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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 FISCAL YEAR ENDED DECEMBER 31, 1999.
[_] 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 000-27081
AMERICAN HOME MORTGAGE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-4066303
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
12 EAST 49TH STREET, NEW YORK, NY 10017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 755-8600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
Common Stock, $0.01 par value NASDAQ National Market
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) 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] or No [ ].
Indicate by a 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 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 the voting stock held by non-affiliates of
the registrant based upon the closing sale price of its Common Stock on March
27, 2000, on the NASDAQ National Market was $7.125.
As of March 27, 2000, there were 8,286,747 shares of Common Stock
outstanding.
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. BUSINESS......................................................... 3
ITEM 2. PROPERTIES.......................................................11
ITEM 3. LEGAL PROCEEDINGS................................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS..........................................................12
ITEM 6. SELECTED FINANCIAL DATA (in thousands, except per share and
operating data)..................................................12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................14
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......22
ITEM 8. FINANCIAL STATEMENTS.............................................22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES............................................22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............22
ITEM 11. EXECUTIVE COMPENSATION...........................................22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..22
SIGNATURES.................................................................24
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................F-1
2
PART I
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. Readers are cautioned that
actual results could differ materially from those indicated in such statements
as a result of certain factors, including those set forth under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Factors That May Affect Future Results" and elsewhere in, or
incorporated by reference into, this report.
ITEM 1. BUSINESS
GENERAL
American Home Mortgage Holdings, Inc. ("American Home" and, together with
its subsidiaries, American Home Mortgage Corp. ("AHM") and Marina Mortgage
Company, Inc. ("Marina"), the "Company") is an independent retail mortgage
banking company primarily engaged in the business of originating and selling
residential mortgage loans. The Company offers a broad array of residential
mortgage products targeted primarily to high-credit-quality borrowers over the
Internet, as well as through its 220 primarily commission-compensated loan
originators. The Company operates from 14 loan offices in the New York
metropolitan area and five other eastern states, 13 loan offices in California
and one in Arizona. The Company operates primarily as a mortgage banker,
underwriting, funding and selling its loan products to more than 45 different
buyers. In January of 1999, the Company began marketing its mortgage products
over the Internet through its Internet site, MORTGAGESELECT.COM. Mortgage
products are originated online through arrangements with a number of popular Web
sites and through the Company's own Web site established in 1999.
On March 30, 2000, the Company filed a definitive proxy statement with the
Securities Exchange Commission for a special meeting to change its name to
MORTGAGESELECT.COM.
Since its founding in 1988, AHM has increased its origination volume by
building a retail origination network through the expansion of its branch office
network and the addition of sales personnel. The Company's loan originations
totalled $1.3 billion in 1999. The Company has maintained its focus on purchase
rather than refinance transactions by concentrating its marketing, advertising
and personnel resources on lending to home buyers rather than to home owners
seeking to refinance their mortgage loans.
On June 15, 1999, American Home was formed to serve as a holding company
for AHM. In conjunction with the closing of the initial public offering of the
common stock of American Home (the "Offering"), all of the issued and
outstanding shares of common stock of AHM were exchanged for 4,999,900 shares of
American Home's common stock. On October 6, 1999, American Home completed its
Offering of 2.5 million shares of common stock at a price of $6.00 per share.
On December 30, 1999, American Home acquired Marina Mortgage Company, Inc.,
a California corporation. Marina, now a wholly-owned subsidiary of American
Home, is a full service retail lender. Marina originates and purchases mortgage
loans for sale in the secondary mortgage market. It operates 13 branch offices
in California and one in Arizona and employs approximately 226 full time
employees, including 104 sales personnel. Marina is licensed, exempt or
otherwise qualified to originate loans in 32 states. Its business included its
Internet division, which has provided the Company with its third Internet call
center. At December 31, 1999, Marina had assets of $16.4 million and its loan
originations for 1999 were $669 million.
The Company is currently licensed to conduct its business in 46 states and
the District of Columbia.
RECENT DEVELOPMENTS
On January 17, 2000, American Home entered into an agreement to acquire
First Home Mortgage Corp. ("First Home"), an Illinois corporation. Upon
completion of the acquisition, the shareholders of First Home will receive an
aggregate of 489,760 shares of American Home's common stock and $3.6 million
over a period of two years. In addition, the shareholders of First Home may
receive additional consideration consisting of cash and shares of American
Home's common stock based on the future results of the financial performance of
the First Home division of the Company (please see the Company's current report
on Form 8-K filed with the Securities and Exchange Commission on February 1,
2000 for further information). First Home is an independent mortgage lender
based in metropolitan Chicago. Formed in 1987, First Home originates primary
residential mortgage loans. It operates 21 branch offices in four states and
employs approximately 255 full time employees, including sales personnel. First
Home is qualified to originate loans in 23 states. The mergers with Marina, in
1999, and First
3
Home, expected to be completed late in the second quarter of 2000, represent an
expansion of the Company's traditional lending activities into the western and
midwest geographic regions of the country.
OPERATIONS
Lending to Home Buyers. The Company focuses on making loans to home buyers
rather than to home owners seeking to refinance their mortgages. In 1999, 72.6%
of the mortgage loans the Company originated were made to home buyers, compared
to 27.4% which were made to home owners seeking refinancing.
Web Site. The Company's Web site, MORTGAGESELECT.COM, provides customers
with 24-hour access to its interest rates and product terms and the ability to
lock in an interest rate, to file a pre-approval request or application, to
check the status of their pending application and to obtain their credit report.
The Company's Web site also provides mortgage customers with an array of "tools"
that assist them in determining how much financing they can afford, what kind of
mortgage best suits their needs and otherwise provides answers to frequently
asked questions.
Underwriting Loans to the Standards of Investors who Buy the Company's
Loans. The Company's underwriting process is designed to ensure that each loan
it originates can be sold to a third-party investor by conforming the loan to
the underwriting and credit standards of that investor. Whenever possible, the
Company uses "artificial intelligence" underwriting systems, including Fannie
Mae's Desktop Underwriter(R), to ensure consistency with its investors'
predetermined standards. These systems interface with its "enterprise" computer
system. In addition, the Company has a series of internal and external quality
control procedures in place to ensure compliance with its underwriting
standards.
Sales. The Company's loan originators are primarily compensated through
sales commissions to encourage responsiveness to its customers. The Company's
loan originators actively guide customers through the loan application process,
keeping customers informed about rate changes and market conditions.
BUSINESS DIVISIONS AND MARKETS
The Company's business is organized into the following three divisions,
each of which focuses on a distinct production channel of the residential loan
market: the Internet division, the retail division and the wholesale division.
The Internet Division
The Company created its Internet division, MORTGAGESELECT.COM, in January
of 1999. Consumers can apply online, have access to their file, update
information instantly, and check the status of their loans 24 hours a day, seven
days a week. The Company markets and sells loans on the Internet through many of
the leading Web sites in its industry, as well as directly through its own
MORTGAGESELECT.COM Web site. The Company employs a dedicated e-commerce staff
that seeks to establish new relationships with both national and regional Web
sites.
Mortgage shoppers who visit a Web site are prompted by the site's software
to provide information about their loan needs and preferences and about their
income and financial condition. The site's software then compares the
information given by the potential customer with a database of the terms of the
loans of lenders participating on the site. The software selects those loans for
which the customer qualifies that satisfy the potential customer's loan needs.
The site's software then introduces the potential customer to one of the lenders
that participates on the site. The way in which the customer is introduced
varies from site to site, but when customers are connected to the Company they
are introduced on an exclusive or semi-exclusive basis.
Once a customer is introduced to the Company, Company representatives
communicate with that customer online or through one of the Company's Internet
call centers. The call centers employ representatives who are trained to work
with customers in a consultative manner, to provide helpful information and
establish a relationship with the potential customer.
The Company has increased its call center capacity by transferring
experienced managers and personnel from its traditional origination channels to
its Internet division. The Company's experience is that having a number of
smaller call centers allows it to best manage and motivate its sales
representatives and create an atmosphere that is most conducive to its
consultative sales approach. To enable several smaller call centers to work
together efficiently, the Company has installed "virtual" software so that a
representative in any one call center can service a mortgage shopper regardless
of the source that referred that shopper.
4
The Retail Division
The Company's retail division is the core of its traditional business.
Prior to the acquisition of Marina, this division consisted of 14 offices in the
eastern United States, including its New York City headquarters. With the
addition of Marina, the Company expanded its retail base by an additional 14
offices located in the western United States. The Company's retail division has
six origination channels: community loan offices; direct-to-consumer
advertising; realtor builder joint ventures; the Corporate Affinity Program;
telemarketing; and the Real Estate Direct Program.
Community Loan Offices. The Company's community loan offices serve the
regions in which they operate, and obtain business by developing and nurturing a
referral network of realtors, real estate attorneys, builders and accountants.
They also facilitate the efficient processing and closing of a borrower's loan.
Available services include pre-approval commitments based on Fannie Mae's
Desktop Underwriter(R), flexible rate lock-in and extension policies, and
holding of escrows and other accommodations that help a borrower and facilitate
a real estate transaction. The Company's community loan offices provide special
services to builders, including issuing commitments to lend to buyers in their
projects as their onsite resource for mortgage financing.
In order to attract and retain experienced loan originators, the Company
offers a high level of support that includes a broad product range, technical
help desk support, flexible extension policies, expenditures on trade shows,
educational seminars and other marketing initiatives and promotional materials.
Direct to Consumer Advertising. The Company advertises its products in
selected local and regional print media. Customer calls generated by advertising
are handled by its more experienced loan originators who use the Company's
consultative sales approach.
Realtor and Builder Joint Ventures. The Company has established three joint
ventures with mid-size real estate brokerage firms and builders, who provide the
venture with access to potential customers. The Company and its partners each
have a 50% interest in the venture. Each venture makes loans, retaining the
application and processing fees, points and discounts earned in connection with
the mortgages it originates. The venture then sells the mortgage loans to the
Company, which in turn resells the loans to institutional buyers. The Company
believes that this distribution channel provides an opportunity to cross sell
with local realtors and builders.
Corporate Affinity Program. Under this program, the Company makes loans to
employees of large companies and firms who are members of its Corporate Affinity
Program. The employees receive special group discounts, service guarantees and
other accommodations.
Telemarketing. The Company maintains a staff of loan originators and
telemarketers who place calls to persons identified as having high-interest rate
loans due to poor past credit history, but who have improved their credit
history and would now qualify for lower interest rate mortgages.
Real Estate Direct. The Company established its Real Estate Direct Program
to reach customers at the beginning of the home-buying process. Under this
program, the Company places advertisements for a particular home that not only
describe the home, but also a package of available mortgage financing terms. The
Company believes that it benefits by having early access to potential borrowers,
many of whom, although they may not buy the particular property advertised, may
become customers of the Company.
The Wholesale Division
The Company has established relationships with more than 75 mortgage
brokers. The Company's wholesale division actively solicits referrals of
borrowers from this network of independent mortgage brokers.
A mortgage broker deals directly with the borrower and submits the fully
processed loan application to the Company for an underwriting determination. The
Company applies its usual underwriting standards to each wholesale-originated
mortgage, issues a written commitment and, upon satisfaction of all lending
conditions, closes the mortgage. The Company offers mortgage brokers direct
access to Fannie Mae's Desktop Underwriter(R), which enables them to give their
clients immediate approvals. The Company also offers its entire product line,
the ability to provide approval within 24 to 48 hours of receipt of a file,
flexible lock-in and extension policies, personalized service, knowledgeable and
experienced wholesale loan originators and support of mortgage broker industry
events, such as trade shows and educational seminars.
The Company conducts due diligence on mortgage brokers with whom the it
considers doing business. Its diligence includes verifying their financial
statements and running credit checks of principals, checking business references
provided by
5
the brokers and verifying with the applicable regulators that a broker is in
good standing. Once approved, the Company requires that a mortgage broker sign
an agreement that governs the mechanics of doing business with the Company and
that sets forth the representations and warranties the broker makes regarding
each loan submitted to the Company.
THE COMPANY'S MORTGAGE PRODUCTS
The Company offers a broad and competitive range of mortgage products that
aim to meet the mortgage needs of all borrowers. Its product line includes
Fannie Mae-eligible loans, jumbo loans, adjustable rate mortgages, FHA-insured
and VA-guaranteed loans, alternate "A" loans, non-prime loans, home equity and
second mortgage loans, construction loans and bridge loans. The Company provides
its full product line through each of the three divisions.
The Company's network of loan buyers allows it to identify specific loan
features, to identify a loan buyer who will purchase loans with those specific
features and to select a buyer who will accept the lowest yield for loans with
those features. As a result, the Company is able to offer a wide range of
products that it believes are well priced and that have many different features
to suit a customer's needs.
The following table summarizes information with respect to the most
important categories of mortgage loans the Company originated for the year ended
December 31, 1999:
MORTGAGE LOAN ORIGINATION SUMMARY
% OF TOTAL
----------
MORTGAGE TYPE NUMBER OF LOANS DOLLAR VOLUME DOLLAR VOLUME
--------------- ------------- -------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- ----------------------- -----------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ----- ----
(in millions)
Fannie Mae Eligible Fixed.............. 4,054 3,560 622.1 $ 539.6 46.1% 46.6%
Jumbo Fixed............................ 410 506 153.8 171.5 11.4 14.8
Adjustable Rate (ARMs)................. 730 519 252.3 177.5 18.7 15.3
FHA/VA................................. 1,463 1,084 200.5 143.0 14.9 12.4
Alternate "A" Loans.................... 220 539 43.6 82.1 3.2 7.1
Non-Prime Loans........................ 488 240 51.2 25.8 3.8 2.2
Home Equity/Second..................... 344 177 16.8 9.0 1.3 0.8
Construction Loans..................... 16 20 6.3 8.4 0.5 0.7
Bridge Loans........................... 7 9 1.8 0.6 0.1 0.1
----- ----- ------- -------- ------ -----
TOTAL........................... 7,732 6,654 1,348.4 $1,157.5 100.0% 100.0%
===== ===== ======= ======== ====== ======
Conforming and Government-Insured Fixed Rate Loans. These mortgage loans
conform to the underwriting standards established by Fannie Mae or the Federal
Home Loan Mortgage Corporation (commonly referred to as Freddie Mac). This
product is limited to high quality borrowers with good credit records and
involves adequate down payments or mortgage insurance. These loans may qualify
for insurance from the Federal Housing Authority (FHA) or guarantees from the
Veterans Administration (VA). The Company has been designated by the U.S.
Department of Housing and Urban Development (HUD) as a direct endorser of loans
insured by the FHA and as an automatic endorser of loans partially guaranteed by
the VA, allowing it to offer so-called FHA or VA mortgages to qualified
borrowers. FHA and VA mortgages must be underwritten within specific
governmental guidelines, which include borrower income verification, asset
verification, borrower credit worthiness, property value and property condition.
Jumbo Loans. Jumbo loans are considered non-conforming mortgage loans
because they have a principal loan amount in excess of the loan limits set by
Fannie Mae and Freddie Mac (currently, $252,700 for single-family, one-unit
mortgage loans in the continental United States). The Company offers jumbo loans
with creative financing features, such as the pledging of security portfolios.
Its jumbo loan program is geared to the more financially sophisticated borrower.
Adjustable Rate Mortgages (ARM). The ARM's defining feature is a variable
interest rate that fluctuates over the life of the loan, usually 30 years.
Interest rate fluctuations are based on an index that is related to Treasury
bill rates, regional or national average cost of funds of savings and loan
associations, or another widely published rate, such as LIBOR. The period
between the rate changes is called an adjustment period and may change every six
months, one year, three years, five years or ten years. Some of the Company's
ARMs may include payment caps, which limit the interest rate increase for each
adjustment period.
6
Alternate "A" Loans. From a credit risk standpoint, alternate "A" loan
borrowers present a risk profile comparable to that of conforming loan
borrowers, but entail special underwriting considerations, such as a higher loan
to value ratio or limited income verification.
Non-Prime Mortgage Loans. The non-prime mortgage loan focuses on customers
whose borrowing needs are not served by traditional financial institutions.
Borrowers of non-prime mortgage loans may have impaired or limited credit
profiles, high levels of debt service to income, or other factors that
disqualify them for conforming loans. By originating mortgage loans to borrowers
with higher credit risk, the Company is able to charge higher interest rates
than would be charged for its conventional loans. Offering this category of
mortgage loans on a limited basis allows the Company to provide loan products to
borrowers with a variety of differing credit profiles.
Home Equity and Second Mortgage Loans. These loans are generally secured by
second liens on the related property. Home equity mortgage loans can take the
form of a home equity line of credit, which generally bears an adjustable
interest rate, while second mortgage loans are closed-end loans with fixed
interest rates. Both types of loans are designed for borrowers with high credit
profiles. Home equity lines generally provide for a 5- or 15-year draw period
where the borrower withdraws needed cash and pays interest only, followed by a
10- to 20-year repayment period. Second mortgage loans are fixed in amount at
the time of origination and typically amortize over 15 to 30 years with a
balloon payment due after 15 years.
Construction Loans. The Company offers a variety of construction loans for
owner-occupied single-family residences. These loans are available on a rollover
basis, meaning that the borrower can secure funding for the land purchase and
construction of the home, then roll the financing over into a permanent mortgage
loan. During the construction period, interest-only payments are made.
Withdrawals during the construction period, to cover the costs associated with
each stage of completion, are usually made in five to ten disbursements.
Bridge Loans. The bridge loans that the Company makes are short-term loans
and may be used in conjunction with the other loan products. Bridge loans
provide a means for a borrower to obtain cash based on the equity of a current
home that is on the market but not yet sold and to use that cash to purchase a
new home.
SALE OF LOANS AND SERVICING RIGHTS
The Company's business strategy is to sell the loans it makes, typically
within 30 days of origination, rather than hold them for investment. The Company
sells its loans to Fannie Mae, large national banks, thrifts and smaller banks,
securities dealers, real estate investment trusts and other institutional loan
buyers. The Company also swaps loans with Fannie Mae for mortgage-backed
securities, which it then sells.
Typically, the Company sells or swaps the loans with limited recourse to
it. This means that, with some exceptions, the Company reduces its exposure to
default risk at the time it sells the loan, except that it may be required to
repurchase the loan if it breaches the representations or warranties that it
makes in connection with the sale of the loan, in the event of an early payment
default, or if the loan does not comply with the underwriting standards or other
requirements of the ultimate investor.
The Company sells or swaps the loans under agreements to the buyers and
institutions described above, many of whom compete directly with the Company for
mortgage originations. The agreements generally do not have a limit as to the
principal amount of loans that the Company may sell, and establish an ongoing
sale program under which these investors and institutions stand ready to buy so
long as the loans the Company offers for sale meet their underwriting standards.
Generally, the Company sells the servicing rights to its loans at the time
it sells those loans. When it swaps loans for mortgage-backed securities, at the
time of completing the swap it sells the servicing rights to the loans to an
independent loan servicer. The prices at which the Company is able to sell its
mortgage servicing rights vary over time and may be materially adversely
affected by a number of factors, including the general supply of, and demand
for, mortgage servicing rights and changes in interest rates.
In 1999, the three institutional investors that bought the most loans from
the Company were Chase Manhattan Mortgage Corporation, Norwest Funding, Inc. and
Fleet Mortgage Corp., which accounted for 31.2%, 22.6%, and 15.2% of the
Company's total loan sales, respectively. The loss of any of these institutions
as a buyer of the Company's loans, or a significant reduction in the amount of
loans they are willing to buy or a significant reduction in the prices those
buyers are willing to pay, could have a material adverse effect on the Company's
business and results of operations.
7
LOAN UNDERWRITING
The Company's primary goal in making a decision whether to extend a loan is
whether that loan conforms to the expectations and underwriting standards of the
institution that buys that type of loan. Typically, these buyers focus on a
potential borrower's credit history, often as summarized by credit scores,
income and stability of income, liquid assets and net worth and the value and
the condition of the property to be pledged. Whenever possible, the Company uses
artificial intelligence underwriting systems to determine whether a particular
loan meets those standards and expectations. In those cases where artificial
intelligence is not available, the Company relies on its credit officer staff to
make the determination.
QUALITY CONTROL
The Company has hired an outside firm to perform quality control testing
for it. The firm typically samples, on a random basis, 10% of the loans the
Company originates. It checks the accuracy of the borrower's income and assets
and the credit report used to make the loan, reviews whether the loan buyer's
underwriting standards were properly applied, examines whether the loan complies
with government regulations and, for 1% of the loans the Company originates, it
reappraises the underlying property. The firm issues monthly reports to the
Company, which it uses to identify areas that need corrective action or could
use improvement. To date, those reports have not identified material quality
control concerns, although there can be no assurances that the Company will not
experience material quality control concerns in the future.
GOVERNMENT REGULATION
The Company's business is subject to extensive and complex rules and
regulations of, and examinations by, various federal, state and local government
authorities and government sponsored enterprises, including without limitation
HUD, FHA, VA, Fannie Mae, Freddie Mac, Ginnie Mae and state regulatory
authorities. These rules and regulations impose obligations and restrictions on
the Company's loan origination and credit activities, including without
limitation the processing, underwriting, making, selling, securitizing and
servicing of mortgage loans.
The Company's lending activities also are subject to various federal laws,
including the Federal Truth-in-Lending Act and Regulation Z thereunder, the
Homeownership and Equity Protection Act of 1994, the Federal Equal Credit
Opportunity Act and Regulation B thereunder, the Fair Credit Reporting Act of
1970, the Real Estate Settlement Procedures Act of 1974 and Regulation X
thereunder, the Fair Housing Act, the Home Mortgage Disclosure Act and
Regulation C thereunder and the Federal Debt Collection Practices Act, as well
as other federal statutes and regulations affecting its activities. The
Company's loan origination activities also are subject to the laws and
regulations of each of the states in which it conducts its activities.
These laws, rules, regulations and guidelines limit mortgage loan amounts
and the interest rates, finance charges and other fees the Company may assess,
mandate extensive disclosure and notice to its customers, prohibit
discrimination, impose qualification and licensing obligations on it, establish
eligibility criteria for mortgage loans, provide for inspections and appraisals
of properties, require credit reports on prospective borrowers, regulate payment
features, and prohibit kickbacks and referral fees, among other things. These
rules and requirements also impose on the Company certain reporting and net
worth requirements. Failure to comply with these requirements can lead to, among
other things, loss of approved status, termination of contractual rights without
compensation, demands for indemnification or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions.
The Company is subject to periodic audits by the regulators in many of the
states where it operates. To date, the audits have not found any material
violations. In addition, the Company's "enterprise" computer application assists
it in complying with government regulations by automatically selecting the
requisite loan disclosure documents, calculating permissible fees and charges
and assuring that products offered to a particular borrower meet the
requirements of that borrower's state. The Company's legal compliance is
reviewed as part of its quality control process, which is performed by an
independent contractor with expertise in these matters.
Although the Company believes that it has systems and procedures in place
to ensure compliance with these requirements and believe that it currently is in
compliance in all material respects with applicable federal, state and local
laws, rules and regulations, there can be no assurance of full compliance with
current laws, rules and regulations, that more restrictive laws, rules and
regulations will not be adopted in the future, or that existing laws, rules and
regulations or the mortgage loan documents with borrowers will not be
interpreted in a different or more restrictive manner. The occurrence of any
such event could make compliance substantially more difficult or expensive,
restrict the Company's ability to originate, purchase, sell or service mortgage
loans, further limit or restrict the amount of interest and other fees and
charges earned from mortgage loans that the Company originates, purchases or
services, expose it to claims by borrowers and administrative enforcement
actions, or otherwise materially and adversely affect its business, financial
condition and results of operations.
8
Members of Congress, government officials and political candidates have
from time to time suggested the elimination of the mortgage interest deduction
for federal income tax purposes, either entirely or in part, based on borrower
income, type of loan or principal amount. Because many of the Company's loans
are made to borrowers for the purpose of purchasing a home, the competitive
advantage of tax deductible interest, when compared with alternative sources of
financing, could be eliminated or seriously impaired by this type of
governmental action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for the kind of
mortgage loans the Company offers.
The Company also is performing various mortgage-related operations on the
Internet. The Internet, and the laws, rules and regulations related to it, are
new and still evolving. As such, there exist many opportunities for the
Company's business operations on the Internet to be challenged or to become
subject to legislation, any of which may materially and adversely affect its
business, financial condition and results of operations.
INFORMATION SYSTEMS
The Company's enterprise system controls most aspects of the Company's
operations, from the processing of a loan application through the closing of the
loan and the sale of the loan to institutional investors. The system also
performs checks and balances on many aspects of the Company's operations, and it
supports the Company's marketing efforts. The Company's enterprise system
functions on a wide area network that connects all of its branches in "real
time." With its wide area network, a transaction at any one of its locations is
committed centrally and is therefore immediately available to all personnel at
all other locations. An important benefit of the enterprise system is that it
aids the Company in controlling its business process. The system assures that
the Company's underwriting policies are adhered to, that only loans that are
fully approved are disbursed, and that the correct disclosures and loan
documents are used based on a borrower's state and loan program. The Company's
enterprise system also provides its management with reports and other key data.
MORTGAGESELECT.COM has developed a proprietary call center and Web site
software programs that integrate the call center, its contact management system,
Fannie Mae's automated underwriting system and the Internet Web site. The
Company's Internet software programs were developed using in-house personnel and
outside software consulting companies specializing in Internet mortgage services
software.
COMPETITION
Mortgage banking on the Internet is highly competitive. A large number of
mortgage companies currently transact business over the Internet in one form or
another. The sophistication of these companies in the Internet channel varies
from simple one-page information Web sites to Web sites with extensive on-line
content and features. Many of these mortgage companies share a business strategy
and capability similar to that of the Company. The competition includes banks
such as Chase and Bank of America, as well as mortgage originators such as Prism
Financial Corporation, E-Loan and Mortgage.com, all of which are larger and
better capitalized than the Company. In addition, the Company competes on the
Internet with large, national mortgage companies, such as Countrywide Credit
Industries, Inc. and HomeSide Lending, which have greater origination volumes
and capitalization than the Company.
A large number of mortgage companies also transact business through retail
offices and other traditional channels. The Company's competitors include other
mortgage bankers (including those noted above), state and national commercial
banks, savings and loan associations (including, for example, Dime Savings Bank
of New York, FSB and Home Federal Savings Bank), credit unions, insurance
companies and other finance companies. Many of these competitors are
substantially larger and have considerably greater financial, technical and
marketing resources than the Company.
SPECIAL NOTES OF CAUTION
REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this report may constitute "forward-looking
statements" within the meaning of the federal securities laws. Forward-looking
statements generally discuss the Company's plans and objectives for future
operations. They also include statements containing a projection of revenues,
earnings (loss), capital expenditures, dividends, capital structure or other
financial terms. The following statements particularly are forward-looking in
nature:
o the Company's strategy;
9
o development of the Company's Internet capabilities;
o projected joint ventures or acquisitions; and
o projected capital expenditures.
The forward-looking statements in this report are based on the Company's
management's beliefs, assumptions and expectations of its future economic
performance, taking into account the information currently available to them.
These statements are not statements of historical fact. Forward-looking
statements involve risks and uncertainties, some of which are not currently
known to the Company, that may cause its actual results, performance or
financial condition to be materially different from the expectations of future
results, performance or financial condition it expresses or implies in any
forward-looking statements. Some of the important factors that could cause the
Company's actual results, performance or financial condition to differ
materially from its expectations are:
o general volatility of the capital markets and the market price of
the Company's shares;
o changes in the real estate market, interest rates or the general
economy of the markets in which the Company operates;
o economic, technological or regulatory changes affecting the use of
the Internet;
o the Company's ability to employ and retain qualified employees;
o changes in government regulations that are applicable to the
Company's regulated brokerage and property management businesses;
o the Company's ability to identify and complete acquisitions and
successfully integrate businesses it acquires; o changes in the
demand for the Company's services;
o the degree and nature of the Company's competition; and
o the other factors referenced in this report, including, without
limitation, those under the captions "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business."
When used in this report, the words "plan," "believe," "anticipate,"
"estimate," "expect," "objective," "projection," "forecast," "goal" or similar
words are intended to identify forward-looking statements. The Company qualifies
any and all of its forward-looking statements entirely by these cautionary
factors.
10
ITEM 2. PROPERTIES
The Company's Executive and Administrative Offices are located in New York,
New York and Melville, New York, respectively, and consist of approximately
50,200 square feet. The two leases covering the Executive and Administrative
offices expire in December of 2007 and January of 2003, respectively, and the
combined monthly rent is $97,458.
The Company leases an aggregate of 28 spaces for its regional operation
center and lending offices in Arizona, California, Connecticut and New York. As
of December 31, 1999 these facilities had an annual aggregate base rental of
approximately $1,598,000, and ranged in size from 400 to 11,523 square feet with
remaining lease terms ranging from one to eight years.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is at times subject to
various legal proceedings. The Company does not believe that any of its current
legal proceedings, individually or in the aggregate, will have a material
adverse effect on its operations or financial condition.
A multitude of class action lawsuits have been filed against companies in
the mortgage banking industry, which allege, among other things, violations of
the terms of the mortgage loan documents and certain laws, rules and regulations
(including without limitation consumer protection laws). These lawsuits may
result in similar suits being filed against the Company. In addition, the
publicity generated by such lawsuits may result in legislation that affects the
manner in which the Company conducts its business and its relationships with
mortgage brokers, correspondents and others. Any of these developments may
materially and adversely affect the Company's business, financial condition and
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the NASDAQ National Market under
the symbol AHMH and began trading on October 4, 1999. The following table sets
forth the high, low and closing sales prices for AHM's Common Stock as reported
by the NASDAQ National Market for the periods indicated.
1999
-----------------
HIGH LOW
---- ---
Fourth Quarter (Commencing October 4, 1999) 7.375 5.375
As of March 27, 2000, the closing sales price of the Company's Common
Stock, as reported on the NASDAQ National Market, was $7.125.
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain any earnings for growth and
expansion of its business and does not anticipate paying any cash dividends on
its Common Stock in the foreseeable future. In addition, the Company has certain
limitations on its ability to pay dividends under certain of its credit
facilities without prior approval of the lenders.
As of March 27, 2000 the Company had 16 stockholders of record. The Company
believes, based on the number of proxy statements and related materials
requested in connection with its April 12, 2000 special meeting of stockholders,
that there are approximately 800 beneficial owners of its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING
DATA)
The following selected financial data as of December 31, 1999, 1998 and
1997 and for the years ended December 31, 1999, 1998, 1997 and 1996 have been
derived from the Company's consolidated financial statements, included elsewhere
in this report, which have been audited by Deloitte & Touche LLP, the Company's
independent auditors. The selected financial data as of December 31, 1995 and
1996 and for the year ended December 31, 1995 have been derived from the
Company's unaudited consolidated financial statements, which are not included in
this report. These financial statements include all adjustments, consisting of
normal recurring adjustments, which the Company considers necessary for a fair
presentation of its financial position and results of operations for these
periods. You should not assume that the results below indicate results that the
Company will achieve in the future. The operating data are derived from
unaudited financial information that the Company compiled.
12
You should read the information below along with all the other financial
information and analysis presented in this report, including the Company's
financial statements and related notes, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
STATEMENT OF INCOME DATA:
Revenues
Gain on sale of mortgage loans ........................... $ 21,957 $ 18,981 $ 10,597 $ 6,360 $ 6,361
Interest income (expense), net ........................... 1,704 734 369 204 (610)
Other .................................................... 1,201 502 356 21 --
-------- -------- -------- -------- --------
Total revenues ....................................... 24,862 20,217 11,321 6,585 5,751
-------- -------- -------- -------- --------
Expenses
Salaries, commissions and benefits, net .................. 11,611 9,430 5,317 3,459 3,930
Marketing and promotion .................................. 1,774 1,236 962 814 445
Occupancy and equipment .................................. 2,429 1,654 909 501 91
Data processing and communications ....................... 1,133 952 612 337 203
Provision for loss ....................................... 28 153 117 -- --
Other .................................................... 2,550 1,543 946 830 715
-------- -------- -------- -------- --------
Total expenses ....................................... 19,525 14,968 8,862 5,941 5,384
-------- -------- -------- -------- --------
Income before income taxes and minority interest ........... 5,337 5,249 2,459 644 367
Income taxes(1) ...................................... 1,441 328 140 38 29
Minority interest .................................... 35 51 -- -- --
-------- -------- -------- -------- --------
Net income (loss) ........................... $ 3,861 $ 4,870 $ 2,319 $ 606 $ 338
======== ======== ======== ======== ========
Net income per share:
Basic .................................................... $ 0.69 $ 0.97 $ 0.46 $ 0.12 $ 0.07
Diluted .................................................. $ 0.69 $ 0.97 $ 0.46 $ 0.12 $ 0.07
Weighted average number of shares outstanding:
Basic .................................................... 5,595 5,000 5,000 5,000 5,000
Diluted .................................................. 5,603 5,000 5,000 5,000 5,000
BALANCE SHEET DATA:
Cash and cash equivalents ................................ $ 3,414 $ 2,892 $ 2,058 $ 1,226 $ 982
Mortgage loans held for sale, net ........................ 65,115 34,667 24,676 9,167 9,070
Total assets ............................................. 85,884 42,392 28,914 11,487 10,381
Warehouse lines of credit ................................ 56,805 34,070 24,454 9,076 9,026
Other liabilities ........................................ 11,056 2,298 1,886 881 509
Total stockholder's equity ............................... $ 18,000 $ 5,924 $ 2,574 $ 1,530 $ 886
OPERATING DATA:
Total mortgage originations (in millions) ................ $ 1,348 $ 1,158 $ 724 $ 544 $ 341
Home purchases ....................................... $ 978 $ 749 $ 562 $ 383 $ 264
Refinancings ......................................... $ 370 $ 409 $ 162 $ 161 $ 77
Number of loans originated ............................... 7,732 6,543 4,361 2,915 1,674
Loan originators at period end ........................... 220 76 71 40 28
Number of branches at period end ......................... 28 12 8 7 5
- - ---------------------------------------
(1) Prior to September 29, 1999, American Home Mortgage Corp. (AHM) elected to
be treated as an S corporation for federal and state income tax purposes.
Prior to AHM's election to be treated as an S corporation, all federal
taxes were taxable to and paid by AHM's sole shareholder. Income taxes for
the years ended December 31, 1998, 1997, 1996 and 1995 reflect state income
taxes only.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company has made forward-looking statements in this annual report on
Form 10-K that are subject to risks and uncertainties. Forward-looking
statements include information concerning the Company's possible or assumed
future results of operations. Also, when the Company has used such words as
"believe," "expect," "anticipate," "plan," "could," "intend" or similar
expressions, it is making forward-looking statements. You should note that an
investment in the Company's securities involves certain risks and uncertainties
that could affect its future financial results. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in "factors
that may affect future performance" and elsewhere in this annual report on Form
10-K.
The Company is a leading independent retail mortgage banking company
primarily engaged in the business of originating and selling residential
mortgage loans. The Company offers a broad array of residential mortgage
products targeted primarily to high-credit-quality borrowers over the Internet,
as well as through its 220 primarily commission-compensated loan originators.
The Company operates from 14 loan offices in the New York metropolitan area and
five other eastern states, 13 loan offices in California and one in Arizona. The
Company operates primarily as a mortgage banker, underwriting, funding and
selling its loan products to more than 45 different buyers. In January of 1999,
the Company began marketing its mortgage products over the Internet through its
Internet site, MORTGAGESELECT.COM. Mortgage products are originated online
through arrangements with a number of popular Web sites and through the
Company's own Web site, established in 1999.
As a mortgage bank, the Company generates revenues through the origination
and subsequent sale of funded loans. These revenues are made up of net gain on
sale and interest income. Net gain on sale consists of the net gain on the sale
of mortgage loans and mortgage servicing rights, which are sold generally within
30 days of origination. This net gain is recognized based on the difference
between the combined selling price of the loan and its related servicing rights,
and the carrying value of the mortgage loans and servicing rights sold. Net gain
on sale also includes loan-related fees consisting of application,
documentation, commitment and processing fees paid by borrowers. Net interest
income consists of the difference between interest received by the Company on
its mortgage loans held for sale and interest paid by it under its credit
facilities.
The Company's expenses largely consist of:
o salaries and benefits paid to employees;
o occupancy and equipment costs;
o Internet-related expenses, including licensing and participation
fees and advertising costs;
o marketing, promotion and advertising costs; and
o data processing and communication costs.
A substantial portion of these expenses is variable in nature. Commissions paid
to loan originators are 100% variable, while other salaries and benefits
fluctuate from quarter to quarter based on the Company's assessment of the
appropriate levels of non-loan originator staffing, which correlates to the
current level of loan origination volume and the Company's perception of future
loan origination volume.
Seasonality affects the mortgage industry as loan originations are
typically at their lowest levels during the first and fourth quarters due to a
reduced level of home buying activity during the winter months. Loan
originations generally increase during the warmer months, beginning in March and
continuing through October. As a result, the Company expects higher earnings in
its second and third quarters and lower earnings in the first and fourth
quarters.
Interest rate and economic cycles also affect the mortgage industry, as
loan originations typically fall in rising interest rate environments. During
these periods, refinancing originations decrease, as higher interest rates
provide reduced economic incentives for borrowers to refinance their existing
mortgages. Due to stable and decreasing interest rate environments over recent
years, the Company's to date performance may not be indicative of results in
rising interest rate environments. In addition, the Company's recent and rapid
growth may distort some of its ratios and financial statistics and may make
period-to-period comparisons difficult. In light of this growth, the Company's
to date earnings performance may be of little relevance in predicting future
performance. Furthermore, the Company's financial statistics may not be
indicative of its results in future periods.
14
On December 30, 1999, American Home acquired Marina Mortgage Company, Inc.,
a California corporation. Marina, now a wholly-owned subsidiary of American
Home, is a full service retail lender. Marina originates and purchases mortgage
loans for sale in the secondary mortgage market. It operates 13 branch offices
in California and one in Arizona and employs approximately 226 full time
employees, including 104 sales personnel. Marina is licensed, exempt or
otherwise qualified to originate loans in 32 states. Its business included its
Internet division, which has provided the Company with its third Internet call
center. Goodwill generated as a result of this transaction was approximately
$4.5 million and will be amortized over 20 years.
On January 17, 2000, American Home entered into an agreement to acquire
First Home Mortgage Corp., an Illinois corporation. Upon completion of the
acquisition, the shareholders of First Home will receive an aggregate of 489,760
shares of American Home's common stock and $3.6 million over a period of two
years. In addition, the shareholders of First Home may receive additional
consideration consisting of cash and shares of American Home common stock based
on the future results of the financial performance of the First Home division of
the Company (please see the Company's current report on Form 8-K filed with the
Securities and Exchange Commission on February 1, 2000 for further information).
First Home is an independent mortgage lender based in metropolitan Chicago.
Formed in 1987, First Home originates primary residential mortgage loans. It
operates 21 branch offices in four states and employs approximately 255 full
time employees, including sales personnel. First Home is qualified to originate
loans in 23 states. The mergers with Marina in 1999 and First Home, expected to
be completed late in the second quarter of 2000, represent an expansion of the
Company's traditional lending activities into the western and midwest geographic
regions of the country. It is anticipated that upon the completion of this
transaction the goodwill of approximately $5.0 million will be generated and
amortized over 20 years.
In addition to the First Home merger, the Company may, from time to time,
engage in other acquisitions. Any acquisition made by the Company may result in
potentially dilutive issuances of equity securities, the incurrence of
additional debt and the amortization of expenses related to goodwill and other
intangible assets. The Company also may experience difficulties in integrating
the operations, services, products and personnel of acquired companies or the
diversion of management's attention from ongoing business operations. The
Company currently has no formal agreements with regard to any potential
acquisition other than First Home, and there can be no assurance that First Home
or future acquisitions, if any, will be consummated.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the Company's statement of operations expressed as a percentage of
total revenues. Any trends illustrated in the following table are not
necessarily indicative of future results.
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997
---- ---- ----
RESULTS OF OPERATIONS:
Gain on sale of mortgage loans................... 88.3% 93.9% 93.6%
Net interest income.............................. 6.9 3.6 3.3
Other............................................ 4.8 2.5 3.1
----- ----- -----
Total revenues............................... 100.0 100.0 100.0
----- ----- -----
Salaries, commissions and benefits, net.......... 46.7 46.6 47.0
Marketing and promotion.......................... 7.1 6.1 8.5
Occupancy and equipment.......................... 9.8 8.2 8.0
Data processing and communications............... 4.6 4.7 5.4
Provision for loss............................... 0.1 0.8 1.0
Other............................................ 10.3 7.6 8.4
----- ----- -----
Total expenses............................... 78.6 74.0 78.3
----- ----- -----
Net income before taxes and minority interest......... 21.4 26.0 21.7
Income taxes........................ 5.8 1.6 1.2
Minority interest................... 0.1 0.3 -
----- ----- -----
Net income as reported.............. 15.5% 24.1% 20.5%
===== ===== =====
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Total Revenues. The Company's total revenues for the year ended December
31, 1999, compared to year ended December 31, 1998, increased to $24.9 million
from $20.2 million in 1998, an increase of $4.7 million, or 23.0%, primarily as
a result of strong origination growth and the subsequent sale of loans and a
generally favorable interest rate environment. Loan sales increased to $1.3
billion in 1999 from $1.2 billion in 1998 (which amounts include $64.6 million
and $47.5 million of
15
originations in which the Company acted as broker, respectively), resulting from
new community loan office expansion and its Internet activity.
Net gain on the sale of mortgage loans increased to $22.0 million in 1999
from $19.0 million in 1998, an increase of $3.0 million, or 15.7%. The increase
was attributable to the increase in the Company's origination volume and
improved margins.
Net interest income increased to $1.7 million in 1999 from $734,000 in
1998, an increase of $966,000, or 132.0%. This increase was due to more
efficient cash management, including the implementation of sweep accounts, which
increased interest income.
Other income increased to $1.2 million in 1999 from $502,000 in 1998, an
increase of $698,000, or 139.2%. The increase was due primarily to volume
incentive bonuses from various investors. These bonuses represent payments
received by the Company when it meets certain volume targets specified in its
various agreements with loan purchasers. The Company accrues volume incentive
income when targets are reached.
Salaries, Commissions and Benefits. Salaries, commissions and benefits
increased to $11.6 million in 1999 from $9.4 million in 1998, an increase of
$2.2 million, or 23.1%. The increase related primarily to the Company's Internet
expansion efforts, increased staffing levels, both at new and existing community
loan offices, and, to a lesser extent, the non-deferred portion of commissions
paid to loan originators. As of December 31, 1999, the Company employed 543
people compared to 287 people at December 31, 1998.
Marketing and Promotion Expenses. Marketing and promotion expenses
increased to $1.8 million in 1999 from $1.2 million in 1998, an increase of
$600,000, or 43.5%. The increase was primarily attributable to new community
loan office openings.
Occupancy and Equipment Expenses. Occupancy and equipment expenses
increased to $2.4 million in 1999 from $1.7 million in 1998, an increase of
$700,000, or 46.9%. The increase was due primarily to an increase in occupancy
costs as a result of opening new community loan offices and depreciation charges
for increased computer networking.
Data Processing and Communications. Data processing and communication costs
increased to $1.1 million in 1999 from $952,000 in 1998, an increase of
$148,000, or 19.1%. The increase was primarily a result of increased staffing
levels, the opening of new community loan offices and increased expansion of the
Company's Internet division.
Other Expenses. Other expenses increased to $2.5 million in 1999 from $1.5
million in 1998, an increase of $1.0 million or 65.2%. These expenses, which
consist primarily of office supplies, travel, insurance and professional fees,
have increased with the Company's general activity and employment levels.
Income Taxes. Income taxes increased to $1.4 million in 1999 from $328,000
in 1998, and increase of $1,072,000 or 339%. The increase was primarily due to a
change in the tax status of AHM. Prior to September 29, 1999, AHM elected to be
treated as an S corporation. This increase in tax also includes a non-cash,
non-recurring tax expense of $625,000 resulting from this change.
Net Income. Net income decreased to $3.9 million in 1999 from $4.9 million
in 1998, a decrease of $1.0 million, or 20.7%. The decrease in net income was
primarily the result of the Company's change in tax status.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Total Revenues. The Company's total revenues increased to $20.2 million in
1998 from $11.3 million in 1997, an increase of $8.9 million, or 78.6%,
primarily as a result of strong origination growth and the subsequent sale of
loans. Loan sales increased to $1.2 billion in 1998 from $729.6 million in 1997
(which amounts include $47.5 million and $30.7 million of originations in which
the Company acted as broker, respectively), resulting from new community loan
office expansion. During 1998, the Company opened four new community loan
offices. In addition, refinancings accounted for approximately 35.3% of its
origination volume in 1998 compared to approximately 22.4% in 1997.
Net gain on sale of mortgage loans increased to $19.0 million in 1998 from
$10.6 million in 1997, an increase of $8.4 million, or 79.4%. The increase was
attributable to the increase in the Company's origination volume.
Net interest income increased to $734,000 in 1998 from $369,000 in 1997, an
increase of $365,000, or 98.9%. This increase was due to increased loan
origination volume, as well as increased use of financing agreements or purchase
and sale facilities to increase the interest spread against borrowed funds.
16
Other income increased to $502,000 in 1998 from $356,000 in 1997, an
increase of $146,000, or 41.0%. The increase was due primarily to volume
incentive bonuses earned from various purchasers during that period, as well as
to the gain on sale of marketable securities.
Salaries, Commissions and Benefits. Salaries, commissions and benefits
increased to $9.4 million in 1998 from $5.3 million in 1997, an increase of $4.1
million, or 77.4%. The increase related primarily to increased staffing levels,
both at new and existing community loan offices, and, to a lesser extent, the
non-deferred portion of commissions paid to loan originators. As of December 31,
1998, the Company employed 287 people, compared to 185 people at December 31,
1997. These expenses are expected to continue to increase in 1999 as a result of
increased loan origination volume and additional employees expected to be hired
in connection with the expansion of existing operations and new community loan
office openings.
Marketing and Promotion Expenses. Marketing and promotion expenses
increased to $1.2 million in 1998 from $962,000 in 1997, an increase of
$274,000, or 28.5%. The increase was primarily attributable to new community
loan office openings.
Occupancy and Equipment Expenses. Occupancy and equipment expenses
increased to $1.7 million in 1998 from $909,000 in 1997, an increase of
$745,000, or 82.0%. The increase was due primarily to an increase in occupancy
costs as a result of opening new community loan offices and depreciation charges
for increased computer networking.
Data Processing and Communications. Data processing and communication costs
increased to $952,000 in 1998 from $612,000 in 1997, an increase of $340,000, or
55.6%. The increase was primarily a result of increased staffing levels and the
opening of new community loan offices.
Other Expenses. Other expenses increased to $1.5 million in 1998 from
$946,000 in 1997, an increase of $597,000, or 63.1%. These expenses, which
consist primarily of office supplies, travel, insurance and professional fees,
have increased with general activity and employment levels.
Net Income. Net income increased to $4.9 million in 1998 from $2.3 million
in 1997, an increase of $2.6 million, or 110.0%.
LIQUIDITY AND CAPITAL RESOURCES
To originate a mortgage loan, the Company draws against a syndicated
warehouse facility its subsidiary, American Home Mortgage Corp., has entered
into with First Union National Bank. The First Union warehouse facility was
originally for $60 million. First Union has agreed to increase this facility to
$75 million through April 30, 2000, and the Company is in negotiations to
replace this facility with a new $100 million warehouse facility that will be
agented by First Union. The Company expects to finalize an agreement with
respect to the new facility prior to April 30, 2000. The Company's existing
warehouse facility is secured by the mortgages it originates and certain of its
other assets. Loans under its warehouse facility bear interest at rates that
vary depending on the type of underlying loan, and these loans are subject to
sublimits, advance rates and terms that vary depending on the type of underlying
loan and the ratio of the Company's liabilities to its tangible net worth. At
March 28, 2000, the outstanding balance under the warehouse facility was $56.0
million, the outstanding balance in drafts payable was $2.9 million and the
maximum amount available for additional borrowings was $19.0 million.
Comerica Bank extended a $30 million line of credit to Marina prior to
American Home's acquisition of Marina. The interest rate on outstanding balances
fluctuated daily based on a spread to the Federal funds rate and interest was
paid monthly. This line was extinguished subsequent to the acquisition by
American Home and consequently, the balance at March 28, 2000 was $0.
The documents governing the Company's warehouse facility contain a number
of compensating balance requirements and restrictive financial and other
covenants that, among other things, require the Company to maintain a minimum
ratio of total liabilities to tangible net worth and maintain a minimum level of
tangible net worth, liquidity, stockholder's equity and leverage ratios, as well
as to comply with applicable regulatory and investor requirements. The facility
also contains covenants limiting the Company's subsidiary's ability to:
o transfer or sell assets;
o create liens on the collateral;
o pay cash or stock dividends; or
o incur additional indebtedness,
without obtaining the prior consent of First Union, which consent may not be
unreasonably withheld. These limits on the subsidiary may in turn restrict
American Home's ability, as the holding company, to pay cash or stock dividends
on its stock.
In addition, under the Company's warehouse facility, First Union will not
continue to finance a mortgage loan that it holds if:
17
o the loan is rejected as "unsatisfactory for purchase" by the
ultimate investor and has exceeded its permissible 60-day
warehouse period;
o the Company fails to deliver the applicable mortgage note or other
documents evidencing the loan within the requisite time period;
o the underlying property that secures the loan has sustained a
casualty loss in excess of 5% of its appraised value; or
o the loan ceases to be an eligible loan (as determined pursuant to
the warehousing agreement).
In addition to the First Union warehouse facility, the Company has purchase
and sale agreements with Fannie Mae, Greenwich Capital Financial Products, Inc.,
Prudential Securities Funding Corp. and Paine Webber Real Estate Securities,
Inc., under which it sells the loans it has originated to these institutions on
an interim basis. Pursuant to these arrangements, the Company obtains
commitments from the ultimate buyer, which may be a bank, a pension fund or an
investment bank, to purchase its loans. It then sells the loans, together with
the commitment from the ultimate buyer, to one of the four institutions with
which it has purchase and sale agreements. These institutions in turn sell the
loans to the party who gave the Company the commitment. These agreements allow
the Company to accelerate the sale of its inventory of mortgage loans, thereby
enabling it to use its warehouse facility more effectively, because it does not
have to wait until the closing of a sale to the ultimate buyer before it
receives the purchase price. Amounts sold and being held under these agreements
at December 31, 1999 and December 31, 1998 were $116.9 million and $61.4
million, respectively. Amounts so held under these agreements at March 28, 2000
were $103.1 million. The combined capacity available under the Company's
purchase and sale agreements is $168 million. These agreements are not committed
facilities and may be terminated at the discretion of the counterparties.
The Company makes certain representations and warranties under the purchase
and sale agreements regarding, among other things, the loans' compliance with
laws and regulations, their conformity with the ultimate investor's underwriting
standards and the accuracy of information. In the event of a breach of these
representations or warranties or in the event of an early payment default, the
Company may be required to repurchase the loans and indemnify the investor for
damages caused by that breach. The Company has implemented strict procedures to
ensure quality control and conformity to underwriting standards, and minimize
the risk of being required to repurchase loans. In addition, an outside firm
performs quality control tests for it. Please see "Business--Quality Control."
To date, the Company has been required to repurchase fewer than 20 of the loans
it has sold.
As of December 31, 1999, the Company's warehouse facility borrowings were
$56.8 million and its outstanding drafts payable were $3.3 million compared to
$34.1 million in borrowings and no outstanding drafts payable as of December 31,
1998. At December 31, 1999, its loans held for sale were $56.8 million compared
to $34.7 million at December 31, 1998.
Cash and cash equivalents increased to $3.4 million at December 31, 1999
from $2.9 million at December 31, 1998.
The Company's primary uses of cash and cash equivalents during the year
ended December 31, 1999 were as follows:
o $7.8 million to fund the S corporation distribution note
associated with the initial public offering;
o $5.4 million net increase in mortgage loans held for sale;
o $4.0 million increase in accounts receivable;
o $1.4 million to purchase furniture and office and computer
equipment for new branch offices;
o $1.2 million increase in prepaid expenses and security deposits;
and
o $1.0 million to fund a distribution to AHM's sole stockholder
prior to the initial public offering to enable him to pay income
taxes attributable to him as a result of AHM's S corporation
status.
Cash and cash equivalents increased to $2.9 million at December 31, 1998
from $2.1 million at December 31, 1997. This increase in cash and cash
equivalents was primarily attributable to the increase in the Company's net
income to $5.2 million in 1998, before depreciation and amortization.
The Company's primary uses of cash and cash equivalents during 1998 were as
follows:
o $10.0 million net increase in mortgage loans held for sale;
o $1.9 million increases in accounts receivable;
18
o $1.5 million to fund a distribution to AHM's sole stockholder
prior to the initial public offering to enable him to pay income
taxes attributable to him as a result of AHM's S corporation
status; and
o $1.2 million to purchase furniture and office and computer
equipment for existing and new branch offices and to upgrade the
Company's telecommunications system.
The Company's ability to originate loans depends in large part on its
ability to sell these mortgage loans at par or for a premium in the secondary
market so that it may generate cash proceeds to repay borrowings under its
warehouse facility. The value of the Company's loans depends on a number of
factors, including:
o interest rates on the Company's loans compared to market interest
rates;
o the borrower credit risk classification;
o loan-to-value ratios; and
o general economic conditions.
The Company's existing cash balances and funds available under its working
capital credit facilities, together with cash flows from operations, are
expected to be sufficient to meet its liquidity requirements for at least the
next 12 months. The Company does, however, expect to continue its expansion and
expects that eventually it will have to arrange for additional sources of
capital through the issuance of debt or equity or additional bank borrowings.
The Company has no commitments for any additional financings, and it cannot
ensure that it will be able to obtain any additional financing at the times
required and on terms and conditions acceptable to it. If the Company fails to
obtain needed additional financing, its growth could slow and operations could
be affected.
INFLATION
For the period 1995 to 1999, inflation has been relatively low and the
Company believes that inflation has not had a material effect on its results of
operations. To the extent inflation increases in the future, interest rates will
also likely rise, which would impact the number of loans the Company originates.
This impact would adversely affect the Company's future results of operations.
RISK MANAGEMENT
Movements in interest rates can pose a major risk to us in either a rising
or declining interest rate environment. When interest rates rise, loans held for
sale and any applications in process with agreed upon rates decrease in value.
To preserve the value of such loans or applications in process with agreed upon
rates, the Company executes mandatory loan sale agreements (forward sales of
mortgage-backed securities) to be settled at future dates with fixed prices.
However, when interest rates decline, customers may choose to abandon their
applications. In that case, the Company may be required to purchase loans at
current market prices to fulfill existing mandatory loan sale agreements,
thereby incurring losses upon sale. The Company uses an interest rate hedging
program to attempt to manage these risks. Through this program, the Company
purchases and forward sells mortgage-backed securities and acquires options on
mortgage and treasury securities.
Although the Company generally sells its loans within 30 days after
funding, there may be unexpected delays that could increase its interest rate
exposure. Even though the Company uses hedging and other strategies to minimize
its exposure to interest rate risks, no hedging or other strategy can completely
protect it. Moreover, hedging strategies involve transaction and other costs.
The Company cannot ensure that its hedging strategy and the hedges that it makes
will adequately offset the risk of interest rate volatility or that its hedges
will not result in losses.
The Company's board of directors establishes thresholds, which limit its
exposure to such risk. The Company performs daily analysis to determine its risk
exposures under various interest rate scenarios and manages these risks through
a combination of forward sales of mortgage-backed securities and options on
treasury futures. All derivatives are obtained for hedging (or other than
trading) purposes, and management evaluates the effectiveness of the hedges on
an on-going basis.
19
The following tables summarize the Company's interest rate sensitive
instruments:
DECEMBER 31, 1999
-----------------
NOTIONAL Carrying
AMOUNT Amount FAIR VALUE
--------------- ---------- -------------
Instruments:
Mortgage loans held for sale................................... $ -- $65,115,356 $ 65,703,301
Mortgage servicing rights...................................... -- 34,470 34,470
Mortgage loans held for sale related positions:
Commitments to fund mortgages at agreed-upon rates........ $147,482,380 -- $ 1,391,777
Forward delivery commitments.............................. 33,634,595 -- (379,248)
Option contracts to buy securities........................ 35,000,000 371,000 439,856
Warehouse lines of Credit...................................... 56,804,901 56,804,901
In the event that the Company does not deliver into the forward delivery
commitments or exercise its option contracts, the instruments can be settled on
a net basis. Net settlement entails paying or receiving cash based upon the
change in market value of the existing instrument. All forward delivery
commitments and option contracts to buy securities are to be contractually
settled within six months of the balance sheet date.
The following describes the methods and assumptions the Company uses in
estimating fair values of the above financial instruments:
o Fair value estimates are made as of a specific point in time based
on estimates using present value or other valuation techniques.
These techniques involve uncertainties and are significantly
affected by the assumptions used and the judgments made regarding
risk characteristics of various financial instruments, discount
rates, estimates of future cash flows, future expected loss
experience, and other factors.
o Changes in assumptions could significantly affect these estimates
and the resulting fair values. Derived fair value estimates cannot
be substantiated by comparison to independent markets and, in many
cases, could not be realized in an immediate sale of the
instrument. Also, because of differences in methodologies and
assumptions used to estimate fair values, the fair values used by
the Company should not be compared to those of other companies.
o The fair value of commitments to fund with agreed upon rates are
estimated using the fees and rates currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties.
For fixed rate loan commitments, fair value also considers the
difference between current market interest rates and the existing
committed rates.
o The fair value of these instruments is estimated using current
market prices for dealer or investor commitments relative to the
Company's existing positions.
The Company's hedging program contains an element of risk because the
counterparties to its mortgage and treasury securities transactions may be
unable to meet their obligations. While the Company does not anticipate
nonperformance by any counterparty, it is exposed to potential credit losses in
the event the counterparty fails to perform. The Company's exposure to credit
risk in the event of default by a counterparty is the difference between the
contract and the current market price. The Company minimizes its credit risk
exposure by limiting the counterparties to well-capitalized banks and securities
dealers who meet established credit and capital guidelines.
YEAR 2000
The Company was successful in its approach to the year 2000 computer
compliance project. The year-end transition from 1999 to year 2000 has not
presented any issues to date. Although considered unlikely, the Company could be
affected by third party systems that were not as well prepared. Management will
continue to monitor the situation and take action as necessary to remediate any
problems that might occur and ensure that all business processes continue to
function properly.
The Company estimates that the year 2000 project costs equaled
approximately $15,000. This cost is in addition to existing personnel who have
been working on the year 2000 compliance project. All of the costs related to
the year 2000 project were incurred in 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In June of 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that all
derivatives be carried on the balance sheet at fair value and that changes in
the fair value of derivatives be recognized in income when they occur, unless
the derivatives qualify as hedges in accordance with the standard. If a
derivative qualifies as a hedge, a company can elect to use hedge accounting.
The type of accounting to be applied varies depending upon whether the nature of
the exposure that is being hedged is classified as one of three hedged risks
defined in the statement: change in fair value, change in cash flows and change
in foreign-currency. This statement's implementation has been delayed to be
effective for all fiscal quarters of fiscal years beginning after June 15, 2000
and cannot be applied retroactively. The Company has not yet determined the
impact SFAS No. 133 will have on its financial position or results of operations
after it adopts this statement.
20
In March of 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed for Internal Use" ("SOP 98-1"), which became effective for
financial statements for calendar year 1999, with early adoption encouraged. SOP
98-1 requires the capitalization of eligible costs of specified activities
related to computer software developed or obtained for internal use. The
adoption of this statement has had no material impact on the Company's financial
condition or results of operations.
21
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The information required by this Item 8 is incorporated by reference to
American Home Mortgage Holdings, Inc.'s Consolidated Financial Statements and
Independent Auditors' Report beginning at page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company intends to file with the Securities and Exchange Commission a
definitive proxy statement (the "Proxy Statement") pursuant to Regulation 14A,
which will involve the election of directors, within 120 days of the end of the
year covered by this Form 10-K. Information regarding directors of the Company
will appear under the caption "Election of Directors" in the Proxy Statement for
the Annual Meeting of Stockholders to be held on May 27, 2000, and is
incorporated herein by reference. Information regarding executive officers of
the Company will appear under the caption "Executive Officers" in the Proxy
Statement and is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will appear under the caption
"Executive Compensation" in the Proxy Statement and is incorporated herein by
this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information to be included under the captions "Securities Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement is incorporated
herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information to be included under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement is incorporated herein by this
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed with this Report.
The following documents are filed as part of this Report on Form 10-K.
1. Financial Statements
The financial statements listed in the accompanying List of Financial
Statements covered by the Report of Independent Auditors.
22
2. Financial Statement Schedules
None.
3. Exhibits
The information called for by this paragraph is contained in the Index
to Exhibits of this Report, which is incorporated herein by reference.
(b) Reports on Form 8-K.
During the quarter ended December 31, 1999, the Company did not file
any Reports on Form 8-K with the Securities Exchange Commission.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, American Home Mortgage Holdings, Inc., a
corporation organized and existing under the laws of the State of Delaware, has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on the 30th day of March, 2000.
AMERICAN HOME MORTGAGE HOLDINGS, INC.
By: /s/ Michael Strauss
------------------------------------------
Name: Michael Strauss
Title: President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
Chairman of the Board, President &
/s/ Michael Strauss Chief Executive Officer March 30, 2000
- - --------------------------
Michael Strauss
/s/ Robert E. Burke Chief Financial Officer March 30, 2000
- - --------------------------
Robert E. Burke
/s/ Richard Silver Controller March 30, 2000
- - --------------------------
Richard Silver
/s/ Joseph P. Bryant Director March 30, 2000
- - --------------------------
Joseph P. Bryant
/s/ John A. Johnston Director March 30, 2000
- - --------------------------
John A. Johnston
/s/ C. Cathleen Raffaeli Director March 30, 2000
- - --------------------------
C. Cathleen Raffaeli
/s/ Leonard Schoen, Jr. Director March 30, 2000
- - --------------------------
Leonard Schoen, Jr.
/s/ Kenneth Slosser Director March 29, 2000
- - --------------------------
Kenneth Slosser
24
INDEX TO FINANCIAL STATEMENTS
PAGE
----
AMERICAN HOME MORTGAGE HOLDINGS, INC.
Independent Auditors' Report................................ 2
Consolidated Balance Sheets
as of December 31, 1999 and 1998......................... 3
Consolidated Statements of Income for
the years ended December 31, 1999, 1998 and 1997 ........ 4
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997..... 5
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997................... 6
Notes to Consolidated Financial Statements.................. 7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
American Home Mortgage Holdings, Inc.
We have audited the accompanying consolidated balance sheets of American
Home Mortgage Holdings, Inc. and its subsidiary (the "Company") as of December
31, 1999 and 1998 and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 American Home Mortgage
Holdings, Inc. and its subsidiaries at December 31, 1999 and 1998 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with generally accepted
accounting principles.
Parsippany, NJ
March 30, 2000
2
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------------------------
1999 1998
----------------- ------------------
ASSETS
Cash and cash equivalents $ 3,414,017 $ 2,891,513
Accounts receivable 7,102,546 2,892,807
Mortgage loans held for sale, net 65,115,356 34,666,863
Mortgage loans held for investment, net 153,534 88,900
Real estate owned 112,865 -
Mortgage servicing rights, net 34,470 39,887
Premises and equipment, net 3,419,693 1,575,154
Prepaid expenses and security deposits 2,034,234 236,810
Goodwill 4,497,537 -
----------------- ----------------
TOTAL ASSETS $ 85,884,252 $ 42,391,934
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Warehouse lines of credit $ 56,804,901 $ 34,069,526
Drafts payable 3,313,686 -
Accrued expenses and other 5,262,997 2,297,542
Notes payable 1,947,578 -
Deferred income tax liability 532,025 -
----------------- ----------------
Total liabilities 67,861,187 36,367,068
----------------- ----------------
COMMITMENTS AND CONTINGENCIES - -
MINORITY INTEREST 23,372 100,760
STOCKHOLDERS' EQUITY:
Preferred stock $1.00 per share, 1,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.01 per share par value, 19,000,000
shares authorized, 8,286,747 issued and outstanding 82,534 50,000
Additional paid-in capital 17,249,390 267,600
Retained earnings 667,769 5,606,506
----------------- ----------------
Total stockholders' equity 17,999,693 5,924,106
----------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $ 85,884,252 $ 42,391,934
================= ================
See notes to consolidated financial statements.
3
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997
------------- -------------- ------------
REVENUES:
Gain on sale of mortgage loans $21,957,076 $ 18,980,534 $10,596,604
Interest income, net 1,703,498 734,179 368,808
Other 1,201,436 502,223 356,018
------------- -------------- ------------
Total revenues 24,862,010 20,216,936 11,321,430
------------- -------------- ------------
EXPENSES:
Salaries, commissions and benefits, net 11,611,275 9,430,382 5,315,732
Marketing and promotion 1,774,169 1,236,461 962,475
Occupancy and equipment 2,428,870 1,653,709 909,216
Data processing and communications 1,132,970 951,508 611,699
Provision for loss 27,967 152,955 116,837
Other 2,549,636 1,542,997 946,270
------------- -------------- ------------
Total expenses 19,524,887 14,968,012 8,862,229
------------- -------------- ------------
INCOME BEFORE INCOME TAXES AND MINORITY 5,337,123 5,248,924 2,459,201
INTEREST INCOME TAXES 1,441,125 328,209 139,887
------------- -------------- ------------
INCOME BEFORE MINORITY INTEREST 3,895,998 4,920,715 2,319,314
MINORITY INTEREST IN INCOME OF
CONSOLIDATED JOINT VENTURE 35,112 50,760
------------- -------------- ------------
NET INCOME $ 3,860,886 $ 4,869,955 $ 2,319,314
============= =============== ============
Earnings per share - basic $ 0.69 $ 0.97 $ 0.46
Earnings per share - diluted $ 0.69 $ 0.97 $ 0.46
Weighted average number of shares - basic 5,595,251 4,999,900 4,999,900
Weighted average number of shares - diluted 5,602,587 4,999,900 4,999,900
See notes to consolidated financial statements.
4
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ADDITIONAL
COMMON PAID-IN RETAINED TOTAL
STOCK CAPITAL EARNINGS EQUITY
BALANCE, JANUARY 1, 1997..................................... $50,000 $267,600 $ 1,008,850 $ 1,326,450
Net income............................................. -- -- 2,319,314 2,319,314
Distributions.......................................... -- -- (1,072,218) (1,072,218)
------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1997................................... 50,000 267,600 2,255,946 2,573,546
Net income............................................. -- -- 4,869,955 4,869,955
Distributions.......................................... -- -- (1,519,395) (1,519,395)
------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1998................................... 50,000 267,600 5,606,506 5,924,106
Net income............................................. -- -- 3,860,886 3,860,886
Distributions.......................................... -- -- (994,013) (994,013)
S corporation distribution note........................ -- -- (7,805,611) (7,805,611)
Issuance of common stock, initial public offering,net.. 25,000 12,139,180 -- 12,164,180
Issuance of common stock, purchase of Marina........... 7,534 4,842,610 -- 4,850,144
------- ------------ ------------ -----------
BALANCE, DECEMBER 31, 1999................................... $82,534 $17,249,390 $ 667,769 $17,999,693
======= =========== ========= ===========
5
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
----------- -------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES :
Net income $ 3,860,886 $ 4,869,955 $ 2,319,314
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Gain on equity securities -- (76,088) --
Depreciation and amortization 378,282 284,304 126,965
Provision for loss 27,967 152,955 116,837
Origination of mortgage loans (1,283,174,874) (1,141,240,923) (714,612,136)
Proceeds on sale of mortgage loans 1,265,275,964 1,131,144,305 698,872,291
Proceeds on sale of equity securities, trading -- 176,088 --
Purchases of equity securities, trading -- (100,000) --
Increase in:
Accounts receivable (4,007,135) (1,909,944) (393,329)
Mortgage servicing rights (1,000) (13,581) (16,970)
Prepaid expenses and security deposits (1,194,400) (20,385) (117,451)
Accrued expenses and other liabilities 1,288,688 413,293 1,016,562
-------------- ------------- ------------
Net cash used in operating activities (17,545,622) (6,320,021) (12,687,917)
-------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale/(purchase) of real estate owned, net -- 186,000 (186,000)
Net purchases of loans held for investment (64,634) (10,083) (78,817)
Investment in joint venture -- (50,000) --
Purchases of premises and equipment, net (1,352,171) (1,169,222) (520,829)
(Decrease)/increase in minority interest (77,388) 100,760 --
-------------- ------------- ------------
Net cash used in investing activities (1,494,193) (942,545) (785,646)
-------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in warehouse lines of credit 11,266,343 9,615,855 15,377,843
Increase in drafts payable 3,313,686 -- --
Acquisition of Marina Mortgage Co., Inc. 1,617,734 -- --
Distributions (8,799,624) (1,519,395) (1,072,218)
Proceeds from issuance of capital stock 12,164,180 -- --
-------------- ------------- ------------
Net cash provided by financing activities 19,562,319 8,096,460 14,305,625
-------------- ------------- ------------
NET INCREASE IN CASH 522,504 833,894 832,062
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,891,513 2,057,619 1,225,557
-------------- ------------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,414,017 $ 2,891,513 $ 2,057,619
============== ============= ==============
SUPPLEMENTAL DISCLOSURE--CASH PAID FOR:
Interest $ 2,121,589 $ 1,674,266 $ 905,333
Taxes 536,607 180,299 66,556
NON CASH ACTIVITIES
On December 30, 1999, the Company issued 753,413 shares of common stock in
exchange for 100% of the outstanding shares of Marina Mortgage Company, Inc.
On September 28, 1999, the Company transferred its retained earnings in the
form of an S corporation.
See notes to consolidated financial statements.
6
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OWNERSHIP
American Home Mortgage Holdings, Inc. is a holding company whose principal
asset is its investment in its wholly-owned subsidiaries, American Home Mortgage
Corp. ("American Home Mortgage") and Marina Mortgage Company, Inc. ("Marina")
(collectively referred to herein as "the Company"). On June 15, 1999, American
Home Mortgage Holdings, Inc. was formed. On September 29, 1999, Michael Strauss
exchanged his shares of American Home Mortgage Corp. for 4,999,900 shares of
American Home Mortgage Holdings, Inc. common stock. American Home Mortgage is a
residential mortgage lender headquartered in New York City with offices in New
York, Connecticut, New Jersey, Florida, Pennsylvania and Maryland. The Company
operates solely in the residential lending operating segment.
On October 6, 1999, the Company completed its initial public offering (the
"Offering") of 2.5 million shares of common stock, $.01 par value (the "Common
Stock"), at a price of $6.00 per share. The net proceeds from the Offering,
after deducting the distribution under the S Corporation Note dated September
28, 1999 (the "S Corporation Note") and underwriting discounts and expenses in
connection with the issuance of the Common Stock, approximated $4.7 million.
On December 30, 1999, the Company merged with Marina Mortgage Company,
Inc., a residential mortgage lender headquartered in Irvine, California, with
offices in California and Arizona. The Company issued 753,413 share of Common
stock in exchange for 34,600 shares of Marina Common Stock and will pay $2.5
million in cash over five years (See footnote 20). The Company's December 31,
1999 balance sheet reflects the following in connection with the merger: the
establishment of goodwill of approximately $4.5 million, the establishment of a
note payable to the former shareholders of Marina Mortgage Co., Inc. of
approximately $1.9 million.
Certain shares of common stock isued in connection with the initial public
offering and the acquisiiton of Marina Mortgage Company, Inc. are subject to
restrictions as to disposition into the market, ranging from 2 to 5 years.
On April 23, 1998, the Company entered into a joint venture with a realtor
in which the Company and the realtor each own a 50% interest. The Company
entered into a second joint venture on March 31, 1999 with a realtor in which
the Company and the realtor each own a 50% interest. The Company entered into a
third joint venture on May 14, 1999 with a home builder/developer in which the
Company and home builder/developer each own a 50% interest. The latest joint
venture had no activity as of the period ended December 31, 1999. The Company
purchases many of the loans originated by the joint ventures.
CONSOLIDATION
Because the Company exercises significant influence on the operations of
the joint ventures, their balances and operations have been fully consolidated
in the accompanying consolidated financial statements and all material
intercompany accounts and transactions have been eliminated.
BASIS OF PRESENTATION
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 liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
Company's estimates and assumptions primarily arise from risks and uncertainties
associated with interest rate volatility, credit exposure and regulatory
changes. Although management is not currently aware of any factors that would
significantly change its estimates and assumptions in the near term, future
changes in market trends and conditions may occur which could cause actual
results to differ materially.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks,
and overnight deposits.
7
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale represent mortgage loans originated and held
pending sale to interim and permanent investors. The mortgages are carried at
the lower of cost or market as determined by outstanding commitments from
investors or current investor yield requirements calculated on the aggregate
loan basis. The Company separately evaluates for impairment the estimated fair
value of its commitments to lend. If impairment exists, the Company records a
charge to earnings in the current period. The Company generally sells whole
loans without servicing retained. Gains or losses on such sales are recognized
at the time legal title transfers to the investor based upon the difference
between the sales proceeds from the final investor and the basis of the loan
sold, adjusted for net deferred loan fees and certain direct costs, selling
costs and any other adjustments. The Company defers net loan origination costs
as a component of the loan balance on the balance sheet. Such costs are not
amortized and are recognized into income as a component of the gain or loss upon
sale.
MORTGAGE LOANS HELD FOR INVESTMENT
Periodically, the Company originates or repurchases loans which are unable
to be sold through normal investor channels. When loans are transferred or
repurchased into this category, they are recorded at the lower of cost or market
and are subsequently carried at amortized cost, less allowance for loan losses.
The Company has the intent and ability to hold these loans for the foreseeable
future. The Company defers net loan origination costs as a component of the loan
balance and amortizes the deferred costs into interest income over the life of
the loan using the effective interest method. The loans are evaluated for
impairment based on the collateral value of the property securing the loan.
PROVISION FOR FORECLOSURE AND LOAN LOSSES
A provision for loss is provided based on management's periodic evaluation
of its loss exposures for loans held for sale and the applicable loan sale
agreements. The provision for loans held for sale is based on certain default
and foreclosure provisions in the applicable loan sale agreements. Management
reviews such loan sale agreement exposure on an aggregate basis to evaluate the
adequacy of the related allowance for loss. Due to the relatively small number
of loans held for investment, analysis is performed on a specific loan basis.
The pertinent factors in determining the exposures include the underlying
quality of the loans, actual loss experience, current economic conditions,
detailed analysis of individual loans for which full collectibility may not be
assured, and determination of the existence and realizable value of the
collateral and any guarantees securing such loans.
MORTGAGE SERVICING RIGHTS
The Company generally sells whole loans without servicing retained. Mortgage
servicing rights represent servicing retained on loans sold to one of the
Company's permanent investors who requires the Company to continue to service
the loans as a condition of sale. The Company does not have in-house servicing
capability and has a sub-servicing contract with a third party. The Company
capitalizes the cost of these mortgage servicing rights by allocating the
original cost basis in the loans based upon the relative fair value of the
underlying mortgage loans and mortgage servicing rights at the time the
servicing rights are contractually separated from the underlying loans. The
Company records amortization expense over the period of the projected net
servicing income. Impairment is recorded as a direct reduction of the asset
balance and a charge to amortization expense in the period it is determined.
8
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
Goodwill represents the excess purchase price over the fair value of net
assets stemming from business acquisitions and is being amortized over 20 years.
The Company evaluates the recoverability of goodwill for each applicable
business acquisition quarterly. The recoverability of goodwill is determined by
comparing the carrying value of the goodwill the the estimated operating income
of the related entity on an undiscounted cash flow basis. Should the carrying
value of the goodwill exceed the estimated operating income for the expected
period of benefit, impairment for the excess would be recorded at that time.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company obtains and holds derivative financial instruments to manage
price and interest rate risk related to its mortgage loans held for sale and
commitments to fund mortgages. No derivatives are held for trading purposes.
Fair value amounts were determined based upon available market information.
Realized and unrealized gains and losses associated with these instruments are
included in the Company's lower of cost or market evaluation and the
determination of gain or loss on sale of mortgage loans. The Company is not
required to satisfy margin or collateral requirements for any of these financial
instruments.
PREMISES AND EQUIPMENT
Premises and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation is provided in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service lives using the
straight-line method. Leasehold improvements are amortized over the lesser of
the life of the lease or service lives of the improvements using the
straight-line method. Depreciation and amortization are recorded within
occupancy and equipment expense within the financial statements.
INCOME TAXES
Through September 28, 1999, the Company elected for both Federal and State
income tax purposes to be treated as an S corporation (effective April 1, 1988).
As an S corporation, the net earnings of the Company were taxed directly to the
stockholders rather than the Company.
On September 29, 1999, the Company became a C corporation. All income earned
from that date is subject to corporate tax at statutory rates for both Federal
and State income tax purposes. The Company accounts for income taxes from that
date in conformity with Statement of Financial Accounting Standard No. 109,
'Accounting for Income Taxes', which requires an asset and liability approach
for accounting and reporting of income taxes.
LOAN ORIGINATION FEES
Loan fees, discount points and certain direct origination costs are recorded
as an adjustment of the cost of the loan and are included in gain on sales of
loans when the loan is sold. Accordingly, salaries, compensation and benefits
have been reduced by approximately $8,736,000, $6,788,000 and $4,242,000 due to
direct loan origination costs including commission costs incurred for the years
ended December 31, 1999, 1998 and 1997, respectively.
INTEREST RECOGNITION
Interest income is accrued as earned. Loans are placed on a non-accrual
status when any portion of the principal or interest is ninety days past due or
earlier when concern exists as to the ultimate collectibility of principal or
interest. Loans return to accrual status when principal and interest become
current and are anticipated to be fully collectible. Interest expense is
recorded on outstanding lines of credit at a rate based on a spread to the Fed
Funds rate, which was 5.01% at December 31, 1999. Interest expense has been
netted with interest income within the consolidated statements of income in the
amounts of $2,214,876, $1,910,289 and $905,333 for the years ended December 31,
1999, 1998 and 1997, respectively.
9
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTION PLAN
The Company has elected to account for their stock option plan using
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and to provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants as if the fair-value based
method, as required in Statement of Financial Accounting Standard No. 123
"Accounting for Stock-Based Compensation" had been applied.
EARNINGS PER SHARE
Basic EPS excludes dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company.
MARKETING AND PROMOTION
The Company charges the costs of marketing and promotion to expense in the
period incurred.
NET WORTH REQUIREMENTS
The Company's subsidiaries are required to maintain certain specified
levels of minimum net worth to maintain their approved status with Fannie Mae,
FHLMC, HUD and other investors. At December 31, 1999, the highest minimum net
worth requirement applicable to the subsidiaries was $1,000,000.
2. MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale consist of the following:
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
Mortgage loans held for sale $64,081,266 $34,307,323
Deferred origination costs, net 1,034,090 359,540
Mortgage loans held for sale, net $65,115,356 $34,666,863
=========== ===========
3. MORTGAGE LOANS HELD FOR INVESTMENT, NET
Mortgage loans held for investment consist of the following:
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
Mortgage loans held for investment $275,445 $210,811
Less: Allowance for loss 121,911 121,911
------------ ------------
Mortgage loans held for investment, net $153,534 $ 88,900
============ ============
10
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. MORTGAGE LOANS HELD FOR INVESTMENT, NET (CONTINUED)
The activity in the allowance for loss was as follows:
Balance at January 1, 1997................................. $ --
Provision.............................................. 116,837
Chargeoffs............................................. (77,770)
---------
Balance at December 31, 1997............................... 39,067
Provision.............................................. 152,955
Chargeoffs............................................. (70,111)
---------
Balance at December 31, 1998............................... 121,911
Provision.............................................. 27,967
Chargeoffs............................................. (27,967)
---------
Balance at December 31, 1999............................... $121,911
=========
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
DECEMBER 31,
-------------------------
1999 1998
---------- ----------
Investor receivables........................ $6,120,002 $1,977,950
Due from settlement agent................... 250,000 750,000
Mortgage payments receivable................ 330,615 83,338
Due from related party...................... 30,000 52,429
Accrued interest receivable................. 108,742 26,588
Sundry receivables.......................... 263,187 2,502
--------- ---------
Accounts receivable......................... $7,102,546 $2,892,807
========= =========
5. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
DECEMBER 31,
------------------------
1999 1998
--------- ---------
Furniture and fixtures........................... $1,073,549 $ 659,612
Office equipment................................. 3,119,730 1,420,390
Leasehold improvements........................... 150,298 122,241
Rental property.................................. 75,070 --
---------- ---------
Subtotal..................................... 4,418,647 2,202,243
Less: Accumulated depreciation and amortization.. (998,954) (627,089)
---------- ---------
Property, equipment and leaseholdimprovements, net $3,419,693 $1,575,154
========== =========
Depreciation and amortization expense for the years ended December 31, 1999,
1998 and 1997 was $371,865 , $281,974, and $124,865 respectively.
11
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
6. WAREHOUSE FACILITIES
Warehouse lines of credit consist of the following:
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
WEIGHTED WEIGHTED
OUTSTANDING AVERAGE OUTSTANDING AVERAGE
BALANCE RATE BALANCE RATE
------- ---- ------- ----
First Union......................... $45,335,869 6.51% $26,380,841 7.03%
PNC................................. -- --% 7,688,685 6.18%
Comerica............................ 11,469,032 6.63% -- --%
----------- ----------
Total warehouse facilities.......... $56,804,901 6.53% $34,069,526 6.84
=========== ===========
On December 6, 1999 First Union National Bank (as agent), Comerica Bank and
National City Bank of Kentuckey extended a $60,000,000 line of credit to
American Home Mortgage. Upon extension of the First Union line of credit, the
PNC line of credit was terminated and borrowings outstanding were repaid upon
sale of loans to investors. First Union has agreed to increase this facility to
$75 million through April 30, 2000, and the Company is in negotiation to replace
this facility with a new $100 million warehouse facitity that will be agented by
First Union. Loans held for sale are collateral to this line of credit. The
interest rate on outstanding balances fluctuates daily based on a spread to the
Fed Funds rate and interest is paid monthly. This line continues until
terminated or modified by either party. The Fed Funds rate at December 31, 1999
was 5.01%.
Comerica Bank extended a $30,000,000 line of credit to Marina. Under this
line of credit arrangement, the Company issued loan disbursements in the form of
wire transfers. The interest rate on outstanding balances fluctuated daily based
on a spread to the Fed Funds rate and interest was paid monthly. This line was
extinguished subsequent to the merger with American Home Mortgage.
The lines of credit are secured by mortgage loans and all other assets of
American Home Mortgage, and are guaranteed by its President, Michael Strauss.
The lines contain various covenants pertaining to maintenance of net worth and
working capital and include certain restrictions on dividends to shareholders.
At December 31, 1999 and 1998, American Home Mortgage was in compliance with its
loan covenants.
Drafts payable represent outstanding mortgage loan disbursements that the
Company has provided to its customers for the purchase of a home. The amounts
outstanding do not bear interest and are transferred into the Warehouse line
when they are presented to a bank.
7. NOTES PAYABLE
Notes payable represent the discounted value of note obligations incurred
for acquiring Marina. The Company is obligated to pay Marina's prior
shareholders $2.5 million over a five year period. The payments have been
discounted at an imputed interest rate of 10%.
12
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. OTHER INCOME AND EXPENSE
The significant components of other income and expense are as follows:
DECEMBER 31,
------------
1999 1998 1997
---------- ---------- ----------
Other income:
Volume incentives .......... $1,076,594 $ 422,760 $ 284,807
Other...................... 124,842 79,463 71,211
---------- ---------- ----------
Other income ............... $1,201,436 $ 502,223 $ 356,018
========== ========== ==========
Other expense
Office supplies ............ $ 543,868 $ 375,718 $ 218,031
Travel ..................... 314,907 162,973 111,037
Legal and accounting ....... 335,762 142,200 224,424
Other....................... 1,355,099 862,106 392,778
---------- ---------- ----------
Other expenses ............. $2,549,636 $1,542,997 $ 946,270
========== ========== ==========
9. INCOME TAXES
As discussed in Note 1, the Company was an S corporation through September
28, 1999 pursuant to the Internal Revenue Code of 1986, as amended, and as such
did not incur any federal income tax expense. The Company was liable for New
York State and New York City income taxes and that provision is included below
under current state provision.
On September 29, 1999, the Company became a C corporation for federal and
state income tax purposes and as such is subject to federal and state income tax
on its taxable income for the period September 29, 1999 through December 31,
1999. In connection with the change in tax status from an S corporation to a C
corporation, the Company incurred deferred income tax expense of $625,000 as of
September 29, 1999.
A reconciliation of the statutory income tax provision to the effective
income tax provision, as applied to income for the period September 29, 1999 to
December 31, 1999, is as follows:
Tax at statutory rate ................................. $ 1,814,622
Income taxed directly to shareholder .................. (1,323,850)
Minority income adjustment ............................ (11,938)
Change in tax status .................................. 625,000
State and local taxes ................................. 107,116
S corporaton state and local tax ...................... 218,275
Meals and entertainment ............................... 11,900
-----------
Total provision ....................................... $ 1,441,125
===========
13
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
9. INCOME TAXES (CONTINUED)
The income tax provision for the year ended December 31, 1999 is comprised
of the following components:
CURRENT DEFERRED TOTAL
------- -------- -----
Regular tax provision
Federal............................. $466,243 ($39,440) $ 426,803
State............................... 380,220 9,102 389,322
-------- -------- ----------
Total................................. 846,463 (30,338) 816,125
Change in tax status
Federal............................. -- 520,833 520,833
State............................... -- 104,167 104,167
-------- -------- ----------
Total tax provision................... $846,463 $594,662 $1,441,125
======== ======== ==========
The liability for income taxes at December 31, 1999 reflected on the
consolidated balance sheet, includes a deferred tax liability of $532,025. This
represents the tax effect of differences between the tax basis and financial
statement carrying amounts of assets and liabilities. This amount includes
$62,637 of a deferred income tax asset reported by Marina Mortgage Company, Inc.
and Subsidiary. The major sources of temporary differences and their deferred
tax effect at December 31, 1999 are as follows:
Deferred tax liabilities:
Capitalized cost of mortgage servicing rights......... $15,913
Loan origination costs................................ 496,133
Depreciation.......................................... 25,632
---------
Total deferred tax liabilities.................... 537,678
Deferred tax assets:
Mark to market adjustment............................. 5,653
---------
Net deferred tax liability.............................. $532,025
========
10. EARNINGS PER SHARE
The following is a reconciliation of the denominators used in the
computations of basic and diluted EPS. The numerator for calculating both basic
and diluted EPS is net income for December 31, 1999.
Numerator:
Numerator for basic earnings per share - Net income $3,860,886
==========
Denominator:
Denominator for basic earnings per share
Weighted average number of common shares
outstanding during the period 5,595,251
Net effect of dilutive stock options 7,336
----------
Denominator for diluted earnings per share 5,602,587
==========
Net income per share - basic $ 0.69
==========
Net income per share - diluted $ 0.69
==========
14
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
11. STOCK OPTIONS
On August 16, 1999, the sole Director ratified the 1999 Stock Option Plan
(the "Plan") and authorized the reserve of 750,000 shares of authorized but
unissued common stock for issuance pursuant to the Plan. Substantially all of
the options issued vest over a five-year period at 20% per year and expire seven
years from the grant date.
The following table summarizes certain information regarding the Plan at
December 31, 1999:
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ --------------
Options granted 650,000 6.00
Options exercised -- --
Options cancelled 10,000 6.00
-------
Balance at December 31, 1999 640,000 $6.00
=======
Options exercisable -- --
The Company applies APB Opinion No. 25, and related Interpretations in
accounting for the Plan. There was no intrinsic value of the options granted, as
the exercise price was equal to the quoted market price at the grant date.
Accordingly, no compensation cost has been recognized for the year ended
December 31, 1999.
Had compensation cost for the Plan been determined based on the fair value
at the grant dates for awards under the Plan consistent with the method of SFAS
No. 123, the Company's net income would have been $3.6 million for 1999.
Earnings per share for 1999 would have been $0.64.
The weighted-average fair value of options granted during 1999 was $6.63.
For purposes of the pro forma calculation under SFAS No. 123, the fair value of
the options granted is estimated using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for the 1999 grants:
1999
----
Dividend yield --%
Expected volatility 24%
Risk-free interest rate 5.00%
Expected life 10 years
12. COMMITMENTS AND CONTINGENCIES
Loans Sold to Investors
Generally, the Company is not exposed to significant credit risk on its
loans sold to investors. In the normal course of business the Company is
obligated to repurchase loans which are subsequently unable to be sold through
normal investor channels. Management believes this is a rare occurrence and that
the Company can usually sell the loans directly to a permanent investor.
Loan Funding and Delivery Commitments
At December 31, 1999 and 1998, the Company had commitments to fund loans
approximating $478 million and $333 million, respectively. At December 31, 1999
and 1998, the Company had commitments to fund loans with agreed upon rates
approximating $147 million and $122 million, respectively. The Company hedges
the interest rate risk of such commitments primarily with mandatory delivery
commitments, which totaled $34 million at December 31, 1999. The remaining
commitments to fund loans with agreed-upon rates are anticipated to be sold
through "best-efforts" and investor programs. The Company does not anticipate
any material losses from such sales.
15
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Outstanding Litigation
The Company is involved in litigation arising in the normal course of
business. Although the amount of any ultimate liability arising from these
matters cannot presently be determined, the Company does not anticipate that any
such liability will have a material effect on the Company's consolidated
financial position or results of operations.
13. OPERATING LEASES
Certain facilities and equipment are leased under short-term lease
agreements expiring at various dates through December 31, 2007. All such leases
are accounted for as operating leases. Total rental expense for premises and
equipment, which is included in occupancy and equipment expense within the
financial statements, amounted to $1,866,723, $1,253,362 and $728,645 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Obligations under non-cancelable operating leases which have an initial term
of more than a year are as follows:
AS OF
DECEMBER 31,
1999
----
2000.................................................... $ 3,114,298
2001.................................................... 2,563,471
2002.................................................... 2,011,948
2003.................................................... 973,923
2004.................................................... 623,616
Thereafter.............................................. 1,422,220
-----------
$10,709,476
===========
14. MINORITY INTEREST
The activity in the Minority interest account is as follows:
Capital contribution by minority partner........................ $ 50,000
Minority interest in income..................................... 50,760
Balance at December 31, 1998.................................... 100,760
Capital contribution by minority partner........................ 37,500
Minority interest in income..................................... 35,112
Distribution to minority partner................................ (150,000)
---------
Balance at December 31, 1999.................................... $ 23,372
========
15. RELATED PARTY TRANSACTIONS
The majority stockholder of the Company is a minority stockholder in another
company that provides credit reports in the normal course of business. Payments
to this company for the years ended December 31, 1999, 1998 and 1997 amounted to
approximately $232,000, $504,000 and $280,000, respectively. Additionally, total
amounts due to this related party as of December 31, 1999 and 1998 were $0 and
$25,379, respectively.
16
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
15. RELATED PARTY TRANSACTIONS (CONTINUED)
The majority stockholder of the Company is a majority stockholder in another
company that provides title services in the normal course of business. It is the
borrower's option to use this company for title services. The total amount due
from this related party was $30,000, $52,429 and $0 as of December 31, 1999,
1998 and 1997, respectively. The amounts due to the Company represent expenses
paid on behalf of the title company. Payments received from this company
amounted to approximately $52,000 in 1999.
16. CONCENTRATIONS OF CREDIT RISK
The Company has originated loans predominately in northeastern United
States, California and Arizona. Loan concentrations are considered to exist when
there are amounts loaned to a multiple number of borrowers with similar
characteristics, which would cause their ability to meet contractual obligations
to be similarly impacted by economic or other conditions. In management's
opinion, at December 31, 1999 and December 31, 1998 there were no significant
concentrations of credit risk within loans held for sale.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made as of a specific point in time based on
estimates using present value or other valuation techniques. These techniques
involve uncertainties and are significantly affected by the assumptions used and
the judgments made regarding risk characteristics of various financial
instruments, discount rates, estimates of future cash flows, future expected
loss experience, and other factors.
Changes in assumptions could significantly affect these estimates and the
resulting fair values. Derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
an immediate sale of the instrument. Also, because of differences in
methodologies and assumptions used to estimate fair values, the Company's fair
values should not be compared to those of other companies. All forward delivery
commitments and option contracts to buy securities are to be contractually
settled within six months of the balance sheet date.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The fair value of certain assets and liabilities approximates cost due to
their short-term nature, terms of repayment or interest rate associated with the
asset or liability. Such assets or liabilities include cash, accounts
receivable, loans held for investment, accrued expenses and other liabilities,
and warehouse lines of credit.
The following describes the methods and assumptions used by the Company in
estimating fair values of other financial instruments:
MORTGAGE LOANS HELD FOR SALE--Fair value is estimated using the quoted
market prices for securities backed by similar types of loans and current
investor or dealer commitments to purchase loans.
MORTGAGE SERVICING RIGHTS--Fair value is estimated by discounting the
anticipated net future cash flows associated with servicing the underlying
loans using discount rates that approximate market rates, expected
subservicing costs and externally published prepayment rates.
COMMITMENTS TO FUND WITH AGREED UPON RATES--The fair value of commitments
to fund with agreed upon rates are estimated using the fees and rates
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates. These commitment obligations are considered in conjunction with the
Company's lower of cost or market valuation of its mortgage loans held for
sale.
17
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
17. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
COMMITMENTS TO DELIVER MORTGAGES AND OPTION CONTRACTS TO BUY
Securities--The fair value of these instruments are estimated using current
market prices for dealer or investor commitments relative to the Company's
existing positions. These instruments contain an element of risk in the
event that the counterparties may be unable to meet the terms of such
agreements. In the event a counterparty to a delivery commitment was unable
to fulfill its obligation, the Company would not incur any material loss by
replacing the position at market rates in effect at December 31, 1999 and
December 31, 1998. The Company minimizes its risk exposure by limiting the
counterparties to those major banks, investment bankers and private
investors who meet established credit and capital guidelines. Management
does not expect any counterparty to default on their obligations and,
therefore, does not expect to incur any loss due to counterparty default.
These commitments and option contracts are considered in conjunction with
the Company's lower of cost or market valuation of its mortgage loans held
for sale.
The following tables set forth information about financial instruments and
other selected assets, except for those noted above for which the carrying value
approximates fair value.
DECEMBER 31, 1999
-----------------
ESTIMATED
NOTIONAL CARRYING FAIR
AMOUNT AMOUNT VALUE
------ ------ -----
Assets:
Mortgage loans held for sale................................................. $ -- $65,115,356 $65,703,301
Mortgage servicing rights.................................................... -- 34,470 34,470
Commitments and Contingencies:
Mortgage loans held for sale related positions:
Commitments to fund mortgages at agreed-upon rates...................... 147,482,380 -- 1,391,777
Forward delivery commitments............................................ 33,634,595 -- (379,248)
Option contracts to buy securities (1).................................. 35,000,000 371,000 439,856
DECEMBER 31, 1998
-----------------
ESTIMATED
NOTIONAL CARRYING FAIR
AMOUNT AMOUNT VALUE
------ ------ -----
Assets:
Mortgage loans held for sale................................................. $ -- $34,666,863 $35,557,116
Mortgage servicing rights.................................................... -- 39,887 39,887
Commitments and Contingencies:
Mortgage loans held for sale related positions:
Commitments to fund mortgages at agreed-upon rates...................... 122,430,687 -- 2,075,471
Forward delivery commitments............................................ 79,841,139 -- (215,571)
Option contracts to buy securities (1).................................. 4,000,000 20,000 --
(1) The carrying value and estimated fair value of option contracts are
included as a component of loans held for sale above.
18. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133").
SFAS 133 requires that all derivative instruments be recognized as either assets
or liabilities at fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge of fair value of a recognized asset,
liability or firm commitment, a hedge of cash flows of a forecasted transaction
or a hedge of foreign currency exposure. The statement, as amended, is to be
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company will adopt this statement effective January 1, 2001. The Company has
not yet determined the impact SFAS No. 133 will have on its financial position
or results of operations when such statement is adopted.
18
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
18. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS (CONTINUED)
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed for Internal Use" ("SOP 98-1"), which will become effective for
financial statements for calendar year 1999, with early adoption encouraged. SOP
98-1 requires the capitalization of eligible costs of specified activities
related to computer software developed or obtained for internal use. The
adoption of this statement did not have a material impact on our financial
condition or results of operations.
19. CONDENSED FINANCIAL INFORMATION OF AMERICAN HOME MORTGAGE HOLDINGS, INC.
The following provides condensed financial information for the financial
position, results of operations and cash flows of American Home Mortgage
Holdings, Inc. (parent company only):
CONDENSED BALANCE SHEET
DECEMBER 31,
------------
1999
----
ASSETS:
Cash $ 1,000
Investment in subsidiaries .................................................................. 17,998,693
-----------
Total Assets....................................................................... $17,999,693
===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES $ --
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value, 1,000,000 shares authorized, no shares
Issued and outstanding............................................................... --
Common stock, $0.01 par value, 19,000,000 shares authorized,
8,253,400 shares issued and outstanding 82,534
Additional paid-in-capital.............................................................. 17,249,390
Retained earnings....................................................................... 667,769
-----------
Total stockholders' equity......................................................... 17,999,693
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................................... $17,999,693
===========
CONDENSED INCOME STATEMENT
FOR THE PERIOD JUNE 15, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
REVENUES:
Equity in earnings of subsidiaries $667,769
===========
NET INCOME $667,769
===========
19
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
19. CONDENSED FINANCIAL INFORMATION OF AMERICAN HOME MORTGAGE HOLDINGS, INC.
(CONTINUED)
CONDENSED STATEMENT OF CASH FLOWS FOR THE
PERIOD JUNE 15, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................... $ 667,769
Increase in:
Investment in earnings of subsidiaries................... (667,769)
-----------
Cash provided by operating activities........................ --
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries................................... (17,331,924)
-----------
Cash used in investing activities............................ (17,331,924)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock...................... 17,332,924
Cash provided by financing activities........................ 17,332,924
NET INCREASE IN CASH............................................. 1,000
CASH, BEGINNING OF PERIOD........................................ --
-----------
CASH, END OF PERIOD.............................................. $ 1,000
===========
20. ACQUISITION
On December 30, 1999, the Company merged with Marina Mortgage Company,
Inc., a residential mortgage lender headquartered in Irvine, California, with
offices in California and Arizona. The Company issued 753,420 share of Common
stock in exchange for 34,600 shares of Marina Common Stock and will pay $2.5
million in cash over five years. The prior Marina shareholders may receive
additional consideration over the next 5 years based on 3 earnout provisions
which are primarily based on derived earnings formulas. This transaction was
accounted for as a purchase and generated goodwill of approximately $4.5
million, which will be amortized over 20 years. The results of operations for
Marina were not included in the consolidated financial statements as of December
31, 1999.
The following table sumarizes the required disclosures of the proforma
combined entity, as if the merger occurred at the beginning of each respective
period, for the years ended December 31:
1999 1998
---- ----
Revenue................................................. $45,243,217 $38,972,742
Income before income taxes.............................. 4,490,153 6,503,613
Net income.............................................. 3,353,469 5,591,603
Earnings per share - basic.............................. $0.53 $0.97
Earnings per share - diluted............................ 0.53 0.97
21. SUBSEQUENT EVENT
On January 17, 2000, the Company entered into an agreement to acquire
First Home Mortgage Corp. ("First Home"), an Illinois corporation. Upon
completion of the acquisition, the shareholders of First Home will receive an
aggregate of 489,760 shares of American Home's common stock and $3.6 million
over a period of two years. In addition, the shareholders of First Home may
receive additional consideration consisting of cash and shares of American
Home's common stock based on the future results of the financial performance of
the First Home division of the Company (please see the Company's current report
on Form 8-K filed with the Securities and Exchange Commission on February 1,
2000 for further information). First Home is an independent mortgage lender
based in metropolitan Chicago. Formed in 1987, First Home originates primary
residential mortgage loans. It operates 21 branch offices in 4 states and
employs approximately 255 full time employees, including sales personnel. First
Home is qualified to originate loans in 23 states and has an application pending
for qualification in one state. At December
20
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
21. SUBSEQUENT EVENT (CONTINUED)
31, 1999, Frist Home had assets of $22.4 million. It is anticipated that this
transaction will generate goodwill of approximately $5.0 million to be amortized
over 20 years.
The following table sumarizes the required disclosures of the proforma
combined entity, as if the merger occurred at the beginning of the period for
the year ended December 31, 1999:
Revenue................................................. $45,511,419
Income before income taxes.............................. 5,281,951
Net income.............................................. 3,573,280
Earnings per share - basic.............................. $0.59
Earnings per share - diluted............................ 0.59
22. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data are presented below by quarter for the
years ended December 31, 1999 and 1998 (dollars in thousands, except per share
amounts):
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1999 1999 1999 1999
------------ ------------- -------- ----------
Gain on sale of mortgage loans................ $6,119 $5,016 $8,632 $5,190
Total revenue................................. 6,866 5,829 6,509 5,658
Income before income taxes and minority interest 1,360 1,273 1,947 757
Net income.................................... 747 585 1,822 707
Earnings per share - basic.................... $0.13 $0.10 $0.33 $0.13
Earnings per share - diluted.................. 0.13 0.10 0.33 0.13
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1998 1998 1998 1998
------------ ------------ -------- ---------
Gain on sale of mortgage loans................ $6,444 $4,847 $4,100 $3,589
Total revenue................................. 6,864 4,946 4,702 3,705
Income before income taxes and minority interest 1,428 1,467 1,850 503
Net income.................................... 1,265 1,364 1,765 476
Earnings per share - basic.................... $0.25 $0.27 $0.35 $0.10
Earnings per share - diluted.................. 0.25 0.27 0.35 0.10
21
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- - -------------- -----------
2.1 Agreement and Plan of Merger, dated December 29, 1999.*
2.2 Agreement and Plan of Merger, dated January 17, 2000.**
3.1 Form of Amended and Restated Certificate of Incorporation of
the Registrant.***
3.2 Form of Amended and Restated Bylaws of the Registrant.***
4.1 Reference is hereby made to Exhibits 3.1 and 3.2.
4.2 Specimen Certificate for the Registrant's Common Stock.****
10.1 Employment Agreement, dated as of August 26, 1999, between
American Home Mortgage Corp. and Michael Strauss.****
10.2 Employment Agreement, dated as of January 6, 1989, between
American Home Mortgage Corp. and Leonard Schoen, Jr., as
amended on August 26, 1999.****
10.3 Employment Agreement, dated as of April 14, 1999, between
American Home Mortgage Corp. and Nicholas P. Rizzetta, as
amended on August 26, 1999.***
10.4 Employment Agreement, dated as of April 3, 1997, between
American Home Mortgage Corp. and Robert Burke, as amended on
August 26, 1999.****
10.5 Employment Agreement, dated as of March 9, 1998, between
American Home Mortgage Corp. and James P. O'Reilly.
10.6 Employment Agreement, dated as of July 14, 1999, between
American Home Mortgage Holdings, Inc. and Ronald D.
Taylor.***
10.7 1999 Omnibus Incentive Stock Plan.+
10.8 Sublease, dated as of December 17, 1997, between Suntory
International Corp. and Michael Strauss, Inc., d/b/a
American Home Mortgage.
10.9 Mortgage Warehousing Loan and Security Agreement, dated as
of December 8, 1998, between First Union National Bank and
Michael Strauss, Inc., d/b/a American Home Mortgage.
10.10 Software Licensing Agreement, dated as of July 7, 1999,
between American Home Mortgage Corp. and James P. O'Reilly.
10.11 Form of Warrant Agreement, dated as of September 1999,
between American Home Mortgage Holdings, Inc. and Friedman,
Billings, Ramsey & Co., Inc.***
10.12 Form of Lock-up Agreement between Michael Strauss and
Friedman, Billings, Ramsey & Co., Inc.++
10.13 Form of Lock-up Agreement between American Home Mortgage
Holdings, Inc. and Friedman, Billings, Ramsey & Co., Inc.+++
10.14 Loan Purchase Agreement, dated as of July 8, 1996, between
Michael Strauss, Inc., d/b/a American Home Mortgage, and
Norwest Funding, Inc.
25
10.15 Origination and Sales Agreement, dated as of July 8, 1994,
between American Home Mortgage Corp. and Chase Manhattan
Mortgage Corporation.
10.16 Loan Sales Agreement dated as of March 31, 1995, between
American Home Mortgage Corp. and Columbia Federal Savings
Bank.+
10.17 Master Agreement for the Sale and Purchase of Mortgages,
dated as of April 19, 1994, between Astoria Federal Savings
and Loan Association and Michael Strauss, Inc., d/b/a
American Home Mortgage.
10.18 Employment Agreement, dated as of January 18, 1996, between
American Home Mortgage Corp. and Leslie E. Tao, as amended
on August 26, 1999.****
10.19 Tax Indemnification Agreement, by and among American Home
Mortgage Holdings, Inc., American Home Mortgage Corp. and
Michael Strauss.****
10.20 Employment Agreement, dated December 29, 1999, between John
A. Johnston and American Home Mortgage Holdings, Inc.*
10.21 Employment Agreement, dated December 29, 1999, between
Ronald Bergum and American Home Mortgage Holdings, Inc.*
10.22 Non-Competition Agreement, dated December 29, 1999, between
John A. Johnston and American Home Mortgage Holdings, Inc.*
10.23 Non-Competition Agreement, dated December 29, 1999, between
Ronald Bergum and American Home Mortgage Holdings, Inc.*
10.24 Stock Purchase Agreement, dated December 29, 1999, between
American Home Mortgage Holdings, Inc. and the Stockholders
of Marina Mortgage Company, Inc. listed on the signature
pages thereto.*
10.25 Employment Agreement, dated January 17, 2000, between John
A. Manglardi and American Home Mortgage Holdings, Inc.**
10.26 Employment Agreement, dated January 17, 2000, between
Vincent Manglardi and American Home Mortgage Holdings,
Inc.**
10.27 Employment Agreement, dated January 17, 2000, between
Jeffrey L. Lake and American Home Mortgage Holdings, Inc.**
10.28 Employment Agreement, dated January 17, 2000, between Thomas
J. Fiddler and American Home Mortgage Holdings, Inc.**
10.29 Non-Competition Agreement, dated January 17, 2000, between
John A. Manglardi and American Home Mortgage Holdings,
Inc.**
10.30 Non-Competition Agreement, dated January 17, 2000, between
Vincent Manglardi and American Home Mortgage Holdings,
Inc.**
10.31 Non-Competition Agreement, dated January 17, 2000, between
Jeffrey L. Lake and American Home Mortgage Holdings, Inc.**
10.32 Non-Competition Agreement, dated January 17, 2000, between
Thomas J. Fiddler and American Home Mortgage Holdings,
Inc.**
26
10.33 Mortgage Warehousing Loan and Security Agreement, dated as
of December 6, 1999, among American Home Mortgage Corp.,
First Union National Bank, and Certain Banking Institutions
named therein, as amended.++++
10.34 Lease Agreement, dated December 8, 1999, between American
Home Mortgage Holdings, Inc., as Tenant, and 47th and 6th
Associates L.L.C., as Landlord.++++
10.35 Agreement of Lease, dated October 20, 1995, between
Reckson Operating Partnership, L.P., as Landlord, Choicecare
Long Island, Inc., as Assignor, and American Home Mortgage
Corp., as Assignee, as amended on September 30, 1999.++++
21.1 Subsidiaries of American Home Mortgage Holdings, Inc.++++
23.1 Consent of Deloitte & Touche LLP.++++
27.1 Financial Data Schedule.++++
- - --------------------------------------------------------
All nonmarked Exhibits listed above are incorporated by reference to
the Exhibits to the Registration Statement on Form S-1 (file no.
333-82409) filed with the Securities and Exchange Commission on July 9,
1999.
* Incorporated by reference to the Form 8-K (file no. 000-27081) filed
with the Securities and Exchange Commission on January 12, 2000.
** Incorporated by reference to the Form 8-K (file no. 000-27081) filed
with the Securities and Exchange Commission on February 1, 2000.
*** Incorporated by reference to the Exhibits to Amendment No. 4 to the
Registration Statement on Form S-1 (file no. 333-82409) filed with the
Securities and Exchange Commission on September 30, 1999.
**** Incorporated by reference to the Exhibits to Amendment No. 3 to the
Registration Statement on Form S-1 (file no. 333-82409) filed with the
Securities and Exchange Commission on August 31, 1999.
+ Incorporated by reference to the Exhibits to Amendment No. 2 to the
Registration Statement on Form S-1 (file no. 333-82409) filed with the
Securities and Exchange Commission on August 18, 1999.
++ Incorporated by reference to Exhibit B of the Schedule 13D (file no.
005-57001) filed with the Securities and Exchange Commission on October
14, 1999.
+++ Incorporated by reference to Exhibit A attached to Exhibit 1.1 to
Amendment No. 4 to the Registration Statement on Form S-1 (file no.
333-82409) filed with the Securities and Exchange Commission on
September 30, 1999.
++++ Filed herewith.
27