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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1996
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
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4041 Essen Lane
Baton Rouge, Louisiana 70809
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(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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Common Stock, Par Value $2.00 NEW YORK STOCK
EXCHANGE
6 3/4% PRIDES (SM), Convertible Preferred Stock, NEW YORK STOCK
Par Value $2.00 EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as reported on the New York Stock Exchange as of March 5, 1997 was
$596,883,646.
The number of shares of $2.00 par value stock issued and outstanding as of
March 5, 1997 was 28,494,326 excluding 1,159,682 treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Definitive Proxy Statement to be prepared pursuant to
Regulation 14A and filed in connection with solicitation of proxies for its
Annual Meeting of Shareholders, to be held May 14, 1997, is incorporated by
reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
United Companies Financial Corporation (the "Company" or "UCFC"), founded
in 1946, is a financial services holding company engaged in consumer lending.
The Company's lending operations primarily 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 home
equity 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. The Company's home equity loan originations are accomplished
primarily through the following distribution channels: (i) a retail branch
network conducted through United Companies Lending Corporation(R) ("UC
Lending"), (ii) a wholesale operation conducted through UNICOR MORTGAGE(R),
Inc. and through GINGER MAE(R), Inc., a division of UC Lending, each of which
offer home equity loan products, and (iii) a bulk loan purchase program
conducted through Southern Mortgage Acquisition, Inc. ("SMA"), which from time
to time purchases pools of home equity loans from other lenders. In addition,
the Company's lending operations include manufactured housing loan products
offered through its wholly owned subsidiary, United Companies Funding, Inc.
("UCFI"). These manufactured housing contracts are made primarily to finance
the purchase of new or used manufactured homes and are typically secured by a
first lien security interest in the manufactured homes. The Company also began
offering in mid-1996 a secured credit card product which is presently targeted
to the Company's home equity loan customer base. These credit card loans are
typically secured by a second lien, behind the Company's first lien, on the
borrower's residence.
Loan production is funded principally through loan facilities pending loan
sales. Substantially all of the home equity loans and manufactured housing
contracts originated or purchased by the Company are sold in the secondary
market principally through securitization transactions under Company sponsored
shelf registration statements.
In addition to its lending operations, the Company was historically engaged
in insurance operations. During 1996, the Company sold all of the outstanding
common stock of United Companies Life Insurance Company ("UCLIC"), its life and
annuity insurance subsidiary, and United General Title Insurance Company
("UGTIC"), its title insurance subsidiary. See Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Discontinued
Operations and Note 11 to the Notes to Consolidated Financial Statements.
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 2,500 employees.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. This Annual Report on Form
10-K contains forward-looking statements that reflect the Company's current
views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The following non- exclusive factors
could cause actual results to differ materially from historical results or
those anticipated: (1) changes in the performance of the financial markets, in
the demand for and market acceptance of the Company's products, and in general
economic conditions, including interest rates; (2) the presence of competitors
with greater financial resources and the impact of competitive products and
pricing; (3) the effect of the Company's policies; and (4) the continued
availability to the Company of adequate funding sources.
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Distribution network. At December 31, 1996, the Company's lending
activities were primarily conducted through the following distribution
channels:
UC LENDING, the Company's retail operation, consisted of 185 offices
in 42 states at year end 1996. During 1996, UC Lending originated
$1.1 billion in home equity loans compared to $939.1 million for 1995,
representing an increase of 18%. During 1996, UC Lending strengthened
its branch network by opening 45 new offices while closing 10 offices,
ending the year with 185 offices in 42 states. Also in 1996, UC
Lending focused on employee training programs, which included training
over 1,000 originators.
UNICOR, one of the Company's wholesale operations, produced $570.1
million in home equity loans in 1996 compared to $423.0 million for
1995, representing an increase of 35%. UNICOR continued to target the
broker and correspondent community and was successful in adding an
additional 770 brokers and correspondents for a total at year end 1996
of approximately 2,840. Geographically, UNICOR expanded its
operations to an additional 4 states for a total of 48 at year end.
GINGER MAE, another of the Company's wholesale operations which
operates through financial institutions (banks, thrifts and credit
unions), produced $118.9 million in home equity loans in 1996 compared
to $50.8 million in 1995. GINGER MAE increased the number of
financial institutions it serves from 240 at year end 1995 to 342 in a
total of 26 states at year end 1996.
SOUTHERN MORTGAGE ACQUISITION, which purchases home equity loans in
bulk, produced $441.4 million in home equity loans in 1996 compared to
$128.6 million for 1995.
UNITED COMPANIES FUNDING, the Company's manufactured housing lender,
completed its first full year of operations by producing $118.8
million in contracts in 1996. The manufactured housing unit
originates loan products through dealers and directly to the consumer.
At year end 1996, UCFI operated in 31 states through 1,725 dealers.
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, 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.
In addition to home equity loans, the Company offers manufactured housing
loan products made primarily to finance the purchase of new or used
manufactured homes. These contracts are typically secured by (i) a security
interest in the manufactured home purchased with the proceeds of such contracts
or (ii) with respect to certain of the contracts, liens on the real estate to
which the related manufactured homes are deemed permanently affixed.
The Company also began offering in mid-1996 a secured credit card product
which is presently targeted to the Company's home equity loan customer base.
These credit cards are typically secured by a second lien, behind the Company's
first lien, on the borrower's residence.
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The following table reflects loan production by distribution network by
product type for the periods indicated:
1996 1995 1994
------------------------ ------------------------- -----------------------
AVERAGE AVERAGE AVERAGE
AMOUNT LOAN SIZE AMOUNT LOAN SIZE AMOUNT LOAN SIZE
------------- --------- ------------- --------- ---------- ---------
(IN THOUSANDS)
Home Equity
UC Lending
Fixed . . . . . . . . . . $ 680,481 38 $ 740,707 37 $ 679,466 38
ARM . . . . . . . . . . . 430,374 69 198,369 78 11,560 90
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1,110,855 939,076 691,026
UNICOR
Fixed . . . . . . . . . . 542,845 56 337,802 50 146,832 48
ARM . . . . . . . . . . . 27,259 107 85,208 104 45,248 97
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570,104 423,010 192,080
GINGER MAE
Fixed . . . . . . . . . . 115,079 71 44,497 59 9,864 55
ARM . . . . . . . . . . . 3,805 131 6,351 115 201 101
------------- ------------- ----------
118,884 50,848 10,065
SMA
Fixed . . . . . . . . . . 42,139 72 7,709 50 1,739 38
ARM . . . . . . . . . . . 399,306 111 120,894 156 13,911 58
------------- ------------- ----------
441,445 128,603 15,650
UCFI
Fixed . . . . . . . . . . . 3,170 52 - - - -
Manufactured housing --
chattel contracts
UC Lending . . . . . . . . 1,289 18 - - - -
UCFI . . . . . . . . . . . 115,631 30 887 - - -
------------- ------------- ----------
116,920 887 -
Total Production . . . $ 2,361,378 $ 1,542,424 $ 908,821
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As of December 31, 1996, approximately 96.8% 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 3.2% in aggregate principal amount secured by
second or multi-property mortgages. During 1996, approximately $2.2 billion in
first mortgage home equity loans and $67 million in second mortgage and
multi-property home equity mortgage loans were originated or acquired by the
Company. In the case of 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 1996 was
11.2%, compared to 11.6% during 1995. Costs incurred by the borrower for loan
origination, including origination points and appraisal, legal and title fees,
are often included in the amount financed.
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 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.
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The Company's manufactured housing lending program is primarily conducted
through UCFI. UCFI may (i) purchase contracts from approved manufactured
housing dealers ("indirect financing"), (ii) originate contracts directly with
individual owners or purchasers of manufactured homes ("direct financing") or
(iii) make bulk purchases of contracts originated or acquired by other lending
institutions or finance companies. These contracts are generally secured by a
security interest in the manufactured home purchased with the proceeds of the
loan. Through its affiliates, UCFI also originates contracts ("land and home
contracts") which, in addition to being secured by security interests in the
manufactured homes, are secured by liens on the real estate to which the
manufactured homes are deemed permanently affixed. Manufactured home contracts
are generally subject to minimum down payments of approximately 10% of the
amount financed and the term of the contracts do not exceed 30 years. At
December 31, 1996, UCFI was licensed to conduct business in 31 states.
Through its regional managers, UCFI purchases manufactured housing
contracts from manufactured housing dealers. UCFI's regional managers contact
dealers located in their region and explain UCFI's available financing plans,
terms, prevailing rates and credit and financing policies. If the dealer
wishes to use UCFI's available customer financing, the dealer must make an
application for dealer approval. Upon satisfactory results of UCFI's
investigation of the dealer's creditworthiness and general business reputation,
UCFI and the dealer execute a dealer agreement. As of December 31, 1996, the
dealers with which UCFI has entered into dealer agreements are located in 31
states.
UCFI provides indirect financing only for manufactured homes which are
manufactured by an approved manufacturer. Approval may be requested by a
dealer or a manufacturer. If UCFI's review of the manufacturer's
creditworthiness and general business reputation is satisfactory, UCFI will
approve the manufacturer's products as being eligible for indirect financing.
All contracts that UCFI purchases from dealers are written on forms
provided by UCFI and are purchased on an individually approved basis. The
dealer submits the customer's credit application and purchase order to UCFI's
executive offices where UCFI's underwriters make an analysis of the
creditworthiness of the proposed buyer. If the application meets UCFI's
guidelines and the credit is approved, UCFI purchases the contract after the
manufactured home is delivered and set up and the customer has been contacted
by telephone to obtain the customer's approval of the manufactured home and the
delivery and set-up of the manufactured home.
Financing is also provided directly to individuals who own or wish to
purchase manufactured homes. The customer's credit application is submitted to
UCFI or one of its affiliate's executive offices where the underwriters make an
analysis of the creditworthiness of the customer. A customer's application
will also be accepted over a toll-free telephone number established for that
purpose. If the telephone application receives preliminary approval, it is
further processed as with other customer applications.
Manufactured housing contracts originated or acquired by other lending
institutions or finance companies may also be purchased by the Company. Each
contract so purchased will be re-underwritten prior to the purchase thereof
using the then-current underwriting standards.
Underwriting. Home equity loans. Supervision of the underwriting staff is
centralized, however, each of the Company's distribution networks for home
equity loans has its own staff of underwriters in order to provide better
service to its respective customers. 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 the prospective borrower's
ability and willingness to repay the loan and the adequacy of the real property
security as collateral for the loan granted. On a case-by-case basis, home
equity loans may be made which vary from the underwriting guidelines; however,
such variations are approved by the home office underwriting department.
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6
The Company originates fixed-rate home equity loans with original terms to
maturity not to exceed: 360 months for single family, owner occupied first
mortgages; 360 months for single family, non-owner occupied first mortgages;
360 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 in the case of
loans secured by first liens, and $150,000 in the case of loans secured by
second liens, in each case unless a higher amount is specifically approved by
the applicable underwriters.
All of the fixed-rate home equity loans are fully amortizing, except for
Balloon Loans which comprise 5.6% of the portfolio. UNICOR originates and the
Company's other distribution networks may originate fixed-rate loans with an
original term to maturity ranging from 60 to 240 months and a longer
amortization schedule ranging from 180 to 360 months ("Balloon Loans").
Balloon Loans must be secured by first liens on residential properties. UNICOR
and GINGER MAE also originate fixed-rate home equity loans which provide that
the interest rate may decrease by one percentage point if the borrower makes
the first 12 consecutive monthly payments without a delinquency. At that time,
the monthly payments will be recalculated to fully amortize the loan at the
reduced rate over the remaining term to maturity. Adjustable rate home equity
loans generally amortize fully over a period not to exceed 360 months. The
maximum loan amount for adjustable-rate home equity loans is $500,000 unless a
higher amount is specifically approved by the applicable underwriters.
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, such 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. Certain loans may be secured by a leasehold
interest and the improvements thereon. 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 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.
Manufactured housing contracts. The underwriting of manufactured housing
contracts focuses primarily on the borrower's willingness and capacity to repay
the debt. The analysis includes application of a credit scoring system and a
review of the applicant's paying habits, length and likelihood of continued
employment, and certain other factors. The Company's current underwriting
guidelines for conventional contracts limit the maximum loan size to $200,000
in the case of chattel contracts (i.e., manufactured housing installment sales
contracts and manufactured housing installment loan agreements) and $300,000 in
the case of land-and home contracts (i.e., contracts where the manufactured
home is deemed permanently affixed to the real estate on which it is located).
Appraisals on used manufactured homes are performed by employees of the Company
or by independent appraisers approved by the Company. The appraisals of such
independent appraisers are validated by the Company's personnel through a
review of the National Automobile Dealers Association base values and on-site
inspections. The Company applies substantially the same loan-to-value ratio,
appraisal and other underwriting standards and procedures to the land-and-home
contracts as are applied to other home equity loans.
Loan-to-Value. Home equity loans. 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 Company's wholesale operations, the maximum
loan-to-value is 90%, with the maximum for rural properties generally
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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 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. However, the loan-to-value ratio may not exceed 100%.
Manufactured housing contracts. The "Value" used to calculate the original
loan-to-value ratios of the contracts originated by UCFI is equal to (i) in the
case of a chattel contract on a new manufactured home, the total cost of such
manufactured home (allowing for the standard industry dealer markup of 30%),
including sales and other taxes, filing and recording fees imposed by law and
premiums for related insurance and optional equipment up to 25% of the base
invoice and set-up fees, (ii) in the case of a chattel contract on a used
manufactured home, either the total delivered sales price for such manufactured
home, if available, or its appraised market value, plus, in either case, each
of the following to the extent that the inclusion thereof does not exceed the
appraised value of the manufactured home: sales and other taxes, filing and
recording fees imposed by law and premiums for related insurance, or (iii) in
the case of real estate securing a land-and-home contract, the total sales
price of the real estate and the manufactured home together. "Value" used to
calculate the original loan-to-value ratios of manufactured housing contracts
originated by other distribution networks of the Company or acquired from third
parties will equal the lesser of the appraised value or, in the case of a
purchase, the purchase price of the manufactured home and the related real
estate to which the manufactured home is permanently affixed.
With respect to conventional chattel contracts for new manufactured homes,
the Company may finance up to the lesser of (a) 95% of the cash sale price
(including taxes, fees and insurance) of the manufactured home or (b) 130% of
the manufacturer's invoice price of the manufactured home plus 100% of taxes,
license fees and freight charges, 100% of the dealer's cost of additional
dealer-installed equipment (not to exceed 25% of the base price of the
manufactured home), and up to $1,500 of set-up costs per module. With respect
to used manufactured homes, the Company may finance up to 100% of the lesser of
(a) the total delivered sales price of the manufactured home (including taxes,
fees, insurance and up to $1,500 of set-up costs per module), or (b) the
appraised value of the manufactured home. Taxes, fees, and insurance may be
included in the amount financed up to a maximum of 100% of the appraised value
of the used manufactured home. The guidelines in this paragraph may be
exceeded when the Company's underwriters deem it appropriate.
Creditworthiness. Home equity loans/manufactured housing contracts.
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.
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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.
Other requirements. The Company generally requires title insurance
coverage on each home equity loan or land and home manufactured housing
contract it originates.
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.
Loan sales and securitizations. Substantially all of the home equity loans
and manufactured housing contracts originated or purchased by the Company are
sold. Since 1985, the Company has sold home equity 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 shelf
registration statements filed with the Securities and Exchange Commission by
subsidiaries of the Company. Approximately $5.2 billion of pass-through
certificates backed primarily by first mortgage home equity loans originated or
purchased by the Company through its distribution networks have been issued
under the registration statements and publicly sold since 1993. During 1996, a
subsidiary of the Company filed a shelf registration statement with the
Securities and Exchange Commission for the sale of manufactured housing
contract pass-through certificates. The registration statement was declared
effective in September of 1996 and the Company issued and publicly sold
approximately $164 million of such certificates during the third and fourth
quarters of 1996. 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 statements will depend upon market and
other conditions affecting the operations of the Company.
The following table reflects certain information regarding home equity loan
production and sales during the indicated periods:
1996 1995 1994
------------ ------------ ------------
Home equity loan production . . . . . . . . . . . . $ 2,244,458 $ 1,541,537 $ 908,821
Home equity loan sales . . . . . . . . . . . . . . $ 2,245,406 $ 1,471,868 $ 977,653
Average coupon on loans sold . . . . . . . . . . . 11.20% 11.67% 11.80%
Interest spread retained on loans sold . . . . . . 4.80% 4.98% 4.49%
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.
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The Company's home equity loan securitization transactions are credit
enhanced and the certificates issued pursuant thereto have received ratings of
"Aaa" from Moody's Investors Service, Inc., "AAA" from Standard & Poor's, a
division of The McGraw-Hill Companies, Inc. and "AAA" from Fitch Investors
Service L.P. 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
and MBIA Insurance Corporation as third party insurers. Credit enhancement for
one of the manufactured housing securitization transactions was achieved in
part through a guaranty provided by a third party insurer and by a
senior/subordinated structure for the other transaction. The certificates
issued pursuant to the manufactured housing securitizations have received
investment grade ratings by nationally recognized rating agencies.
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 home equity loans and manufactured housing contracts
(sometimes referred to collectively herein as "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, 1996, the Company's balance sheet reflected
capitalized excess servicing income of approximately $426 million. The
Company's allowance for loan losses includes an allowance of approximately
$73.1 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
value of the balance of capitalized excess servicing income on home equity
loans reflected on the Company's balance sheet at December 31, 1996, 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. Conversely, if the rate of prepayment and/or
delinquencies is less than the amount assumed in determining loan sale gains,
servicing income will be positively affected in future periods.
9
10
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. 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 monthly statements 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. With respect to
adjustable-rate home equity loans, the Company provides written notices to
borrowers of upcoming rate adjustments reflecting the adjusted payment amounts.
The Company, as master servicer, is required under each loan sale agreement
to service the mortgage loans or manufactured housing contracts, as the case
may be, either directly or through sub-servicers. Substantially all servicing
activities are centralized at the home office.
The contractual balances of loans owned and/or serviced, excluding real
estate owned and/or serviced, by the Company were as follows for the dates
indicated:
DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN THOUSANDS)
Owned and serviced:
Home equity . . . . . . . . . . . . . . . . $ 4,040,138 $ 2,701,481 $ 1,683,698
Commercial . . . . . . . . . . . . . . . . - 251,241 274,413
Manufactured housing . . . . . . . . . . . 115,137 888 -
Other . . . . . . . . . . . . . . . . . . . 46,846 58,554 74,294
------------ ------------ ------------
Total . . . . . . . . . . . . . . . $ 4,202,121 $ 3,012,164 $ 2,032,405
============ ============ ============
Under the terms of the sale of UCLIC, servicing of commercial real estate
loans owned by UCLIC and pass-through certificates owned by third parties and
UCLIC which are backed by commercial real estate loans originated by the
Company were transferred from the Company to UCLIC at the closing of the sale
in July, 1996.
At December 31, 1996, 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
$7.8 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.
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Delinquency and Loss Experience. The following two tables set forth
information relating to delinquency, default and loan loss 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,
--------------------------------------------
1996 1995 1994
------------ ---------- ----------
(DOLLARS IN THOUSANDS)
Number of home equity loans . . . . . . . . . 88,491 69,723 52,289
Dollar amount of home equity loans . . . . . $ 4,040,138 $2,701,481 $1,683,698
Delinquency period(1)
30-59 days . . . . . . . . . . . . . . . . 3.39% 2.73% 2.13%
60-89 days . . . . . . . . . . . . . . . . 1.31% 0.61% 0.46%
90 days and over . . . . . . . . . . . . . 0.71% 0.28% 0.17%
Defaults
Foreclosures in process . . . . . . . . . . 3.36% 2.78% 3.01%
Bankruptcy . . . . . . . . . . . . . . . . 1.83% 1.75% 1.90%
- ------------
(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.
DECEMBER 31,
--------------------------------------------------
1996 1995 1994
--------------- -------------- --------------
(IN THOUSANDS)
Average dollar amount of home equity loans
outstanding during period . . . . . . . . . . . $ 3,370,810 $ 2,192,590 $ 1,404,419
Net losses
Gross Losses(1) . . . . . . . . . . . . . . . . $ 19,484 $ 13,818 $ 12,745
Recoveries(2) . . . . . . . . . . . . . . . . . (2,371) (1,597) (1,051)
--------------- -------------- --------------
Net Losses(3) . . . . . . . . . . . . . . . . . $ 17,113 $ 12,221 $ 11,694
=============== ============== ==============
(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".
Delinquent manufactured housing contracts (which for purposes hereof
includes land and home contracts and chattel contracts) totaled $2.5 million,
or 1.47% of the manufactured housing contracts owned and/or serviced at
December 31, 1996.
The above delinquency, default and loan loss experience represents the
Company's recent experience. However, the delinquency, default 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, defaults and
losses on the home equity loans could be higher than those theretofore
experienced in the residential 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, defaults 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, defaults or losses in the future on home equity
loans and no assurance can be given that the delinquency, default and loss
experience presented in the tables will be indicative of such experience on
home equity loans.
11
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OTHER OPERATIONS
The Company has developed an office park which includes its home office
building and investment properties owned by the Company. The Company owns
three office buildings which have approximately 350,000 square feet of which
130,000 square feet were used by the Company and its subsidiaries at December
31, 1996. In addition, United Companies Realty and Development Co., Inc. ("UC
Realty"), a wholly owned subsidiary of the Company, is a general partner in the
ownership of a 100,000 square foot office building, also located in the office
park. All of the investment properties were approximately 100% leased at
December 31, 1996. UC Realty manages each of these properties as well as an
additional 58,000 square foot building in the park owned by a third party.
During 1996, UC Realty began construction of a 103,000 square foot office
building, also located in the office park, substantially all of which will be
used by the Company. The Company also operates a homeowners insurance agency
and engages in telecommunications business which provides telephone service to
the home office and tenants in the office park, neither 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 to the Notes to Consolidated Financial
Statements.
GOVERNMENT REGULATION AND LEGISLATION
The Company's 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
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 which are material to its operations 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
12
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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, 1996, the
retail division of the Company's mortgage lending operations were conducted in
42 states from 4 locations owned by the Company in 4 cities and from 181
additional leased offices in 179 cities. The offices owned or leased range in
size from approximately 1,000 square feet to 3,650 square feet; leases expire
from 1997 to 2002, excluding renewal options. Operations of the Company's
manufactured housing lending subsidiary are based in Minneapolis, Minnesota in
leased offices totaling approximately 34,000 square feet. During 1996,
aggregate annual rental expense for leased office space was approximately $6.5
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 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 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 back to the
district court 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 by the trustee to
range from $2 million to $29 million. On November 22, 1996, the district court
referred the case to the bankruptcy court for adjudication. The bankruptcy
court has not yet scheduled the case for trial. Management of the Company does
not believe that any additional amounts are owed by the Company to FMC
13
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or the trustee and is vigorously contesting the claims which have been brought
against it for such amounts by the trustee. The Company did not guarantee any
debt of FMC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
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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
On September 20, 1996, the Company's Common Stock began trading on the
New York Stock Exchange (the "NYSE") under the symbol "UC". Prior to that
date, the Company's Common Stock 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 NYSE subsequent to September 20, 1996 and on the
Nasdaq Stock Market prior to this date and the per share cash dividends
declared. All amounts have been adjusted for stock dividends.
SALES PRICES
------------------------------ CASH
HIGH LOW DIVIDENDS
------------ ------------ -------------
1996
First Quarter . . . . . . . . . . . . . . . . . $ 32.750 $ 22.25 $ .07
Second Quarter . . . . . . . . . . . . . . . . 36.750 28.00 .07
Third Quarter . . . . . . . . . . . . . . . . . 39.250 28.50 .07
Fourth Quarter . . . . . . . . . . . . . . . . 34.625 25.00 .08
-------------
Total . . . . . . . . . . . . . . . . . $ .29
=============
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
=============
__________
(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.
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.)
Number of Common Equity Security Holders
APPROXIMATE NUMBER OF COMMON EQUITY SECURITY HOLDERS
APPROXIMATE NUMBER OF SHAREHOLDERS
TITLE OF CLASS AS OF MARCH 5, 1997
-------------- -------------------
Common Stock, $2.00 par value 3,082
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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)
----------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Total revenues . . . . . . . . . . $ 356,874 $ 260,289 $ 182,538 $ 123,876 $ 84,814
Total expenses . . . . . . . . . . 223,017 157,624 107,544 83,450 68,014
----------- ----------- ----------- ----------- ----------
Income from continuing
operations before income
taxes . . . . . . . . . . . . . 133,857 102,665 74,994 40,426 16,800
Provision for income taxes . . . . 47,665 37,740 26,298 13,751 6,164
----------- ----------- ----------- ----------- ----------
Income from continuing
operations . . . . . . . . . . . 86,192 64,925 48,696 26,675 10,636
Income (loss) from
discontinued operations(1) . . . (4,532) 4,543 838 (15,100) (390)
------------ ----------- ----------- ----------- -----------
Net income . . . . . . . . $ 81,660 $ 69,468 $ 49,534 $ 11,575 $ 10,246
============ =========== =========== =========== ===========
PER SHARE DATA (4):
Primary:
Income from continuing
operations . . . . . . . . . . $ 2.69 $ 2.13 $ 1.71 $ 1.19 $ .54
Income (loss) from
discontinued operations . . . (.14) .15 .03 (.68) (.02)
------------ ----------- ----------- ----------- -----------
Net income . . . . . . . . $ 2.55 $ 2.28 $ 1.74 $ .51 $ .52
============ =========== =========== =========== ===========
Fully Diluted:
Income from continuing
operations . . . . . . . . . . $ 2.64 $ 2.10 $ 1.71 $ 1.13 $ .54
Income (loss) from
discontinued operations. . . . (.14) .15 .03 (.64) (.02)
------------ ----------- ----------- ----------- -----------
Net income . . . . . . . . $ 2.50 $ 2.25 $ 1.74 $ .49 $ .52
=========== =========== =========== =========== ==========
Weighted average shares
outstanding
Primary . . . . . . . . . . . . 31,994 30,501 28,490 22,208 19,834
Fully diluted . . . . . . . . . 32,676 30,903 28,490 23,706 19,834
Cash dividends . . . . . . . . . . $ .29 $ .20 $ .1818 $ .1546 $ .1364
Book value per
common share . . . . . . . . . . $ 11.73 $ 9.47 $ 7.38 $ 5.73 $ 4.85
Return on common equity
(continuing operations) . . . . . . 26.5% 26.2% 27.4% 21.1% 11.5%
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YEAR ENDED DECEMBER 31
--------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ----------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA -- YEAR END:
Temporary
investments -- reserve
accounts . . . . . . . . . . . $ 251,183 $ 155,254 $ 81,980 $ 27,672 $ 7,627
Loans . . . . . . . . . . . . . . 122,891 74,877 51,598 66,417 70,067
Capitalized excess servicing
income . . . . . . . . . . . . 426,393 280,985 174,031 105,907 60,678
Total assets . . . . . . . . . . 1,002,516 760,184 514,197 389,499 323,001
Notes payable . . . . . . . . . . 425,671 265,756 223,668 165,500 191,100
Total liabilities . . . . . . . . 582,239 407,710 312,112 236,132 226,744
Stockholders' equity . . . . . . 420,277 352,474 202,085 153,368 96,258
OTHER DATA:
Total loan production . . . . . . $ 2,361,378 $ 1,542,424 $ 908,821 $ 539,868 $ 301,234
Home equity loan production . . . 2,244,458 1,541,537 908,821 539,868 301,234
Average home equity loan
size . . . . . . . . . . . . . 56 49 41 39 28
Home equity loans
serviced -- year end(3) . . . 4,040,138 2,701,481 1,683,698 1,125,139 819,448
Total loans serviced --
year end(3) . . . . . . . . . 4,202,121 3,012,164 2,032,405 1,568,781 1,367,822
Average coupon on home equity
loans produced . . . . . . . . 11.2% 11.6% 11.7% 11.8% 13.4%
Loan origination fees as % of
home equity loans . . . . . . 3.7% 4.4% 5.9% 7.0% 7.9%
Weighted average interest
spread retained on home
equity loans sold . . . . . . 4.80% 4.98% 4.49% 6.06% 4.56%
- ----------
(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 No. 122") which revised the method
of accounting for mortgage servicing rights on loans originated by the
Company. 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. 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.
(3) Excludes real estate owned and/or serviced.
(4) All share and per share data have been adjusted to reflect stock
dividends.
17
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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 and identifies the major factors which influenced the results
of operations of the Company during the indicated periods.
The Company's lending 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 lending
operations is the sale of loans with servicing rights retained. The majority of
the Company's revenue is derived from the 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
as an adjustment to yield using the interest method.
The Company sells substantially all of its loan production in public
securitization transactions through shelf registration statements of its
subsidiaries. During 1996, 1995 and 1994, the Company sold publicly $2.2
billion, $1.5 billion and $973 million, respectively, of pass-through
certificates backed by its home equity loans and, during 1996, $164 million of
pass-through certificates backed by its manufactured housing contracts.
The Company's lending 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
lending 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.
The weighted average interest spread on home equity loans sold to
third parties (the difference between the stated rate on the loan and the rate
paid to purchasers, less recurring fees) was 4.80%, 4.98% and 4.49% in 1996,
1995 and 1994, respectively. The weighted average interest spread on loans
sold is determined without regard to credit losses, which are provided for
separately by the Company.
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-
18
19
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. The sales price of
$167.6 million 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.
Subsequent to the closing, the Company received notification from the
purchaser alleging that it is entitled to a $2.2 million reduction in the sales
price. The Company denies that the purchaser is entitled to any reduction. In
addition, at December 31, 1996, the Company had not received payment of a $2.5
million intercompany receivable due from UCLIC at the date of sale.
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 and $1.1 million in 1996 in connection with
the sale of UGTIC.
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
19
20
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 back to the district court
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. On
November 22, 1996, the district court referred the case to the bankruptcy court
for adjudication. The bankruptcy court has not yet scheduled the case for
trial. Management of the Company does not believe that any additional amounts
are owed by the Company to FMC or the trustee and is vigorously contesting 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.
1996, 1995 AND 1994 RESULTS OF OPERATIONS
Net income for 1996 was $81.7 million ($2.50 per share based on 32.7
million weighted average shares outstanding) compared to $69.5 million for 1995
($2.25 per share based on 30.9 million weighted average shares outstanding) and
$49.5 million for 1994 ($1.74 per share based on 28.5 million weighted average
shares outstanding). The increase in net income in 1996 resulted primarily
from an increase in the amount of loans sold and the gain and fees recognized
in connection therewith. Net income for 1996 was reduced by losses of $4.5
million recognized in connection with the Company's decisions to divest its
insurance subsidiaries, United Companies Life Insurance Company and United
General Title Insurance Company. Net income for 1995 and 1994 was increased by
$4.5 million and $.8 million, respectively, as the result of net income earned
by these subsidiaries.
Revenues. The following table sets forth information regarding the
components of the Company's revenues for the years ended December 31, 1996,
1995 and 1994.
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------- -------------- ------------
(IN THOUSANDS)
Loan sale gains . . . . . . . . . . . . . . . . . . .$ 199,030 $ 142,156 $ 86,735
Finance income, fees earned and other loan income . . 139,622 105,398 89,172
Investment income . . . . . . . . . . . . . . . . . . 13,156 7,403 2,963
Other . . . . . . . . . . . . . . . . . . . . . . . . 5,066 5,332 3,668
------------- -------------- ------------
Total . . . . . . . . . . . . . . . . . . .$ 356,874 $ 260,289 $ 182,538
============= ============== ============
Loan sale gains approximate the present value for the estimated lives
of the loans (which includes for purposes hereof manufactured housing
contracts) 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 securitization transactions. Loan
sale gains for 1996, 1995 and 1994 was reduced by $47.6 million, $27.9 million
and $19.3 million, respectively, to provide for estimated future losses on
loans sold. The increase in the amount of loan sale gains was due primarily to
a $774 million and a $494 million increase in the amount of home equity loans
sold during 1996 and 1995, respectively, which increase was partially offset by
a decrease in the interest spread retained by the Company and an increase in
the constant prepayment rate used in the computation of loan sale gains in
1996. Loan sale gains in 1996 was increased by $12.0 million as the result of
the securitization and public sale of approximately $164 million in
manufactured housing contracts. Loan sale gains are reduced by estimated
future credit losses on loans sold, transaction expenses and loan acquisition
premiums. In addition, as further discussed in Note 1.2(c), during the third
quarter of 1995, the Company implemented a new accounting pronouncement which
required the capitalization of mortgage servicing rights on loans originated or
purchased by the Company. Loan sale gains in 1996 includes the capitalization
of mortgage servicing rights in the amount of $20.9 million compared to $6.0
million in 1995.
20
21
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 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.
Loan sale gains were increased in 1996 by approximately $.8 million and reduced
by approximately $5.5 million in 1995 as the result of hedge transactions.
There were no open hedge positions at December 31, 1996 or 1995.
The following table presents information regarding loan sale
transactions for the periods indicated.
HOME EQUITY LOANS MANUFACTURED HOUSING CONTRACTS
------------------------------------- --------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------------- --------------------------------
1996 1995 1994 1996 1995 1994
----------- ---------- ------- ------------ ------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
Loans sold . . . . . . $ 2,245,406 $1,471,868 $ 977,653 $ 163,999 $ - $ -
Average coupon . . . . 11.20% 11.67% 11.80% 11.20% - -
Interest spread
retained . . . . . 4.80% 4.98% 4.49% 3.55% - -
Loan sale gains . . . . $ 187,029 $ 142,156 $ 86,735 $ 12,001 $ - $ -
Fluctuations in and the level of market interest rates will impact the
interest spread retained by the Company on loans sold (which includes for
purposes hereof manufactured housing contracts) 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 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 securitization transactions which closed in
the fourth quarter of 1996, approximately $16.3 million was held in a
prefunding account for purchase of the Company's loans and contracts during the
first quarter of 1997. Such loans and contracts were delivered in February,
1997.
Finance income, fees earned and other loan income was comprised of the
following items for the periods indicated:
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
(IN THOUSANDS)
Servicing fees earned . . . . . . . . . . . . $ 135,599 $ 89,410 $ 62,807
Loan origination fees . . . . . . . . . . . . 84,608 68,442 56,576
Loan interest . . . . . . . . . . . . . . . . 21,482 9,238 685
Other loan income . . . . . . . . . . . . . . 10,032 8,576 7,347
Amortization . . . . . . . . . . . . . . . . (112,099) (70,268) (38,243)
------------ ------------ ------------
Total . . . . . . . . . . . . . . . $ 139,622 $ 105,398 $ 89,172
============ ============ ============
The increase in servicing fees earned reflects the growth in the
portfolio of loans serviced for third parties. The average portfolio of loans
serviced for third party investors was $3.4 billion, $2.5 billion and $1.8
billion for 1996, 1995 and 1994, respectively.
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 1996, 1995 and 1994, the
21
22
Company sold approximately $2.2 billion, $1.5 billion and $978 million,
respectively, in home equity loans and recognized approximately $44.1 million,
$36.0 million and $32.5 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 loan interest for
1996, 1995 and 1994 by approximately $21.7 million, $13.3 million and $10.3
million; respectively. The Company is generally obligated to advance interest
on delinquent loans serviced for third party investors until satisfaction of
the note, liquidation of the collateral or charge off of the delinquent loan.
During 1996, the average amount of non accrual loans owned and/or serviced by
the Company was $166 million compared to approximately $105 million and $81
million in 1995 and 1994, respectively.
Other loan income primarily includes insurance commissions and
ancillary loan income.
Investment income totaled $13.2 million for 1996 compared to
investment income of $7.4 million and $3.0 million during 1995 and 1994,
respectively. Investment income is primarily related to interest earned on
temporary investments reserve accounts. Investment income in 1996 also
includes approximately $2.4 million in unrealized gain on investments
classified as trading securities.
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,
-------------------------------------------
1996 1995 1994
------------- ----------- -----------
(IN THOUSANDS)
Personnel . . . . . . . . . . . . . . . . . $ 96,313 $ 70,762 $ 52,421
Interest . . . . . . . . . . . . . . . . . 38,626 25,559 13,362
Loan loss provision . . . . . . . . . . . . 14,049 11,973 8,398
Other operating . . . . . . . . . . . . . . 74,029 49,330 33,363
------------- ----------- -----------
Total . . . . . . . . . . . . . . $ 223,017 $ 157,624 $ 107,544
============= =========== ===========
The increase in personnel costs are primarily associated with the
expansion of the Company's lending operations. Approximately 23% of the
increase in personnel costs in 1996 compared to 1995 is related to the startup
of the Company's manufactured housing lending operations. The remaining
increase is primarily related to expansion of the Company's other lending
distribution networks and incentive compensation related to an increase in home
equity loan production.
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.
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. The increase in the
loan loss provision is primarily related to an increase in the amount of charge
offs in the portfolio of home equity loans owned and/or serviced. During 1996,
1995 and 1994, the Company charged off $19.5 million, $13.8 million and $12.7
million in home equity loans, respectively.
Interest expense for 1996 increased approximately $13.1 million
compared to 1995 principally due to an increase in the average amount of debt
outstanding, primarily warehouse financing. Interest expense for 1995
increased approximately $12.2 million compared to 1994 primarily as a result of
an increase in the weighted average interest rate and an increase in the
average amount of debt outstanding.
22
23
Other operating expenses increased approximately $24.7 million and
$16.0 million during 1996 and 1995, respectively, primarily as the result of
costs associated with the expansion of the Company's lending operations.
During 1996, 1995 and 1994, advertising expense totaled $12.9 million, $9.0
million and $3.1 million and occupancy and equipment expenses were $15.6
million, $10.9 million and $8.0 million, respectively.
ASSET QUALITY AND RESERVES
The quality of the loans owned and those 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 home equity loans and manufactured housing
contracts produced by the Company are sold in securitization transactions in
which securities backed by these loans and contracts ("pass-through
certificates") are publicly offered and sold, with servicing rights retained.
The purchasers of the pass-through certificates receive a credit enhanced
security which is provided in part in home equity loan securitizations through
a guaranty provided by a third party insurer or, in connection with the initial
manufactured housing contract securitization, through a senior/subordinated
structure. Credit enhancement for the pass-through certificates is also
provided by subordinating a cash deposit and the excess interest spread
retained by the Company to the payment of scheduled principal and interest on
the certificates. The subordination of the cash deposit and the excess
interest spread retained by the Company relates to credit losses which may
occur after the sale of the loans and contracts and generally continues until
the earlier of the payment in full of the loans or termination of the agreement
pursuant to which the loans and contracts were sold. If cumulative payment
defaults exceed the amount subordinated, a third party insurer, except in the
initial manufactured housing securitization, is obligated to pay any further
losses experienced by the owners of the pass- through certificates. Such
losses are borne first by the subordinated pass-through certificates in the
Company's initial manufactured housing contract securitization.
The Company is also obligated to cure, repurchase or replace loans and
contracts 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. For loans and contracts sold, the Company
records a provision for the estimated amount of credit losses at the time of
sale, and records such amount on its balance sheet in the allowance for loan
losses. Estimated losses on the owned portfolio are also provided for by an
increase in the allowance for loan losses through a charge to current operating
income. At December 31, 1996, the allowance for loan losses was $77.2 million.
The maximum recourse associated with sales of home equity loans and
manufactured housing contracts according to terms of the sale agreements
totaled approximately $854 million at December 31, 1996, of which amount
approximately $842 million relates to the subordinated cash and excess interest
spread. Should credit losses on loans and contracts sold materially exceed the
Company's estimates for such losses, such consequence will have a material
adverse impact on the Company's operations.
At December 31, 1996, the contractual balance of home equity loans
serviced was approximately $4.0 billion, substantially all of which are owned
by and serviced for third party investors. The portfolio is geographically
diversified. Although the Company services loans in 50 states, at December 31,
1996 a substantial portion of the home equity loans serviced were originated in
California (9.6%), Ohio (7.8%), Louisiana (7.8%) and Florida (7.6%),
respectively, and no other state accounted for more than 7% of the serviced
portfolio. In addition, at December 31, 1996, the Company serviced
approximately $115 million of manufactured housing contracts, 46% of which were
originated in Texas, 13% in South Carolina and 11% of which were originated in
each of the states of Georgia and North Carolina. The risk inherent in
geographic 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.
23
24
The following table provides certain contractual delinquency and
default information for home equity loans serviced as of the dates indicated:
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------- --------------------------- ----------------------------
% OF % OF % OF
CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL CONTRACTUAL
BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
----------- ----------- ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Home equity loans
serviced . . . . $ 4,040,138 $ 2,701,481 $ 1,683,698
=========== ============ ============
Delinquency
- -----------
30-59 days . . . $ 136,976 3.39% $ 73,723 2.73% $ 35,844 2.13%
60-89 days . . . 53,124 1.31 16,471 0.61 7,745 0.46
90+ days . . . . 28,663 0.71 7,562 0.28 2,818 0.17
----------- ----------- ------------ ------------ ------------ ------------
218,763 5.41 97,756 3.62 46,407 2.76
----------- ----------- ------------ ------------ ------------ ------------
Defaults
- --------
Foreclosures in
process . . . 135,779 3.36 75,104 2.78 50,738 3.01
Bankruptcy . . . 73,887 1.83 47,285 1.75 32,058 1.90
----------- ----------- ------------ ------------ ------------ ------------
209,666 5.19 122,389 4.53 82,796 4.91
----------- ----------- ------------ ------------ ------------ ------------
$ 428,429 10.60% $ 220,145 8.15% $ 129,203 7.67%
=========== =========== ============ ============ ============ ============
The contractual balances exclude home equity real estate owned and/or
serviced which totaled $53.7 million, $30.1 million and $20.6 million at
December 31, 1996, 1995 and 1994, respectively. The charge off rate on the
average home equity loan portfolio for 1996, 1995 and 1994 was .51%, .56% and
.84%, respectively.
In connection with the sale of UCLIC discussed in Note 11 to the Notes
to Consolidated Financial Statements, the servicing of substantially all of the
commercial real estate mortgage loans was transferred to UCLIC. The table
above excludes these loans which, prior to this transfer of servicing, were
serviced without recourse.
The following table provides certain contractual delinquency and
default data with respect to the Company's home equity loans serviced, by year
of loan origination, as of the dates indicated:
DECEMBER 31, 1996
------------------------------------------------------------------------------------------------
DEFAULTS
DELINQUENCY ----------------------------- TOTAL
CONTRACTUAL ---------------------------------- FORECLOSURES BANK- DELINQUENCY
YEAR OF ORIGINATION BALANCE 30-59 60-89 90+ TOTAL IN PROCESS RUPTCY TOTAL & DEFAULTS
- ------------------- ----------- ----- ----- ----- ----- ---------- ------ ----- -----------
(DOLLARS IN THOUSANDS)
1990 & prior . . . $ 75,252 5.12% 1.20% 1.22% 7.54% 5.97% 4.85% 10.82% 18.36%
1991 . . . . . . . 38,114 5.26% 0.97% 0.83% 7.06% 5.45% 6.59% 12.04% 19.10%
1992 . . . . . . . 63,842 4.74% 1.74% 1.97% 8.45% 5.87% 5.40% 11.27% 19.72%
1993 . . . . . . . 199,037 4.39% 1.28% 1.07% 6.74% 4.94% 5.05% 9.99% 16.73%
1994 . . . . . . . 451,224 5.15% 1.58% 0.92% 7.65% 4.70% 6.37% 11.07% 18.72%
1995 . . . . . . . 1,069,818 4.75% 2.12% 1.17% 8.04% 2.64% 6.26% 8.90% 16.94%
1996 . . . . . . . 2,142,851 2.11% 0.86% 0.35% 3.32% 0.20% 0.95% 1.15% 4.47%
-----------
Total . . . . . $ 4,040,138 3.39% 1.31% 0.71% 5.41% 3.36% 1.83% 5.19% 10.60%
===========
24
25
DECEMBER 31, 1995
------------------------------------------------------------------------------------------------
DEFAULTS
DELINQUENCY ----------------------------- TOTAL
CONTRACTUAL ---------------------------------- FORECLOSURES BANK- DELINQUENCY
YEAR OF ORIGINATION BALANCE 30-59 60-89 90+ TOTAL IN PROCESS RUPTCY TOTAL & DEFAULTS
- ------------------- ----------- ----- ----- ----- ----- ---------- ------ ----- -----------
(DOLLARS IN THOUSANDS)
1989 & prior . . . $ 68,275 3.39% 0.95% 0.34% 4.68% 5.51% 4.83% 10.34% 15.02%
1990 . . . . . . . 44,862 3.76% 0.47% 0.19% 4.42% 5.46% 5.56% 11.02% 15.44%
1991 . . . . . . . 57,815 4.22% 0.74% 0.36% 5.32% 5.35% 5.84% 11.19% 16.51%
1992 . . . . . . . 98,473 3.81% 0.90% 0.89% 5.60% 5.96% 6.22% 12.18% 17.78%
1993 . . . . . . . 298,882 3.72% 0.58% 0.39% 4.69% 3.63% 4.55% 8.18% 12.87%
1994 . . . . . . . 668,797 4.03% 0.90% 0.40% 5.33% 2.29% 4.45% 6.74% 12.07%
1995 . . . . . . . 1,464,377 1.74% 0.45% 0.16% 2.35% 0.41% 1.12% 1.53% 3.88%
------------
Total . . . . . $ 2,701,481 2.73% 0.61% 0.28% 3.62% 2.78% 1.75% 4.53% 8.15%
============
DECEMBER 31, 1994
------------------------------------------------------------------------------------------------
DEFAULTS
DELINQUENCY ----------------------------- TOTAL
CONTRACTUAL ---------------------------------- FORECLOSURES BANK- DELINQUENCY
YEAR OF ORIGINATION BALANCE 30-59 60-89 90+ TOTAL IN PROCESS RUPTCY TOTAL & DEFAULTS
- ------------------- ----------- ----- ----- ----- ----- ---------- ------ ----- -----------
(DOLLARS IN THOUSANDS)
1988 & prior . . . $ 64,458 2.34% 0.83% 0.55% 3.72% 6.07% 4.11% 10.18% 13.90%
1989 . . . . . . . 33,938 3.11% 0.54% 0.47% 4.12% 4.96% 6.67% 11.63% 15.75%
1990 . . . . . . . 64,682 3.16% 0.49% 0.47% 4.12% 5.83% 6.37% 12.20% 16.32%
1991 . . . . . . . 85,793 3.14% 0.77% 0.48% 4.39% 5.31% 6.36% 11.67% 16.06%
1992 . . . . . . . 146,178 3.41% 0.54% 0.40% 4.35% 5.58% 6.20% 11.78% 16.13%
1993 . . . . . . . 422,453 2.97% 0.66% 0.19% 3.82% 1.82% 3.96% 5.78% 9.60%
1994 . . . . . . . 866,196 1.27% 0.28% 0.02% 1.57% 0.27% 1.21% 1.48% 3.05%
------------
Total . . . . . $ 1,683,698 2.13% 0.46% 0.17% 2.76% 3.01% 1.90% 4.91% 7.67%
============
The above delinquency, default and loan loss experience represents the
Company's recent experience. However, the delinquency, default 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 and manufactured housing contracts nor predict whether or to what
extent or how long such declines may exist. In a period of such declines, the
rates of delinquencies, defaults and losses on the home equity loans and
manufactured housing contracts could be higher than those theretofore
experienced in the residential 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 manufactured housing contracts and,
accordingly, the actual rates of delinquencies, defaults and losses. As a
result, the information in the above tables should not be considered as the
only basis for assessing the likelihood, amount or severity of delinquencies,
defaults or losses in the future and no assurance can be given that the
delinquency, default and loss experience presented in the tables will be
indicative of such experience.
LIQUIDITY AND CAPITAL RESOURCES
The principal cash requirements of the Company's lending operations arise
from loan originations, deposits to reserve accounts, repayments of
inter-company debt borrowed under the Company's senior notes and short-term
borrowings, payments of operating and interest expenses, and income taxes
related to loan sale transactions. Loan production is funded principally
through proceeds of warehouse facilities pending loan sales. At December 31,
1996, the Company had three secured warehouse facilities available for its home
equity loan product: (i) a
25
26
warehouse facility provided by a syndicate of commercial banks (the "Commercial
Bank Warehouse"), (ii) a warehouse facility provided by the investment bank
which acted as lead underwriter for the Company's fourth quarter home equity
loan securitization (the "Investment Bank Warehouse"), and (iii) a warehouse
facility provided by UCLIC (the "UCLIC Warehouse"). In June, 1996, the
Commercial Bank Warehouse was increased from $150 million to $350 million and
the lenders' commitment was extended from May, 1997 to May, 1998. As of
December 31, 1996, $7.1 million was outstanding under the Commercial Bank
Warehouse. The Investment Bank Warehouse was directly related to the fourth
quarter home equity loan securitization, initially provided for funding up to
$500 million of eligible home equity loans for such securitization and
terminated upon the closing of the last delivery of loans under the prefunding
accounts relative to this securitization. As of December 31, 1996, $150
million was available and no amounts were outstanding under the Investment Bank
Warehouse. The UCLIC Warehouse, which was established upon the sale of UCLIC,
provides for the purchase of up to $300 million in first mortgage residential
loans and has a maturity of July, 1999. The Company has the right for a
limited time to repurchase certain loans which are eligible for securitization
and as of December 31, 1996, $16.6 million in loans eligible for securitization
were funded under this facility. In addition, the Company had a manufactured
housing contract warehouse which was directly related to the fourth quarter
manufactured housing securitization and was provided by the investment bank
which acted as lead underwriter for such securitization (the "Manufactured
Housing Warehouse"). The Manufactured Housing Warehouse initially provided for
funding up to $150 million of eligible manufactured housing contracts and
terminated upon the closing of the last delivery of contracts under the
prefunding accounts relative to this securitization. As of December 31, 1996,
$50 million was available and no amounts were outstanding under the
Manufactured Housing Warehouse.
Substantially all of the home equity loans and manufactured housing
contracts originated or acquired by the Company are sold. Net cash from
operating activities of the Company in 1996 and 1995 reflects approximately
$2.5 billion and $2.7 billion, respectively, in cash used for loan originations
and acquisitions of home equity loans and manufactured housing contracts. The
primary source of funding for loan originations is derived from the
reinvestment of proceeds from the ultimate sale of these products in the
secondary market which totaled approximately $2.5 billion and $2.7 billion in
1996 and 1995, respectively. In connection with the sale transactions in the
secondary market, third-party surety bonds (except in the case of the initial
manufactured housing contract securitization) and cash deposits by the Company
as credit enhancements have been provided. The loan sale transactions have
required the subordination of certain cash flows payable to the Company to the
payment of principal and interest due to certificate holders. In connection
with these transactions, the Company has been required, in some instances, to
fund an initial deposit, and thereafter, in each transaction, a portion of the
amounts receivable by the Company 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 and contracts underlying the
pass-through certificates issued until the total of the Company's deposits into
the reserve account equal the maximum subordination amount. 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, 1996, the amounts on
deposit in such reserve accounts totaled $251 million. In April, 1996, a
subsidiary of the Company entered into a letter of credit and reimbursement
agreement with the domestic branch of an international bank pursuant to which
the bank issued a letter of credit to replace a substantial portion of the cash
previously required to be maintained in the reserve accounts for five loan
securitization transactions consummated in 1993 and 1994. As a consequence,
$40 million was released from the related reserve accounts to the Company, and
these proceeds, net of transaction costs, were used to pay down outstanding
debt of the Company in April, 1996.
26
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RATINGS.
The Company, since 1994, has sold publicly three senior unsecured note
offerings which total in the aggregate $325 million. At December 31, 1996, all
of these senior notes, which have varying maturities, were rated "BBB" by Duff
and Phelps Credit Rating Co., and Fitch Investors Service, L.P., "BBB-" by
Standard & Poor's, a division of the McGraw-Hill Companies, Inc. and "Ba1" by
Moody's Investor Services, Inc. In addition, the certificates issued in
connection with the Company's home equity loan and manufactured housing
contract securitization transactions have received investment grade ratings
from one or more of these rating agencies.
ACCOUNTING STANDARDS.
In June, 1996 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" ("SFAS No. 125"). SFAS
No. 125 focuses on control of the financial asset and provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 provides certain
conditions that must be met to determine that control of the financial asset
has been surrendered. SFAS No. 125 requires that servicing assets and other
retained interests in the transferred assets be measured by allocating the
previous carrying amount between the assets sold, if any, and retained
interests, if any, based on their relative fair values at the date of transfer.
Implementation of SFAS No. 125 will require the Company to change the method of
calculating the gain on sale of loans. In addition, the retained interest will
be classified as a trading security under the provisions of SFAS No. 115 and,
as such, will be recorded at fair value with the resultant unrealized gain or
loss recorded in the results of operations in the period of change in value.
The statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. The
Company's analysis of the provisions of SFAS No. 125 is not complete at this
time and, therefore, the Company cannot estimate the impact of SFAS No. 125 on
the Company's financial results for the year ending December 31, 1997.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. This Annual Report on Form
10-K contains forward-looking statements that reflect the Company's current
views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The following non-exclusive factors
could cause actual results to differ materially from historical results or
those anticipated: (1) changes in the performance of the financial markets, in
the demand for and market acceptance of the Company's products, and in general
economic conditions, including interest rates; (2) the presence of competitors
with greater financial resources and the impact of competitive products and
pricing; (3) the effect of the Company's policies; and (4) the continued
availability to the Company of adequate funding sources.
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28
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, 1996
and 1995, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. 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, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
As discussed in Note 1.2(c) 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 present the
accounts of United Companies Life Insurance Company as discontinued operations.
DELOITTE & TOUCHE LLP
Baton Rouge, Louisiana
February 28, 1997
28
29
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------------------
1996 1995
---------------- ---------------
ASSETS (IN THOUSANDS)
- ------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,064 $ 5,284
Temporary investments -- reserve accounts . . . . . . . . . . . . . . . . . . 251,183 155,254
Capitalized excess servicing income . . . . . . . . . . . . . . . . . . . . . 426,393 280,985
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,891 74,877
Investment securities
Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,418 -
Available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,510 219
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . 61,483 36,897
Property -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,323 15,239
Net assets of discontinued operations . . . . . . . . . . . . . . . . . . . . - 163,293
Capitalized mortgage servicing rights . . . . . . . . . . . . . . . . . . . . 23,806 5,813
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,445 22,323
---------------- ---------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,002,516 $ 760,184
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 425,671 $ 265,756
Deferred income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 52,971 41,692
Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . 77,243 51,454
Managed cash overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27,052
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,354 21,756
---------------- ---------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 582,239 407,710
---------------- ---------------
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 3,910
Common stock, $2 par value;
Authorized -- 100,000,000 shares; Issued -- 29,627,734 and
29,302,246 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,255 58,604
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 184,397 179,848
Net unrealized gain on securities, net of income taxes . . . . . . . . . . 48 37
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,579 122,816
Treasury stock and ESOP debt . . . . . . . . . . . . . . . . . . . . . . . (17,912) (12,741)
---------------- ---------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . 420,277 352,474
---------------- ---------------
Total liabilities and stockholders' equity . . . . . . . . . . . $ 1,002,516 $ 760,184
================ ===============
See notes to consolidated financial statements.
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30
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Loan sale gains . . . . . . . . . . . . . . . . . . . . . $ 199,030 $ 142,156 $ 86,735
Finance income, fees earned and other loan income . . . . 139,622 105,398 89,172
Investment income . . . . . . . . . . . . . . . . . . . . 13,156 7,403 2,963
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,066 5,332 3,668
------------ ----------- ------------
Total . . . . . . . . . . . . . . . . . . . . . . 356,874 260,289 182,538
------------ ----------- ------------
Expenses:
Personnel . . . . . . . . . . . . . . . . . . . . . . . . 96,313 70,762 52,421
Interest . . . . . . . . . . . . . . . . . . . . . . . . 38,626 25,559 13,362
Loan loss provision . . . . . . . . . . . . . . . . . . . 14,049 11,973 8,398
Other operating . . . . . . . . . . . . . . . . . . . . . 74,029 49,330 33,363
------------ ----------- ------------
Total . . . . . . . . . . . . . . . . . . . . . . 223,017 157,624 107,544
------------ ----------- ------------
Income from continuing operations before income taxes . . . 133,857 102,665 74,994
Provision for income taxes . . . . . . . . . . . . . . . . 47,665 37,740 26,298
------------ ----------- ------------
Income from continuing operations . . . . . . . . . . . . . 86,192 64,925 48,696
Income (loss) from discontinued operations:
Income from discontinued operations, net of income tax
expense of $1,651, $2,980 and $491, respectively . . . 3,199 6,020 838
Loss on disposal, net of income tax benefit of $868
and $794, respectively . . . . . . . . . . . . . . . . (7,731) (1,477) -
------------ ----------- ------------
Total . . . . . . . . . . . . . . . . . . . . . . (4,532) 4,543 838
------------ ----------- ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 81,660 $ 69,468 $ 49,534
============ =========== ============
Per share data:
Income from continuing operations . . . . . . . . . . . . $ 2.64 $ 2.10 $ 1.71
Income (loss) from discontinued operations . . . . . . . (.14) .15 .03
------------ ----------- ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 2.50 $ 2.25 $ 1.74
============ =========== ============
See notes to consolidated financial statements.
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31
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------- ------------ -------------
(IN THOUSANDS)
Cash flows from continuing operating activities:
Income from continuing operations . . . . . . . . . . . . . . . . $ 86,192 $ 64,925 $ 48,696
Adjustments to reconcile income from continuing operations to net
cash provided by continuing operating activities:
Increase in accrued interest receivable . . . . . . . . . . . . (24,586) (14,603) (6,535)
Decrease (increase) in other assets . . . . . . . . . . . . . . 1,578 6,805 (9,437)
Increase (decrease) in other liabilities . . . . . . . . . . . 6,301 (5,843) (1,425)
Increase in capitalized excess servicing income . . . . . . . . (273,236) (187,624) (111,820)
Amortization of capitalized excess servicing income . . . . . . 128,275 80,670 43,706
Investment losses . . . . . . . . . . . . . . . . . . . . . . . - 56 29
Loan loss provision . . . . . . . . . . . . . . . . . . . . . . 42,181 29,311 22,282
Increase in capitalized mortgage servicing rights . . . . . . . (20,872) (5,986) -
Amortization of capitalized mortgage servicing rights . . . . 2,879 173 -
Amortization and depreciation . . . . . . . . . . . . . . . . . 4,571 2,815 1,504
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 11,273 31,952 15,022
Proceeds from sales and principal collections of loans held for
sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,481,500 2,671,761 1,891,869
Originations and purchases of loans held for sale . . . . . . . (2,534,441) (2,707,549) (1,889,043)
Increase from trading securities . . . . . . . . . . . . . . . (17,418) - -
------------- ------------ -------------
Net cash provided (used) by continuing operating
activities . . . . . . . . . . . . . . . . . . . . . . . (105,803) (33,137) 4,848
------------- ------------ -------------
Cash flows from discontinued operating activities . . . . . . . . - 1,569 (2,934)
------------- ------------ -------------
Cash flows from investing activities:
Increase in temporary investments -- reserve accounts . . . . . (95,929) (73,274) (54,308)
Proceeds from sales of available-for-sale securities . . . . . 413 95 -
Purchase of available for sale securities . . . . . . . . . . . - (76) -
Proceeds from disposition of insurance subsidiaries . . . . . . 106,870 - -
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (11,417) (9,627) (4,037)
------------- ----------- -------------
Net cash used by investing activities . . . . . . . . . . . (63) (82,882) (58,345)
------------- ----------- -------------
Cash flows from financing activities:
Proceeds from senior debt and mortgage loan . . . . . . . . . . 102,593 103,219 125,192
Decrease in revolving credit debt . . . . . . . . . . . . . . . - (72,163) (82,838)
Increase (decrease) in debt with maturities of three months or
less . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,100 (14,750) 14,250
Increase in warehouse loan facility . . . . . . . . . . . . . . 4,351 19,321 -
Proceeds from ESOP debt . . . . . . . . . . . . . . . . . . . . 6,350 6,283 -
Payments on ESOP debt . . . . . . . . . . . . . . . . . . . . . (1,179) (321) -
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . (13,897) (8,677) (5,050)
Increase (decrease) in managed cash overdraft . . . . . . . . . (27,052) 1,100 828
Proceeds from issuance of stock . . . . . . . . . . . . . . . . - 83,254 4,545
Increase in unearned ESOP compensation . . . . . . . . . . . . (5,171) (2,313) (2,434)
Proceeds from exercise of stock options and warrants . . . . . 1,551 3,086 542
------------- ------------ -------------
Net cash provided by financing activities . . . . . . . . . 114,646 118,039 55,035
------------- ------------ -------------
Increase (decrease) in cash and cash equivalents . . . . . . . . 8,780 3,589 (1,396)
Cash and cash equivalents at beginning of period . . . . . . . . 5,284 1,695 3,091
------------ ------------ -------------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 14,064 $ 5,284 $ 1,695
============= ============ =============
See notes to consolidated financial statements.
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32
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NET TREASURY
ADDITIONAL UNREALIZED STOCK AND TOTAL
PREFERRED COMMON PAID-IN GAIN (LOSS) RETAINED ESOP STOCKHOLDERS'
STOCK STOCK CAPITAL ON SECURITIES EARNINGS DEBT EQUITY
---------- --------- ----------- -------------- ------------ ----------- -------------
(in thousands)
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 . . 3,910 58,604 179,848 37 122,816 (12,741) 352,474
Net income . . . . . . . . . . 81,660 81,660
Dividends paid . . . . . . . . (13,897) (13,897)
Increase in ESOP debt . . . . . (5,171) (5,171)
Common stock options
exercised . . . . . . . . . . 651 4,002 4,653
Release of ESOP shares . . . . 547 547
Mark-to-market adjustment on
investments . . . . . . . . . 11 11
---------- --------- ----------- -------------- ------------ ----------- -------------
Balance, December 31, 1996 . . $ 3,910 $ 59,255 $ 184,397 $ 48 $ 190,579 $ (17,912) $ 420,277
========== ========= =========== ============== ============ =========== =============
See notes to consolidated financial statements.
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33
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. ACCOUNTING POLICIES
1.1 Principles of Consolidation. The consolidated financial statements
include the accounts and operations of United Companies Financial Corporation
and subsidiaries (the "Company" or "United Companies"), 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 and purchases loans (which
includes for purposes hereof manufactured housing installment loan and
installment sale contracts) 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 or purchases 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 home
equity loans the Company uses prepayment assumptions based on the prepayment
experience of its owned and serviced loan portfolio. Prepayment assumptions
for manufactured housing contracts are based on comparable industry prepayment
statistics. 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 1996, 1995 and 1994 was 10%. 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
asset-backed securities to third parties.
1.2(c) Loan Servicing. The Company generally retains the right to service
loans it originates or purchases and subsequently sells or securitizes in the
secondary market. Fees for servicing loans are generally based on a stipulated
percentage of the outstanding principal balance of such loans. 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. The Company implemented the provisions of SFAS 122 in the
third quarter of 1995 and, in connection therewith, changed its method
33
34
of accounting for mortgage servicing rights to recognize as separate assets
rights to service 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
pass-through certificates, the interest retained by the Company is generally
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. 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 ("real estate owned") 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 generally
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 related cash flows 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 loan sale agreements 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 providing for loan losses, loan income, loan sale gains and depreciation.
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, 1996,
cash equivalents totaled $.8 million with interest rates ranging from 3% to
8% 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 loans. The Company closes
out the hedge position to coincide with the related loan sale and recognizes
the results of the hedge transaction
34
35
in determining the amount of the related loan sale gain. The Company did not
have any open hedge positions at December 31, 1995 or 1996.
1.8 Accounting Standards. On October 23, 1995, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). SFAS No. 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 are 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 No. 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 No.
123. See also Note 9.
In June, 1996 the FASB issued Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" ("SFAS No. 125"). SFAS No. 125 focuses on
control of the financial asset and provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS No. 125 provides certain conditions that must be
met to determine that control of the financial asset has been surrendered.
SFAS No. 125 requires that servicing assets and other retained interests in the
transferred assets be measured by allocating the previous carrying amount
between the assets sold and the retained interests, if any, based on their
relative fair values at the date of transfer. Implementation of SFAS No. 125
will require the Company to change the method of calculating the gain on the
sale of loans. In addition, the retained interests will be classified as a
trading security under the provisions of SFAS No. 115 and, as such, recorded at
fair value with the resultant unrealized gain or loss recorded in the results
of operations in the period of change in value. The statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
after December 31, 1996, and is to be applied prospectively. Earlier or
retroactive application is not permitted. The Company's analysis of the
provisions of SFAS No. 125 is not complete at this time and, therefore, the
Company cannot estimate the impact of SFAS No. 125 on the Company's financial
results for the year ending December 31, 1997.
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.
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,
------------------------------------------------
1996 1995 1994
-------------- ------------ --------------
(IN THOUSANDS)
Balance, beginning of year . . . . . . . . . $ 280,985 $ 174,031 $ 105,917
Capitalized excess servicing income . . . . . 273,236 187,624 111,820
Amortization of capitalized excess
servicing income . . . . . . . . . . . . . (128,275) (80,670) (43,706)
Other . . . . . . . . . . . . . . . . . . . . 447 - -
-------------- ------------ --------------
Balance, end of year . . . . . . . . . . . . $ 426,393 $ 280,985 $ 174,031
============== ============ ==============
The carrying value of capitalized excess servicing income is analyzed
quarterly by the Company to determine if
35
36
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
1996, 1995 and 1994.
3. LOANS
3.1 Loans Owned. The following schedule sets forth the components of
Loans owned by the Company at December 31, 1996 and 1995.
DECEMBER 31,
--------------------------------
1996 1995
---------- ----------
(IN THOUSANDS)
Home equity loans . . . . . . . . . . . . . . . . $ 99,849 $ 67,673
Manufactured housing contracts . . . . . . . . . 7,397 234
Credit card receivables . . . . . . . . . . . . . 1,543 -
Commercial loans . . . . . . . . . . . . . . . . 477 479
Conventional loans . . . . . . . . . . . . . . . 123 323
---------- ----------
109,389 68,709
Real estate owned:
Home equity . . . . . . . . . . . . . . . . . 7,752 8,469
Commercial and other . . . . . . . . . . . . . 8,342 2,982
Manufactured housing . . . . . . . . . . . . . 372 -
Nonrefundable loan fees . . . . . . . . . . . . . (2,945) (4,950)
Other . . . . . . . . . . . . . . . . . . . . . . (19) (333)
---------- ----------
Total . . . . . . . . . . . . . . . . . $ 122,891 $ 74,877
========== ==========
Included in Loans owned at December 31, 1996 and 1995 were
nonaccrual loans totaling $6.6 million and $5.7 million, respectively.
3.2 Loans Serviced. The following table sets forth the loans serviced
by the Company for third parties at December 31, 1996 and 1995, by type of
loan. Substantially all of these loans were originated by the Company. As
discussed in Note 11 "Discontinued Operations", the servicing of the commercial
real estate mortgage loans was transferred to United Companies Life Insurance
Company ("UCLIC") in July, 1996.
DECEMBER 31,
------------------------------------
1996 1995
-------------- -------------
(IN THOUSANDS)
Home equity . . . . . . . . . . . . . . . . . $ 3,940,289 $ 2,632,630
Manufactured housing . . . . . . . . . . . . 107,741 -
Commercial . . . . . . . . . . . . . . . . . - 250,762
Conventional . . . . . . . . . . . . . . . . 44,649 58,215
-------------- -------------
Total . . . . . . . . . . . . . . . $ 4,092,679 $ 2,941,607
============== =============
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.
36
37
A summary analysis of the changes in the Company's Allowance for
loan losses is as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
---------- ---------- ------------
(IN THOUSANDS)
Balance at beginning of year . . . . . . . . . . . . . . $ 51,454 $ 34,478 $ 24,190
Loans charged to allowance
Home equity . . . . . . . . . . . . . . . . . . . . . (19,484) (13,818) (12,745)
Commercial and other . . . . . . . . . . . . . . . . . (3,190) (97) (141)
Manufactured housing contracts . . . . . . . . . . . . (28) - -
---------- ---------- ------------
Total . . . . . . . . . . . . . . . . . . . . . (22,702) (13,915) (12,886)
Recoveries on loans previously charged to
allowance . . . . . . . . . . . . . . . . . . . . . 2,410 1,643 1,100
---------- ---------- ------------
Net loans charged off . . . . . . . . . . . . . . . . (20,292) (12,272) (11,786)
Loan loss provision on owned and serviced loans . . . . . 42,181 29,311 22,282
Commercial loan reserve transferred
and reserve reclassification . . . . . . . . . . . . . 3,900 (63) (208)
---------- ---------- ------------
Balance at end of year . . . . . . . . . . . . . . . . . $ 77,243 $ 51,454 $ 34,478
========== ========== ============
As of December 31, 1996, approximately $3.9 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 and manufactured housing contracts according to terms of the loan sales
agreements was approximately $854 million at December 31, 1996, of which $842
million relates to the subordinated cash and excess interest spread. The
Company's estimate of its losses on home equity loans, based on historical loan
loss experience, was approximately $65.4 million at December 31, 1996 and is
recorded in the Company's allowance for loan losses. In addition, the maximum
recourse associated with the sale of approximately $164 million of
manufactured housing contract pass-through certificates according to the
related contract sale agreements was approximately $12.8 million. The
Company's estimate of its losses on these contracts, based on industry loss
statistics, was approximately $7.7 million and is also 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 50
states, at December 31, 1996, a substantial portion of home equity loans
serviced were originated or acquired in California (9.6%), Ohio (7.8%),
Louisiana (7.8%) and Florida (7.6%), respectively, and no other state accounted
for more than 7% of the serviced portfolio. The portfolio of manufactured
housing contracts serviced were originated primarily in Texas (45.7%), South
Carolina (13.2%), Georgia (11.2%) and North Carolina (11.0%). 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, 1996 approximately $16.3
million was held in a prefunding account for the purchase of the Company's
loans during the first quarter of 1997.
4. INVESTMENT SECURITIES.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 115, the Company classifies securities in one of three
categories: "held-to-maturity", "available-for-sale" or "trading". Securities
classified as held-to-maturity are carried at amortized cost, whereas
securities classified as trading or available-for-sale are recorded at fair
value. The adjustment, net of applicable income taxes, for securities
classified as available-for-sale is recorded in "Net unrealized gain (loss) on
securities" and is included in Stockholders' equity on the consolidated balance
sheets and the adjustment for securities classified as trading is recorded in
"Investment income" in the statements of income.
37
38
At December 31, 1996, the Company's investment securities consisted of
common stock classified as trading securities with a cost of $15.0 million and
a carrying value of $17.4 million. Net unrealized gains on trading securities
included in investment income was $2.4 million for the year ended December 31,
1996. The Company's available-for-sale portfolio included an investment in a
limited partnership and other securities with a cost of $17.4 million and a
carrying value of $17.5 million.
5. PROPERTY -- NET
Property is summarized as follows:
DECEMBER 31,
-----------------------------
1996 1995
------------ ------------
(IN THOUSANDS)
Land and buildings . . . . . . . . . . . . . . . . . . . $ 36,145 $ 10,603
Furniture, fixtures and equipment . . . . . . . . . . . . 21,008 19,511
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . 57,153 30,114
Less accumulated depreciation . . . . . . . . . . . . . . (10,830) (14,875)
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . $ 46,323 $ 15,239
============ ============
Rental expense on operating leases, including real estate, computer
equipment and automobiles, totaled $9.6 million, $7.7 million and $6.3 million
during 1996, 1995 and 1994, respectively. Minimum annual commitments at
December 31, 1996 under noncancellable operating leases are as follows (in
thousands):
1997 . . . . . . . . . . . . . . . . . $ 8,972
1998 . . . . . . . . . . . . . . . . . 7,003
1999 . . . . . . . . . . . . . . . . . 3,926
2000 . . . . . . . . . . . . . . . . . 1,644
2001 . . . . . . . . . . . . . . . . . 1,007
Thereafter . . . . . . . . . . . . . . 2
-------------
Total . . . . . . . . . . . . $ 22,554
=============
6. NOTES PAYABLE
Notes payable consisted of the following:
DECEMBER 31,
---------------------------------
1996 1995
------------- ------------
(IN THOUSANDS)
9.35% Senior unsecured notes due November, 1999 . . . . . . . . $ 125,000 $ 125,000
7% Senior unsecured notes due July, 1998 . . . . . . . . . . . 100,000 100,000
7.7% Senior unsecured notes due January, 2004 . . . . . . . . 100,000 -
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . 47,100 -
Warehouse facility . . . . . . . . . . . . . . . . . . . . . . 23,672 19,321
ESOP debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,133 5,962
Subordinated debentures . . . . . . . . . . . . . . . . . . . . 10,000 10,000
Mortgage loan . . . . . . . . . . . . . . . . . . . . . . . . . 5,473 5,473
Construction loan . . . . . . . . . . . . . . . . . . . . . . . 3,293 -
------------- ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 425,671 $ 265,756
============= ============
In December, 1996 and in July, 1995, the Company publicly sold $100 million
and $100 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 for working capital purposes and, in 1995, to repay the principal amount
of indebtedness outstanding under the Company's existing revolving credit
facility with a group of banks.
38
39
At December 31, 1996, the Company had three secured warehouse facilities
available for its home equity loan product: (i) a warehouse facility provided
by a syndicate of commercial banks (the "Commercial Bank Warehouse"), (ii) a
warehouse facility provided by the investment bank which acted as lead
underwriter for the Company's fourth quarter home equity loan securitization
(the "Investment Bank Warehouse"), and (iii) a warehouse facility provided by
UCLIC (the "UCLIC Warehouse"). In June, 1996, the Commercial Bank Warehouse
was increased from $150 million to $350 million and the lenders' commitment was
extended from May, 1997 to May, 1998. As of December 31, 1996, $7.1 million
was outstanding under the Commercial Bank Warehouse. The Investment Bank
Warehouse was directly related to the fourth quarter home equity loan
securitization, initially provided for funding up to $500 million of eligible
home equity loans for such securitization and terminated upon the closing of
the last delivery of loans under the prefunding accounts relative to this
securitization. As of December 31, 1996, $150 million was available and no
amounts were outstanding under the Investment Bank Warehouse. The UCLIC
Warehouse, which was established upon the sale of UCLIC, provides for the
purchase of up to $300 million in first mortgage residential loans and has a
maturity of July, 1999. The Company has the right for a limited time to
repurchase certain loans which are eligible for securitization and as of
December 31, 1996, $16.6 million in loans eligible for securitization were
funded under this facility. In addition, the Company had a manufactured
housing contract warehouse which was directly related to the fourth quarter
manufactured housing securitization and was provided by the investment bank
which acted as lead underwriter for such securitization (the "Manufactured
Housing Warehouse"). The Manufactured Housing Warehouse initially provided for
funding up to $150 million of eligible manufactured housing contracts and
terminated upon the closing of the last delivery of contracts under the
prefunding accounts relative to this securitization. As of December 31, 1996,
$50 million was available and no amounts were outstanding under the
Manufactured Housing Warehouse.
The Company also has arrangements with banks providing for short-term
unsecured borrowings of up to $148 million, $47 million of which was
outstanding at December 31, 1996. Borrowings under these lines of credit bear
interest at market or prime rates. Notes payable at December 31, 1996 include a
$5.5 million mortgage loan on an office building adjacent to the Company's home
office building. In addition, at December 31, 1996, notes payable includes
$3.3 million borrowed under a $10 million committed line of credit for the
construction of an office building adjacent to the Company's home office
building.
In May, 1993, United Companies Lending Corporation ("UC Lending"), a wholly
owned subsidiary of the Company, entered into a subordinated debenture
agreement with UCLIC. In connection with this agreement, UC Lending borrowed
$10 million from UCLIC, $3 million of which matures in 1998 and bears an
interest rate of 6.05% per annum, $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 $36.9 million, $23.0 million and
$11.8 million during the years ended December 31, 1996, 1995 and 1994,
respectively.
7. INCOME TAXES
The provision for income taxes attributable to continuing operations is as
follows:
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
----------- ----------- ----------
(IN THOUSANDS)
Current . . . . . . . . . . . . . . . . . . . . . . . $ 36,391 $ 5,788 $ 11,276
Deferred . . . . . . . . . . . . . . . . . . . . . . 11,274 31,952 15,022
----------- ----------- ----------
Total . . . . . . . . . . . . . . . . . . . $ 47,665 $ 37,740 $ 26,298
=========== =========== ==========
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40
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,
-----------------------------------------------
1996 1995 1994
------------- ------------- -------------
(IN THOUSANDS)
Federal income tax at statutory rate . . . . . . . . . . $ 46,850 35,933 $ 26,248
Differences resulting from:
State income taxes . . . . . . . . . . . . . . . . . . 770 511 (72)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 45 1,296 122
------------- ------------- -------------
Reported income tax provisions . . . . . . . . . . . . . $ 47,665 $ 37,740 $ 26,298
============= ============= =============
The significant components of the Company's net deferred income tax
liability at December 31, 1996 and 1995 are as follows:
DECEMBER 31,
------------------------------
1996 1995
------------- -------------
(IN THOUSANDS)
Deferred income tax assets:
Allowance for loan losses . . . . . . . . . . . . . . . $ - $ 904
Nonrefundable loan fees . . . . . . . . . . . . . . . . 1,030 1,732
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,075 850
------------- -------------
2,105 3,486
------------- -------------
Deferred income tax liabilities:
Loan income . . . . . . . . . . . . . . . . . . . . . . 41,320 42,883
Mark-to-market adjustment . . . . . . . . . . . . . . . 873 20
Mortgage servicing rights . . . . . . . . . . . . . . . 8,332 2,034
Real estate . . . . . . . . . . . . . . . . . . . . . . 4,150 241
Allowance for loan losses . . . . . . . . . . . . . . . 401 -
------------- -------------
55,076 45,178
------------- -------------
Net deferred income tax liability . . . . . . . . . . . . $ 52,971 $ 41,692
============= =============
Payments made for income taxes during the years ended December 31, 1996,
1995 and 1994 were $31.0 million, $2.6 million and $26.9 million, respectively.
At December 31, 1996 and 1995, the Company had a current income tax
receivable of $1.0 million and $13.5 million, respectively, included in "Other
assets".
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 28,468,052 and 28,142,564 shares
outstanding at December 31, 1996 and 1995, 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.
40
41
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 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 this transaction. During
1996 and 1995, the Company paid cash dividends on its common stock in the
amount of $8.1 million and $5.5 million, or $.29 and $.20 per share,
respectively. In addition, during 1996 and 1995, the Company paid cash
dividends on its PRIDES(SM) in the amount of $5.8 million or $2.97 per share
and $3.1 million or $1.61 per share, respectively.
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, 1996 and 1995, 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 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 compensation. Upon retirement, death or disability, the employee or
a beneficiary receives the designated common stock.
The Company's cash contributions to the ESOP were $3.0 million, $2.3
million and $2.2 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Shares held by the ESOP at December 31, 1996, 1995 and 1994 were
approximately 3.7 million, 4.0 million and 4.7 million, respectively. During
1995, the ESOP was granted a $10 million line of credit from a financial
institution, which line of credit was increased to $12 million during 1996. At
December 31, 1996 the ESOP had notes payable with a balance of $11.1 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 stockholders'
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. Prior to
1995, 165,000 shares of the Company's common stock were considered outstanding
of which 132,000 shares at December 31, 1996 were not considered outstanding
for earnings per share purposes. At December 31, 1996, approximately 142,000
shares of common stock were committed to be released under the terms of the
loan agreement. At December 31, 1996,
41
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approximately 50,000 shares of common stock accounted for under the provisions
of SOP 93-6 were committed to be released resulting in additional compensation
expense of approximately $1.4 million during 1996. At December 31, 1996, the
ESOP had approximately 780,000 leveraged shares, of which approximately 458,000
were accounted for under the provisions of SOP 93-6. The fair value of the
458,000 leveraged shares accounted for under the provisions of SOP 93-6 was
$12.2 million at December 31, 1996.
9.2 Stock Option Plans. At December 31, 1996, the Company had four
stock-based compensation plans, which are described below. The Company applies
Accounting Principles Board Opinion 25 ("APB25") and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans as the exercise price of all stock
options granted thereunder is equal to the fair market value at the date of
grant. The compensation cost that has been charged against net income for
restricted stock issued under the 1993 Stock Incentive Plan was $1.4 million
and $.4 million for 1996 and 1995, respectively. Had compensation costs for
the Company's stock-based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of Financial Accounting Standards Board Statement No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income As reported . . . . $ 81,660 $ 69,468
Pro forma . . . . . 81,118 68,917
Primary earnings per share As reported . . . . 2.55 2.28
Pro forma . . . . . 2.54 2.26
Fully diluted earnings As reported . . . . 2.50 2.25
per share Pro forma . . . . . 2.48 2.23
On November 11, 1996, the Board of Directors approved and adopted, subject
to shareholder approval, two additional stock option plans, the 1996 Long Term
Incentive Compensation Plan and the 1996 Non-Employee Director Stock Plan.
There were no awards granted under either of these plans in 1996.
Fixed Stock Options. The Company has four fixed stock option plans. Under
the 1986, 1989, and 1993 employee stock option plans and the 1993 Non-Employee
Director Stock Option Plan (the "1993 Director Plan"), the Company may grant
options for up to 1.1 million, .8 million, 1.3 million and .9 million shares of
common stock, respectively. The term of the 1986 plan has expired and no new
options may be awarded thereunder. At December 31, 1996, 11,234 and 182,464
shares of common stock were available for award under the 1989 and 1993 plans,
respectively, and 599,200 shares of common stock were available for award under
the 1993 Director Plan. Under the four plans, the exercise price of each
option equals the fair market value of the Company's stock on the date of grant
and the maximum term of an option is 10 years. Under the 1986 and 1989
employee plans, the options become exercisable two years from the grant date,
and under the 1993 plan, the options become exercisable three years from the
grant date. Options awarded under the 1993 Director Plan become exercisable
three years after the date of grant.
The fair value of each option grant is estimated on the date of grant using
the Black Scholes option-pricing model with the following assumptions for
grants in 1995: dividend yield of 1.2%; expected volatility of 27%; risk-free
interest rate of 5.95%; and expected life of 5.4 years. The following
assumptions were used for options granted in 1996: dividend yield of 1.2%;
expected volatility of 45%; risk-free interest rate of 6.47%; and expected life
of 5.4 years.
A summary of the status of the Company's four stock option plans (excluding
the restricted stock awards) as of
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December 31, 1996 and 1995, and changes during the periods ending on those
dates is presented below:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1995
------------------------------ ------------------------------
WEIGHTED AVERAGE WEIGHTED-AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------- --------- --------------- --------- ---------------
Outstanding at beginning of year 1,831,860 $11.51 1,699,446 $ 5.90
Granted 58,700 33.19 584,700 22.55
Exercised (279,488) 5.55 (409,092) 4.11
Canceled (39,842) 15.83 (43,194) 10.75
---------- ----------
Outstanding at end of year 1,571,230 13.27 1,831,860 11.51
========== ==========
Weighted-average fair value of options
granted during the year $ 15.63 $ 7.60
The following table summarizes information about fixed stock options
outstanding at December 31, 1996.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ----------------------------
RANGE OF WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------- ----------- ------------------------ -------------- ----------- --------------
$2 to $7 829,434 5.4 $ 5.04 829,434 $ 5.04
$15 to $16 10,998 7.7 15.91 - -
$16 to $23 633,398 8.2 21.04 - -
$31 to $34 97,400 9.2 32.53 - -
------------ -----------
Total 1,571,230 7.8 13.27 829,434 5.04
============ ===========
Restricted Stock Awards. As part of the Company's 1993 Incentive Plan, the
Company may award restricted stock to selected executives and other key
employees. While the 1993 plan only requires a vesting period of six months,
awards of restricted stock have generally been made with vesting periods from
one year to four years contingent upon the attainment by the Company of certain
return on equity requirements.
The following table summarizes information about restricted stock awards
during the periods indicated:
Year Ended December 31,
-------------------------------------------------------------------
1996 1995
------------------------------- -------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RESTRICTED STOCK AWARDS SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------------------- --------- --------------- ---------- ---------------
Outstanding at beginning
of year . . . . . . . . . . . . . . 80,000 $ - - $ -
Granted . . . . . . . . . . . . 3,000 - 80,000 -
Lapse of restriction . . . . . (46,000) - -
Canceled . . . . . . . . . . . - - -
---------- ----------
Outstanding at end
of year . . . . . . . . . . . . . . 37,000 - 80,000 -
========== ==========
Weighted-average fair
value of restricted stock
granted during the year $ 34.00 $ 18.86
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As of December 31, 1996, the 37,000 shares of restricted stock outstanding
had a purchase price of zero and a weighted-average remaining contractual life
of nine months.
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 $1.5 million, $1.3
million and $1.0 million during 1996, 1995 and 1994, respectively. Employees
have five investment options, one of which is to invest in the Company's common
stock. The plan held 537,117 shares and 567,971 shares of the Company's common
stock at December 31, 1996 and 1995, 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 (benefit) of this plan during 1996 and 1995 was
$(.1) million and $.2 million, respectively. The Company calculated its
postretirement benefit obligation as of December 31, 1996 using a weighted
average discount rate of 7.1%. A reconciliation of the funded status of the
deferred compensation plan as of December 31, 1996 and 1995 is as follows:
DECEMBER 31, NET DECEMBER 31,
1996 CHANGE 1995
-------------- ------------ ---------------
(IN THOUSANDS)
Accumulated postretirement benefit cost . . . . . . $ 1,771 $ (141) $ 1,912
Plan assets . . . . . . . . . . . . . . . . . . . . -- -- --
-------------- ------------ ---------------
Funded status . . . . . . . . . . . . . . . . . . . 1,771 (141) 1,912
Unrecognized transition obligation . . . . . . . . (1,070) 68 (1,138)
-------------- ------------ ---------------
Accrued postretirement benefit cost . . . . . . . . $ 701 $ (73) $ 774
============== ============ ===============
10. DISCLOSURE ABOUT FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS No. 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 No. 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, 1996 and 1995 were as follows:
1996 1995
----------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- ---------- ------------ -----------
(IN THOUSANDS) (IN THOUSANDS)
Financial assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 14,064 $ 14,064 $ 5,284 $ 5,284
Temporary investments -- reserve accounts . . . . . . . 251,183 251,183 155,254 155,254
Loans . . . . . . . . . . . . . . . . . . . . . . . . . 106,425 111,000 65,606 67,140
Capitalized excess servicing income . . . . . . . . . . 426,393 426,393 280,985 280,985
Capitalized mortgage servicing rights . . . . . . . . . 23,806 26,000 5,813 6,525
Financial liabilities:
Notes payable . . . . . . . . . . . . . . . . . . . . . 425,671 431,000 265,756 280,277
Allowance for loan losses . . . . . . . . . . . . . . . 77,243 77,243 51,454 51,454
Managed cash overdraft . . . . . . . . . . . . . . . . - - 27,052 27,052
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
44
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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. Real estate
owned 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.
Capitalized mortgage servicing rights. The fair value of capitalized
mortgage servicing rights was based on the present value of estimated future
cash flows related to servicing income. In estimating the fair value of these
rights, the Company made assumptions which included the cost of servicing per
loan, the discount rate, an inflation rate, ancillary income per loan,
prepayment spreads and default rates.
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.
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, 1996. 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.
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
45
46
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. 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.
Subsequent to the closing, the Company received notification from the
purchaser alleging that it is entitled to a $2.2 million reduction in the sales
price. The Company denies that the purchaser is entitled to any reduction. In
addition, at December 31, 1996, the Company had not received payment of a $2.5
million intercompany receivable due from UCLIC at the date of sale.
During 1995 and 1994 revenues of UCLIC were $144.5 million and $138.1
million, respectively, and net income of UCLIC was $8.0 million and $5.9
million, 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 and $1.1 million in 1996 in connection with the sale of
UGTIC.
Revenues for UGTIC for the years ended December 31, 1995 and 1994 were
$37.8 million and $45.5 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 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
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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 back to the bankruptcy court 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. On November 22,
1996, the district court referred the case to the bankruptcy court for
adjudication. The bankruptcy court has not yet scheduled the case for trial.
Management of the Company does not believe that any additional amounts are owed
by the Company to FMC or the trustee and is vigorously contesting 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 is
vigorously contesting 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.
As also discussed in Note 11 above, subsequent to the closing of the sale
of all of the outstanding capital stock of UCLIC, the Company received
notification from the purchaser alleging that it is entitled to a $2.2 million
reduction in the sales price. The Company denies that the purchaser is
entitled to any reduction. In addition, at December 31, 1996, the Company had
not received payment of a $2.5 million intercompany receivable due from UCLIC
at the date of sale.
The Company is the subject of various litigation arising during the
ordinary course of business. While the outcome of such litigation cannot be
predicted with certainty, management does not expect the resolution of these
matters to have a material adverse effect on the financial condition or results
of operations of the Company.
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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)
1996
Total revenues . . . . . . . . . . . . . . . . . $ 73,290 $ 86,832 $ 98,824 $ 97,928
Income from continuing operations before
income taxes . . . . . . . . . . . . . . . . . 26,892 33,056 37,997 35,912
Net income . . . . . . . . . . . . . . . . . . . 17,839 15,685 24,128 24,008
Per share data -- net income:
Primary:
Income from continuing operations . . . . . $ .54 $ .65 $ .75 $ .75
Income (loss) from discontinued
operations . . . . . . . . . . . . . . . . .02 (.16) - -
------------- ---------- ----------- -------------
Total . . . . . . . . . . . . . . . . . . $ .56 $ .49 $ .75 $ .75
============= ========== =========== =============
Fully Diluted:
Income from continuing operations . . . . . $ .53 $ .64 $ .74 $ .74
Income (loss) from discontinued
operations . . . . . . . . . . . . . . . . .02 (.16) - -
------------- ---------- ----------- -------------
Total . . . . . . . . . . . . . . . . . . $ .55 $ .48 $ .74 $ .74
============= ========== =========== =============
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
============= ========== =========== =============
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
The information called for by Part III (items 10, 11, 12 and 13)
has been omitted since the Company will file with the Commission a definitive
proxy statement pursuant to Regulation 14A or a definitive information
statement pursuant to Regulation 14C, which involves the election of directors,
within 120 days after the close of the year.
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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 28
December 31, 1996 and 1995
Consolidated Balance Sheets . . . . . . . . . . . Page 29
For the three years ended December 31, 1996
Consolidated Statements of Income . . . . . . . . Page 30
Consolidated Statements of Cash Flows . . . . . . Page 31
Consolidated Statements of Stockholders' Equity . Page 32
Notes to Consolidated Financial Statements . . . . Pages 33-48
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, 1996, 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) -- Amended and Restated Stock Purchase Agreement dated as of
July 24, 1996 by and between the Company and Pacific
Life and Accident Insurance Company
3.1(2) -- Restatement of Articles of Incorporation
3.2(3) -- By-Laws, as amended
4.1(4) -- Senior Indenture
4.2(4) -- Subordinated Indenture
4.3(4) -- First Supplemental Indenture with respect to 9.35% Senior
Notes due November 1, 1999
4.4(4) -- 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(5) -- Second Supplemental Indenture for 7% Senior Notes due
July 15, 1998
4.6(6) -- Series A Junior Participating Preferred Stock Purchase
Rights
4.7(18) -- Third Supplemental Indenture for 7.7% Senior Notes due
January 15, 2004
10.1(19) -- Employee Stock Ownership Plan and Trust
10.2(7) -- Management Incentive Plan, as amended
10.3(19) -- Employees' Savings Plan
51
52
10.4(16) -- 1989 Stock Incentive Plan
10.5(16) -- 1989 Non-Employee Director Stock Option Plan
10.6(12) -- 1992 Form 11-K, Employees' Savings Plan and Trust
10.7(8) -- Stock Purchase Warrant dated as of July 1, 1993
10.8(13) -- 1993 Form 11-K, Employees' Savings Plan and Trust
10.9(17) -- 1993 Stock Incentive Plan
10.10(17) -- 1993 Non-Employee Director Stock Option Plan
10.11(14) -- 1994 Form 11-K, Employees' Savings Plan and Trust
10.12(9) -- 1995 Form 11-K, Employee Savings Plan
10.13(3) -- Indemnification agreements
10.14(10) -- Change of Control Agreement
10.15(10) -- Supplemental Retirement Agreement
10.16(10) -- Split Dollar Agreement
10.17(15) -- 1996 Form 11-K, Employee Savings Plan
11.1(19) -- Statement regarding computation of per share earnings
21.1(19) -- List of Subsidiaries of the Company
23.1(19) -- Consent of Deloitte & Touche LLP
27(19) -- Financial Data Schedule
- ----------
(1) Incorporated herein by reference to the designated Exhibit on the
Company's Current Report on Form 8-K filed on August 8, 1996.
(2) Incorporated herein by reference to the designated Exhibit of the
Company's Current Report on Form 8-K dated November 27, 1996.
(3) Incorporated herein by reference to the designated Exhibit of the
Company's Quarterly Report on Form 10-Q dated March 31, 1995.
(4) Incorporated by reference to the designated Exhibits of the
Company's Current Report on Form 8-K filed on June 16, 1995.
(5) Incorporated herein by reference to the designated Exhibit to the
Company's Current Report on Form 8-K filed July 26, 1995.
(6) Incorporated by reference to the designated Exhibit of the
Company's Form 8-A dated August 5, 1994.
(7) Incorporated by reference from the designated Exhibit of the
Company's Registration Statement on Form S-8 (SEC File No.
33-63069).
(8) Incorporated herein by reference to the designated Exhibit of the
Company's Registration Statement on Form S-3 (SEC File No.
33-52739).
(9) Incorporated herein by reference to the Form 11-K filed June 28,
1996.
(10) 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.
(11) Incorporated by reference to the designated Exhibits of the
Company's Current Report on Form 8-K filed December 19, 1996.
(12) Incorporated by reference to the Company's Annual Report on Form
10-K, as amended, filed on April 30, 1993.
(13) Incorporated by reference to the Company's Annual Report on Form
10-K, as amended, filed on June 29, 1994.
(14) Incorporated by reference to the Form 11-K filed July 13, 1995.
(15) To be filed on Form 11-K within 180 days after plan's fiscal year.
(16) Incorporated herein by reference to the designated Exhibit of the
Company's Registration Statement on Form S-8 (SEC File No.
33-29994).
(17) Incorporated herein by reference to the designated Exhibit of the
Company's Registration Statement on Form S-8 (SEC File No.
33-54955).
(18) Incorporated herein by reference to the designated Exhibit of the
Company's Current Report on Form 8-K dated December 5, 1996.
52
53
(19) Filed herewith:
Exhibit 10.1
Exhibit 10.3
Exhibit 11.1
Exhibit 21.1
Exhibit 23.1
Exhibit 27
REPORTS ON FORM 8-K
a. On November 27, 1996, the Company filed a Current Report on
Form 8-K and included therein, under Item 7, Exhibit 3.1
Restatement of the Articles of Incorporation of United
Companies Financial Corporation.
b. On December 2, 1996, the Company filed a Current Report on
Form 8-K to announce that it had terminated negotiations for
the proposed acquisition of Empire Funding.
c. On December 5, 1996, the Company filed a Current Report on
Form 8-K and included therein, under Item 7, the following
exhibits:
1.3 -- Terms Agreement dated December 12, 1996 for
7.70% Senior Notes due January 15, 2004.
4.13 -- Third Supplemental Indenture dated as of
December 17, 1996 for 7.70% Senior Notes
due January 15, 2004.
4.14 -- 7.70% Senior Note due January 14, 2004.
53
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 24, 1997
UNITED COMPANIES FINANCIAL CORPORATION
By: /s/ SHERRY E. ANDERSON
-------------------------------------------
Sherry E. Anderson
Senior Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 24, 1997.
/s/ J. TERRELL BROWN Chairman of the Board,
- ------------------------------------- Chief Executive Officer
J. Terrell Brown (Principal Executive Officer)
/s/ JOHN D. DIENES President, Chief Operating Officer
- ------------------------------------- and Director (Principal
John D. Dienes Operating Officer)
/s/ DALE E. REDMAN Executive Vice President, Chief
- ------------------------------------- Financial Officer, and Director
Dale E. Redman (Principal Financial Officer)
/s/ JESSE O. GRIFFIN Senior Vice President and
- ------------------------------------- Controller (Principal
Jesse O. Griffin Accounting Officer)
/s/ JAMES J. BAILEY, III Director
- -------------------------------------
James J. Bailey, III
54
55
SIGNATURES
/s/ ROBERT H. BARROW Director
- -------------------------------------------------
Robert H. Barrow
/s/ JOHN W. BARTON, SR. Director
- -------------------------------------------------
John W. Barton, Sr.
/s/ RICHARD A. CAMPBELL Director
- -------------------------------------------------
Richard A. Campbell
/s/ HARRIS J. CHUSTZ, JR. Director
- -------------------------------------------------
Harris J. Chustz, Jr.
/s/ ROY G. KADAIR, M.D. Director
- -------------------------------------------------
Roy G. Kadair, M.D.
/s/ O. MILES POLLARD, JR. Director
- -------------------------------------------------
O. Miles Pollard, Jr.
/s/ WILLIAM H. WRIGHT, JR. Director
- -------------------------------------------------
William H. Wright, Jr.
55
56
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- -----------------------
2(1) -- Amended and Restated Stock Purchase Agreement dated as of July 24, 1996 by
and between the Company and Pacific Life and Accident Insurance Company
3.1(2) -- Restatement of Articles of Incorporation
3.2(3) -- By-Laws, as amended
4.1(4) -- Senior Indenture
4.2(4) -- Subordinated Indenture
4.3(4) -- First Supplemental Indenture with respect to 9.35% Senior Notes due
November 1, 1999
4.4(4) -- 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(5) -- Second Supplemental Indenture for 7% Senior Notes due July 15, 1998
4.6(6) -- Series A Junior Participating Preferred Stock Purchase Rights
4.7(18) -- Third Supplemental Indenture for 7.7% Senior Notes due January 15, 2004
10.1(19) -- Employee Stock Ownership Plan and Trust
10.2(7) -- Management Incentive Plan, as amended
10.3(19) -- Employees' Savings Plan
10.4(16) -- 1989 Stock Incentive Plan
10.5(16) -- 1989 Non-Employee Director Stock Option Plan
10.6(12) -- 1992 Form 11-K, Employees' Savings Plan and Trust
10.7(8) -- Stock Purchase Warrant dated as of July 1, 1993
10.8(13) -- 1993 Form 11-K, Employees' Savings Plan
10.9(17) -- 1993 Stock Incentive Plan
10.10(17) -- 1993 Non-Employee Director Stock Option Plan
10.11(14) -- 1994 Form 11-K, Employees' Savings Plan and Trust
10.12(9) -- 1995 Form 11-K, Employee Savings Plan
10.13(3) -- Indemnification agreements
10.14(10) -- Change of Control Agreement
10.15(10) -- Supplemental Retirement Agreement
10.16(10) -- Split Dollar Agreement
10.17(15) -- 1996 Form 11-K, Employee Savings Plan
11.1(19) -- Statement regarding computation of per share earnings
21.1(19) -- List of Subsidiaries of the Company
23.1(19) -- Consent of Deloitte & Touche LLP
27(19) -- Financial Data Schedule
- ----------
(1) Incorporated herein by reference to the designated Exhibit on
the Company's Current Report on Form 8-K filed on August 8,
1996.
(2) Incorporated herein by reference to the designated Exhibit of
the Company's Current Report on Form 8-K dated November 27,
1996.
(3) Incorporated herein by reference to the designated Exhibit of
the Company's Quarterly Report on Form 10-Q dated March 31,
1995.
(4) Incorporated by reference to the designated Exhibits of the
Company's Current Report on Form 8-K filed on June 16, 1995.
(5) Incorporated herein by reference to the designated Exhibit to
the Company's Current Report on Form 8-K filed July 26, 1995.
(6) Incorporated by reference to the designated Exhibit of the
Company's Form 8-A dated August 5, 1994.
(7) Incorporated by reference from the designated Exhibit of the
Company's Registration Statement on Form S-8 (SEC File No.
33-63069).
(8) Incorporated herein by reference to the designated Exhibit of
the Company's Registration Statement
56
57
on Form S-3 (SEC File No. 33-52739).
(9) Incorporated herein by reference to the Form 11-K filed June
28, 1996.
(10) 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.
(11) Incorporated by reference to the designated Exhibits of the
Company's Current Report on Form 8-K filed December 19, 1996.
(12) Incorporated by reference to the Company's Annual Report on
Form 10-K, as amended, filed on April 30, 1993.
(13) Incorporated by reference to the Company's Annual Report on
Form 10-K, as amended, filed on June 29, 1994.
(14) Incorporated by reference to the Form 11-K filed July 13,
1995.
(15) To be filed on Form 11-K within 180 days after plan's fiscal
year.
(16) Incorporated herein by reference to the designated Exhibit of
the Company's Registration Statement on Form S-8 (SEC File No.
33-29994).
(17) Incorporated herein by reference to the designated Exhibit of
the Company's Registration Statement on Form S-8 (SEC File No.
33-54955).
(18) Incorporated herein by reference to the designated Exhibit of
the Company's Current Report on Form 8-K dated December 5,
1996.
(19) Filed herewith:
Exhibit 10.1
Exhibit 10.3
Exhibit 11.1
Exhibit 21.1
Exhibit 23.1
Exhibit 27
57