December 21, 1993, the institutional lenders under FMC's
primary credit facility (the "FMC Institutional Lenders") filed a petition in
the U.S. bankruptcy court
42
43
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to cause the remaining affairs of FMC to be concluded under the supervision of
the bankruptcy court. The FMC Institutional Lenders filed and the bankruptcy
court approved a plan of liquidation for FMC providing for the appointment of a
trustee selected by the FMC Institutional Lenders. The FMC Institutional Lenders
allege that FMC has certain claims against the Company, including a claim with
respect to the Company's alleged failure to remit all sums due FMC regarding
federal income taxes under a tax agreement among the Company and its
subsidiaries, including FMC, estimated by the FMC Institutional Lenders to range
from $2.1 million to $29 million. FMC and the Company executed, subject to the
approval of the bankruptcy court, a settlement agreement relating to payments
between FMC and the Company in connection with the federal income tax benefits
resulting from FMC's losses and to certain prior intercompany payments between
FMC and the Company. The settlement agreement included a release by FMC in favor
of the Company of any and all claims relating to federal income taxes. The FMC
Institutional Lenders opposed the proposed settlement agreement. At the
conclusion of a hearing on the proposed settlement on August 18, 1994, the
bankruptcy court approved the portion of the settlement providing for a net
payment by the Company of $1.65 million to FMC in satisfaction of the federal
income tax benefits resulting from FMC's losses and the release of any claims
regarding federal income taxes. The bankruptcy court declined to approve the
other portion of the proposed settlement relating to payments received by the
Company from FMC within twelve months of the bankruptcy filing. If the Company
were required to refund such payments, the Company has estimated the potential
additional loss to be $1.9 million, net of tax benefits. The decision of the
bankruptcy court on the settlement was appealed by the FMC Institutional Lenders
to the U.S. District Court which affirmed the bankruptcy court's decision. The
FMC Institutional Lenders then appealed this decision to the U.S. Fifth Circuit
Court of Appeals. In a decision rendered on November 9, 1995, the U.S. Fifth
Circuit Court of Appeals reversed the district court, vacated the settlement
between FMC and the Company and remanded the matter for further proceedings. The
trustee under the plan of liquidation has filed an adversary proceeding in the
bankruptcy proceedings against the Company seeking avoidance of alleged
preferential payments totaling $3.72 million and has also instituted a suit in
federal court against the Company alleging claims under the tax agreement
estimated to range from $2 million to $29 million. Management of the Company
does not believe that any additional amounts are owed by the Company to FMC or
the trustee and intends to vigorously contest the claims which have been brought
against it for such amounts by the trustee under the plan of liquidation. The
Company did not guarantee any debt of FMC.
12. CONTINGENCIES
As discussed in Note 11 above, the Company, in February, 1996, concluded
the sale of its investment in UGTIC. In connection therewith, the stock sale
agreement includes a provision making the Company liable to UGTIC for claims
from defalcations and fraud losses incurred by UGTIC which are unknown and occur
prior to closing and are discovered within 24 months thereafter. The Company is
also liable, up to $4.2 million, for policy claims paid over a ten year period
after closing that exceed certain specified levels.
As also discussed in Note 11 above, the U.S. Fifth Circuit Court of Appeals
reversed the lower court decision approving the settlement agreement between FMC
and the Company, vacated the settlement between FMC and the Company and remanded
the matter for further proceedings. The trustee under the plan of liquidation
has filed an adversary proceeding in the bankruptcy proceedings against the
Company seeking avoidance of alleged preferential payments totaling $3.72
million and has also instituted a suit in federal court against the Company
alleging claims under the tax agreement estimated to range from $2 million to
$29 million. Management of the Company does not believe that any additional
amounts are owed by the Company to FMC or the trustee and intends to vigorously
contest the claims which have been brought against it for such amounts by the
trustee under the plan of liquidation. The Company did not guarantee any debt of
FMC.
43
44
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows:
THREE MONTHS ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1995
Total revenues...................................... $53,600 $64,601 $ 71,274 $70,814
Income from continuing operations before
income taxes..................................... 16,380 25,814 31,399 29,072
Net income.......................................... 12,696 16,426 21,248 19,098
Per share data -- net income:
Primary:
Income from continuing operations.............. $ .37 $ .56 $ .62 $ .58
Income from discontinued operations............ .08 .01 .05 .02
------- ------- -------- -------
Total....................................... $ .45 $ .57 $ .67 $ .60
======= ======= ======== =======
Fully Diluted:
Income from continuing operations.............. $ .37 $ .55 $ .60 $ .57
Income from discontinued operations............ .08 .01 .05 .02
------- ------- -------- -------
Total....................................... $ .45 $ .56 $ .65 $ .59
======= ======= ======== =======
1994
Total revenues...................................... $43,342 $44,987 $ 47,924 $46,285
Income from continuing operations before
income taxes..................................... 19,253 19,828 20,586 15,327
Net income.......................................... 13,710 14,699 15,253 5,872
Per share data -- net income:
Primary:
Income from continuing operations.............. $ .43 $ .45 $ .47 $ .35
Income (loss) from discontinued operations..... .05 .06 .06 (.14)
------- ------- -------- -------
Total....................................... $ .48 $ .51 $ .53 $ .21
======= ======= ======== =======
Fully Diluted:
Income from continuing operations.............. $ .43 $ .45 $ .47 $ .35
Income (loss) from discontinued operations..... .05 .06 .06 (.14)
------- ------- -------- -------
Total....................................... $ .48 $ .51 $ .53 $ .21
======= ======= ======== =======
44
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
45
46
UNITED COMPANIES FINANCIAL CORPORATION
AND SUBSIDIARIES
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements
Included in Part II of this report:
Independent Auditors' Report........................................... Page 25
December 31, 1995 and 1994
Consolidated Balance Sheets.......................................... Page 26
For the three years ended December 31, 1995
Consolidated Statements of Income.................................... Page 27
Consolidated Statements of Cash Flows................................ Page 28
Consolidated Statements of Stockholders' Equity...................... Page 29
Notes to Consolidated Financial Statements............................. Pages 30-44
Financial Statement Schedules
Included in Part IV of this report:
Individual financial statements of the registrant have been omitted because
consolidated financial statements of the registrant and its subsidiaries
required by Item 8 have been included in Part II of this report and, as of
December 31, 1995, the registrant was primarily an operating company and all
subsidiaries are wholly owned.
No financial statement schedules have been presented because they are not
applicable or are not required or the information required to be set forth
therein is included in the consolidated financial statements or notes thereto.
Exhibits
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- -------------------- ------------------------------------------------------------------------
2(1) -- Stock Purchase Agreement dated as of January 30, 1996 by and between
the Company and UC Life Holding Corporation
3.1(2) -- Articles of Incorporation, as amended
3.1A(3) -- Amendment to Articles of Incorporation effective April 28, 1994
3.1B(4) -- Amendment to Articles of Incorporation effective June 19, 1995
3.2(5) -- By-Laws, as amended
4.1(6) -- Senior Indenture
4.2(6) -- Subordinated Indenture
4.3(6) -- First Supplemental Indenture with respect to 9.35% Senior Notes due
November 1, 1999
4.4(6) -- Form of certificate for shares of Preferred Redeemable Increased
Dividend Equity Securities 6 3/4% PRIDES(SM), Convertible Preferred
Stock, par value $2.00 per share
4.5(7) -- Second Supplemental Indenture for 7% Senior Notes due July 15, 1998
4.6(8) -- Series A Junior Participating Preferred Stock Purchase Rights
10.1(2) -- 1986 Employee Incentive Stock Option Plan
10.2(2) -- Employee Stock Ownership Plan and Trust
10.3(2) -- Management and compensatory contracts with executive officers and
directors
10.4(2) -- Deferred compensation agreements
10.5(9) -- Management Incentive Plan, as amended
10.6(2) -- Employees' Savings Plan and Trust
46
47
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- -------------------- ------------------------------------------------------------------------
10.7(2) -- Agreement for termination of employee agreement
10.8(2) -- Agreement for termination of employment agreement
10.9(2) -- Unfunded Salary Deferral Agreement dated April 1, 1989 with executive
officer
10.10(2) -- Split-Dollar Insurance Agreement dated April 1, 1989 with executive
officer
10.11(2) -- 1989 Stock Incentive Plan
10.12(2) -- 1989 Non-Employee Director Stock Option Plan
10.13(2) -- 1992 Form 11-K, Employees' Savings Plan and Trust
10.14(10) -- Stock Purchase Warrant dated as of July 1, 1993
10.15(2) -- 1993 Form 11-K, Employees' Savings Plan and Trust
10.16(9) -- 1993 Stock Incentive Plan
10.17(9) -- 1993 Non-Employee Director Plan
10.19(2) -- 1994 Form 11-K, Employees' Savings Plan and Trust
10.20(11) -- 1995 Form 11-K, Employee Savings Plan
10.21(5) -- Indemnification agreements
10.22(12) -- Change of Control Agreement
10.23(12) -- Supplemental Retirement Agreement
10.24(12) -- Split Dollar Agreement
11.1(13) -- Statement regarding computation of per share earnings
21.1(13) -- List of Subsidiaries of the Company
23.1(13) -- Consent of Deloitte & Touche LLP
- ---------------
(1) Incorporated herein by reference to the designated Exhibit on the Company's
Current Report on Form 8-K filed on February 9, 1996.
(2) Incorporated herein by reference to the designated Exhibit of the Company's
Annual Report on Form 10-K dated December 31, 1994.
(3) Incorporated herein by reference to the designated Exhibit of the Company's
Quarterly Report on Form 10-Q dated June 30, 1994.
(4) Incorporated herein by reference to the designated Exhibit of the Company's
Quarterly Report on Form 10-Q dated June 30, 1995.
(5) Incorporated herein by reference to the designated Exhibit of the Company's
Quarterly Report on Form 10-Q dated March 31, 1995.
(6) Incorporated by reference to the designated Exhibits of the Company's
Current Report on Form 8-K filed on June 16, 1995.
(7) Incorporated herein by reference to the designated Exhibit to the Company's
Current Report on Form 8-K filed July 26, 1995.
(8) Incorporated by reference to the designated Exhibit of the Company's Form
8-A dated August 5, 1994.
(9) Incorporated by reference from the designated Exhibit of the Company's
Registration Statement on Form S-8 filed September 29, 1995.
(10) Incorporated herein by reference to the designated Exhibit of the Company's
Registration Statement on Form S-3 (SEC File No. 33-52739).
(11) Incorporated herein by reference to the Form 11-K filed June 28, 1996.
(12) Incorporated herein by reference to the designated Exhibit on the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 filed March
19, 1996.
(13) Filed herewith
Exhibit 11.1
Exhibit 21.1
Exhibit 23.1
Exhibit 27
47
48
REPORTS ON FORM 8-K
On October 31, 1995, the Company filed a Current Report on Form 8-K
announcing that it was reviewing strategic alternatives with respect to its life
insurance subsidiary, United Companies Life Insurance Company ("UCLIC"),
including the possible sale of such subsidiary. On February 9, 1996, the Company
filed a Current Report on Form 8-K to report that it had signed a definitive
agreement with respect to the sale of all of the outstanding capital stock of
UCLIC. On August 8, 1996, the Company filed a Current Report on Form 8-K to
report the sale, on July 24, 1996, of the outstanding capital stock of UCLIC.
48
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K/A-3,
Amendment to Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: August 14, 1996
UNITED COMPANIES FINANCIAL CORPORATION
By: /s/ Sherry E. Anderson
-----------------------------------------
Sherry E. Anderson
Senior Vice President and Secretary
49
50
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- -------------------- ------------------------------------------------------------------------
2(1) -- Stock Purchase Agreement dated as of January 30, 1996 by and between
the Company and UC Life Holding Corporation
3.1(2) -- Articles of Incorporation, as amended
3.1A(3) -- Amendment to Articles of Incorporation effective April 28, 1994
3.1B(4) -- Amendment to Articles of Incorporation effective June 19, 1995
3.2(5) -- By-Laws, as amended
4.1(6) -- Senior Indenture
4.2(6) -- Subordinated Indenture
4.3(6) -- First Supplemental Indenture with respect to 9.35% Senior Notes due
November 1, 1999
4.4(6) -- Form of certificate for shares of Preferred Redeemable Increased
Dividend Equity Securities 6 3/4% PRIDES(SM), Convertible Preferred
Stock, par value $2.00 per share
4.5(7) -- Second Supplemental Indenture for 7% Senior Notes due July 15, 1998
4.6(8) -- Series A Junior Participating Preferred Stock Purchase Rights
10.1(2) -- 1986 Employee Incentive Stock Option Plan
10.2(2) -- Employee Stock Ownership Plan and Trust
10.3(2) -- Management and compensatory contracts with executive officers and
directors
10.4(2) -- Deferred compensation agreements
10.5(9) -- Management Incentive Plan, as amended
10.6(2) -- Employees' Savings Plan and Trust
10.7(2) -- Agreement for termination of employee agreement
10.8(2) -- Agreement for termination of employment agreement
10.9(2) -- Unfunded Salary Deferral Agreement dated April 1, 1989 with executive
officer
10.10(2) -- Split-Dollar Insurance Agreement dated April 1, 1989 with executive
officer
10.11(2) -- 1989 Stock Incentive Plan
10.12(2) -- 1989 Non-Employee Director Stock Option Plan
10.13(2) -- 1992 Form 11-K, Employees' Savings Plan and Trust
10.14(10) -- Stock Purchase Warrant dated as of July 1, 1993
10.15(2) -- 1993 Form 11-K, Employees' Savings Plan and Trust
10.16(9) -- 1993 Stock Incentive Plan
10.17(9) -- 1993 Non-Employee Director Plan
10.19(2) -- 1994 Form 11-K, Employees' Savings Plan and Trust
10.20(11) -- 1995 Form 11-K, Employee Savings Plan
10.21(5) -- Indemnification agreements
10.22(12) -- Change of Control Agreement
10.23(12) -- Supplemental Retirement Agreement
10.24(12) -- Split Dollar Agreement
11.1(13) -- Statement regarding computation of per share earnings
21.1(13) -- List of Subsidiaries of the Company
23.1(13) -- Consent of Deloitte & Touche LLP
51
- ---------------
(1) Incorporated herein by reference to the designated Exhibit on the Company's
Current Report on Form 8-K filed on February 9, 1996.
(2) Incorporated herein by reference to the designated Exhibit of the Company's
Annual Report on Form 10-K dated December 31, 1994.
(3) Incorporated herein by reference to the designated Exhibit of the Company's
Quarterly Report on Form 10-Q dated June 30, 1994.
(4) Incorporated herein by reference to the designated Exhibit of the Company's
Quarterly Report on Form 10-Q dated June 30, 1995.
(5) Incorporated herein by reference to the designated Exhibit of the Company's
Quarterly Report on Form 10-Q dated March 31, 1995.
(6) Incorporated by reference to the designated Exhibits of the Company's
Current Report on Form 8-K filed on June 16, 1995.
(7) Incorporated herein by reference to the designated Exhibit to the Company's
Current Report on Form 8-K filed July 26, 1995.
(8) Incorporated by reference to the designated Exhibit of the Company's Form
8-A dated August 5, 1994.
(9) Incorporated by reference from the designated Exhibit of the Company's
Registration Statement on Form S-8 filed September 29, 1995.
(10) Incorporated herein by reference to the designated Exhibit of the Company's
Registration Statement on Form S-3 (SEC File No. 33-52739).
(11) Incorporated herein by reference to the Form 11-K filed June 28, 1996.
(12) Incorporated herein by reference to the designated Exhibit on the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 filed March
19, 1996.
(13) Filed herewith.
Exhibit 11.1
Exhibit 21.1
Exhibit 23.1
Exhibit 27