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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, 2000.
[_] 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)
520 BROADHOLLOW ROAD, MELVILLE, NY 11747
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(516) 949-3900
(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
23, 2001, on the NASDAQ National Market was $17,496,500.
As of March 23, 2001, there were 9,002,251 shares of Common Stock
outstanding.
TABLE OF CONTENTS
Page
PART I
ITEM 1. BUSINESS............................................................. 3
ITEM 2. PROPERTIES...........................................................10
ITEM 3. LEGAL PROCEEDINGS....................................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS..............................................................11
ITEM 6. SELECTED FINANCIAL DATA (in thousands, except per share and
operating data)......................................................11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................13
ITEM 8. FINANCIAL STATEMENTS.................................................21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES................................................21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................21
ITEM 11. EXECUTIVE COMPENSATION...............................................21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......21
SIGNATURES....................................................................23
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS....................................24
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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 approximately 475 primarily
commission-compensated loan originators. The Company operates from 53 loan
offices in the New York metropolitan area and six other eastern states, and in
California, Illinois, New Mexico and 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.
Since its founding in 1988, AHM has increased its origination volume
through the expansion of its branch office network and the addition of sales
personnel. The Company's loan originations totalled in excess of $3.0 billion in
2000. The Company has maintained its focus on residential purchase transactions
rather than refinancing 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, 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 initial public
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, a California mortgage
banking corporation. Marina, now a wholly-owned subsidiary of American Home, is
a full service retail mortgage 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 serves as the Company's third Internet call center.
On June 30, 2000, American Home acquired First Home, an Illinois
corporation. First Home is an independent mortgage lender based in metropolitan
Chicago. Formed in 1987, First Home originates primary residential mortgage
loans. It operates branch offices in four states and employs approximately 272
full time employees, including sales personnel. The acquisitions of Marina, in
1999, and First Home, in 2000, represent an expansion of the Company's
traditional east coast lending activities into the west and midwest geographic
regions of the country.
On October 31, 2000, the Company acquired from Roslyn National Mortgage
Corporation ("RNMC") four RNMC branches (located in Columbia, Maryland, Vienna,
Virginia, West Hartford, Connecticut and Patchogue, New York) (the "Roslyn
Branches"), RNMC's mortgage application pipeline and certain fixed assets and to
assume the real property leases of the Roslyn Branches. The Roslyn Branches have
become part of the American Home branch network and have helped the Company to
expand its originations in the mid-Atlantic region through both a retail and
wholesale presence.
The Company is currently licensed to conduct its business in all 50 states
and the District of Columbia.
RECENT DEVELOPMENTS
On February 8, 2001, the Company entered into an asset purchase agreement
with Commonwealth Bank, a subsidiary of Commonwealth Bancorp, Inc.
("Commonwealth"). Under the agreement, American Home will acquire the five loan
production offices of Commonwealth's residential mortgage division, ComNet
Mortgage Services ("ComNet"). The terms of
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the transaction include a nominal amount of cash for the purchase of ComNet's
mortgage application pipeline, fixed assets and trademark, as well as the
assumption of real property leases of the five acquired branch offices, which
are located in Pennsylvania and Maryland. The acquisition of these branch
offices will further expand the growing American Home branch network. The
transaction is expected to close early in the second quarter of 2001, pending
regulatory approvals and other normal closing conditions.
OPERATIONS
Lending to Home Buyers. The Company has focused on making loans to home
buyers rather than to home owners seeking to refinance their mortgages. In 2000,
85.1% of the mortgage loans the Company originated were made to home buyers,
compared to 14.9% 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 virtually
every loan it originates is in a standardized form and 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 retail division, the Internet division and the wholesale division.
The Retail Division
In 2000, the Company's retail division accounted for approximately 75% of
its origination volume. Prior to the acquisition of Marina, First Home and the
Roslyn Branches, this division consisted of 14 offices in the eastern United
States, including the Company's Melville, New York headquarters. With the
addition of Marina, First Home and the Roslyn Branches, the Company expanded its
retail base by an additional 35 offices located in the western and midwestern
United States and four offices on the eastern seabord. The Company's retail
division has six origination channels: community loan offices;
direct-to-consumer advertising; realtor 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 the Company's more experienced loan originators who use the
Company's consultative sales approach.
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Joint Ventures. The Company uses joint ventures with mid-size real estate
brokerage firms to expand distribution of its mortgage offerings. Typically, 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.
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 Internet Division
The Company launched its Internet division, MortgageSelect.com, in January
of 1999. In 2000, the Company's Internet division accounted for approximately
17% of its origination volume. MortgageSelect primarily reaches customers by
serving as the mortgage provider for marketplaces of other destination Web sites
on an exclusive or semi-exclusive basis. Destination Web sites include
aggregators, specialty interest sites, and bank sites serviced under private
label outsourcing agreements. Internet customers can apply online, lock-in
interest rates, check their loan status, receive notification when a desired
rate becomes available, use analytical tools and perform other functions,
typically 24 hours a day, seven days a week.
The Company, which currently has three full service call centers, 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.
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 to these mortgage brokers.
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 its 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, 2000:
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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,
----------------------- ----------------------- -----------------------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ----- ----
(in millions)
Fannie Mae Eligible Fixed.... 8,179 4,054 $1,420.8 $622.1 46.7% 46.1%
Jumbo Fixed.................. 501 410 183.4 153.8 6.0 11.4
Adjustable Rate (ARMs)....... 1,643 730 449.1 252.3 14.8 18.7
FHA/VA....................... 5,888 1,463 768.4 200.5 25.3 14.9
Alternate "A" Loans.......... 351 220 69.5 43.6 2.3 3.2
Non-Prime Loans.............. 662 488 64.0 51.2 2.1 3.8
Home Equity/Second........... 1,638 344 77.1 16.8 2.5 1.3
Construction Loans........... 11 16 6.0 6.3 0.2 0.5
Bridge Loans................. 50 7 4.3 1.8 0.1 0.1
------ ----- -------- -------- ------ ------
TOTAL................. 18,923 7,732 $3,042.6 $1,348.4 100.0% 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, $275,000 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.
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-
-6-
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 originates,
typically within 45 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 2000, the three institutional investors that bought the most loans from
the Company were Fleet Mortgage Corp., Chase Manhattan Mortgage Corporation and
Wells Fargo Funding which accounted for 24.5%, 20.4% and 14.7% of the Company's
total loan sales, respectively.
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 and Ginnie Mae. 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.
-7-
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 audits by the regulators in 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.
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 operating reports and other
key data.
MORTGAGESELECT.COM has developed a proprietary Web site and supporting call
center software through the efforts of its in- house computer programming staff.
-8-
COMPETITION
Mortgage banking on the Internet is highly competitive. A very large number
of banks, non-bank mortgage lenders, and mortgage brokers offer mortgage loans.
Many of these competing mortgage originators share a business strategy and
capability similar to that of the Company and many of them are larger than the
Company, with substantially more capital, and greater marketing and technical
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;
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.
-9-
ITEM 2. PROPERTIES
The Company's current Executive and Administrative Offices are located at
520 Broadhollow Road, Melville, New York 11747, and consist of approximately
43,200 square feet. The lease covering these premises expires in January of 2003
and the annual rent is $823,176. The Company also maintains offices at 12 East
49th Street, New York, New York 10017, pursuant to a month-to-month lease. The
Company plans to evacuate that property in July of 2001. The 49th Street
premises consist of approximately 4,200 square feet and the monthly rent is
$14,630. The Company also has a New York office located at 114 West 47th Street,
17th Floor, New York, New York 10036. These premises consist of approximately
7,000 square feet and the lease expires in December of 2006. The annual rent is
$370,296.
The Company leases an aggregate of 37 spaces for its regional operation
center and lending offices in Arizona, California, Connecticut, Florida,
Illinois, Maryland, New Mexico, New York and Virginia (including its New York,
New York offices and Melville, New York headquarters). As of December 31, 2000,
these facilities had an annual aggregate base rental of approximately $3.5
million, and ranged in size from 400 to 43,200 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.
-10-
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 the Company's common stock as
by the NASDAQ National Market for the periods indicated.
1999 2000
--------------- --------------------------------------------------------
4th Quarter * 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High $7.375 $8.875 $6.375 $5.250 $5.375
Low 5.375 6.000 4.563 4.375 3.875
End of period 6.625 6.375 4.563 5.250 4.750
* Commencing October 4, 1999
As of March 23, 2001, the closing sales price of the Company's common
stock, as reported on the NASDAQ National Market, was $7.00.
Through December 31, 2000, the Company has not declared or paid any cash
dividends on its common stock. However, the Company has declared its first cash
dividend in the amount of $0.03 per share of common stock, which shall be
payable on April 19, 2001 to shareholders of record as of April 5, 2001.
As of March 23, 2001 the Company had 19 stockholders of record. The Company
believes, based on the number of proxy statements and related materials
requested in connection with its annual meeting of stockholders, that there are
approximately 850 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, 2000, 1999 and
1998 and for the years ended December 31, 2000, 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,
1996 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.
-11-
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,
2000 1999 1998 1997 1996
---- ----- ---- ---- ----
STATEMENT OF INCOME DATA:
Revenues
Gain on sale of mortgage loans............................ $ 52,731 $ 21,957 $18,981 $ 10,597 $ 6,360
Interest income (expense), net............................ 3,271 1,704 734 369 204
Other..................................................... 2,278 1,201 502 356 21
--------- -------- ------- -------- -------
Total revenues........................................ 58,280 24,862 20,217 11,321 6,585
--------- -------- ------- -------- -------
Expenses
Salaries, commissions and benefits, net................... 27,894 11,611 9,430 5,317 3,459
Occupancy and equipment................................... 5,584 2,429 1,654 909 501
Marketing and promotion................................... 4,058 1,774 1,236 962 814
Data processing and communications........................ 2,826 1,133 952 612 337
Provision for loss........................................ 127 28 153 117 --
Other..................................................... 7,625 2,550 1,543 946 830
--------- -------- ------- -------- -------
Total expenses........................................ 48,114 19,525 14,968 8,862 5,941
--------- -------- ------- -------- -------
Income before income taxes and minority interest 10,166 5,337 5,249 2,459 644
Income taxes(1)....................................... 4,267 1,441 328 140 38
Minority interest..................................... 508 35 51 -- --
--------- -------- ------- -------- -------
Net income (loss)............................ $ 5,391 $ 3,861 $ 4,870 $ 2,319 $ 606
========= ======== ======= ======== =======
Net income per share:
Basic..................................................... $ 0.63 $ 0.69 $ 0.97 $ 0.46 $0.12
Diluted................................................... $ 0.63 $ 0.69 $ 0.97 $ 0.46 $0.12
Weighted average number of shares outstanding:
Basic..................................................... 8,580 5,595 5,000 5,000 5,000
Diluted................................................... 8,580 5,603 5,000 5,000 5,000
BALANCE SHEET DATA:
Cash and cash equivalents................................. $6,005 $ 3,414 $ 2,892 $ 2,058 $ 1,226
Mortgage loans held for sale, net......................... 143,967 65,115 34,667 24,676 9,167
Total assets.............................................. 183,532 85,884 42,392 28,914 11,487
Warehouse lines of credit................................. 130,484 56,805 34,070 24,454 9,076
Other liabilities......................................... 25,855 11,056 2,298 1,886 881
Total stockholder's equity................................ $ 26,612 $ 18,000 $ 5,924 $ 2,574 $ 1,530
OPERATING DATA:
Total mortgage originations (in millions) $ 3,043 $ 1,348 $ 1,158 $ 724 $ 544
Home purchases........................................ $ 2,590 $ 978 $ 749 $ 562 $ 383
Refinancings.......................................... $ 452 $ 370 $ 409 $ 162 $ 161
Number of loans originated................................ 18,923 7,732 6,543 4,361 2,915
Loan originators at period end............................ 475 220 76 71 40
Number of branches at period end.......................... 53 28 12 8 7
(1) Prior to September 29, 1999, the Company elected to be treated as an S corporation for federal and state income tax
purposes. Prior to the Company's election to be treated as an S corporation, all federal taxes were taxable to and paid by the
Corporation's sole shareholder. Income taxes for the years ended December 31, 1998, 1997, and 1996 reflect state income taxes
only.
-12-
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 475 primarily commission-compensated loan originators.
The Company operates from 53 loan offices in 12 states, with most offices
located in California, New York and Illinois. 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 resale 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
45 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 may experience 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
-13-
predicting future performance. Furthermore, the Company's financial statistics
may not be indicative of its results in future periods.
On December 30, 1999, the Company acquired Marina, a residential mortgage
lender headquartered in Irvine, California, with offices in California and
Arizona. The Company agreed to issue 753,420 shares of its common stock in
exchange for the 34,600 outstanding shares of Marina common stock and to pay
$2.5 million in cash over five years. The Company issued 201,043 shares on
October 15, 2000 to the prior Marina shareholders in accordance with the first
earnout provision of the merger agreement and the prior shareholders may receive
additional consideration over the next four years based on two additional
earnout provisions which are primarily based on derived earnings formulas. The
Company accounted for this transaction as a purchase transaction 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 Company's
consolidated financial statements as of December 31, 1999.
On June 30, 2000, American Home acquired First Home, an Illinois
corporation, which was merged with and into AHM, a wholly-owned subsidiary of
the Company. 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 common stock of the Company based
on the future results of the financial performance of the First Home division of
the Company (please see the Company's report on Form 8-K filed with the
Securities and Exchange Commission on February 1, 2000 for further information).
First Home is a full service retail lender based in metropolitan Chicago. First
Home originates and purchases mortgage loans for sale in the secondary mortgage
market. It operates 24 branch offices in three states.
On October 31, 2000, American Home acquired the Roslyn Branches for
$509,478 and the assumption of certain liabilities, including the assumption of
the real property leases for the four acquired branch offices. These branch
offices are located in Maryland, Virginia, Connecticut and New York and are full
service retail lending offices.
On February 8, 2001, the Company entered into an asset purchase agreement
with Commonwealth. Under the agreement, the Company will acquire the five loan
production offices of ComNet. The terms of the transaction include a nominal
amount of cash for the purchase of ComNet's mortgage application pipeline, fixed
assets and trademark, as well as the assumption of real property leases of the
five acquired branch offices, which are located in Pennsylvania and Maryland.
The transaction is expected to close early in the second quarter of 2001,
pending regulatory approvals and other normal closing conditions.
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 acquisitions other than with Commonwealth, and there can
be no assurance that Commonwealth or future transactions, if any, will be
consummated.
-14-
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,
2000 1999 1998
---- ---- ----
RESULTS OF OPERATIONS:
Gain on sale of mortgage loans............ 90.5% 88.3% 93.9%
Net interest income....................... 5.6 6.9 3.6
Other..................................... 3.9 4.8 2.5
----- ----- ------
Total revenues........................ 100.0 100.0 100.0
----- ----- ------
Salaries, commissions and benefits, net... 47.9 46.7 46.6
Occupancy and equipment................... 9.6 9.8 8.2
Marketing and promotion................... 7.0 7.1 6.1
Data processing and communications........ 4.8 4.6 4.7
Provision for loss........................ 0.2 0.1 0.8
Other..................................... 13.1 10.3 7.6
----- ----- ------
Total expenses........................ 82.6 78.6 74.0
----- ----- ------
Net income before taxes and minority interest.. 17.4 21.4 26.0
Income taxes................. 7.3 5.8 1.6
Minority interest............ 0.8 0.1 0.3
----- ------ ------
Net income as reported....... 9.3% 15.5% 24.1%
===== ====== ======
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Total Revenues. The Company's total revenues for the year ended December
31, 2000, compared to year ended December 31, 1999, increased to $58.3 million
from $24.9 million in 1999, an increase of $33.4 million, or 134.4%, 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 $2.7
billion in 2000 from $1.3 billion in 1999 (which amounts include $272.8 million
and $64.6 million of originations in which the Company acted as broker,
respectively).
Net gain on the sale of mortgage loans increased to $52.8 million in 2000
from $22.0 million in 1999, an increase of $30.8 million, or 140.2%. The
increase was generally a result of an increase in loan volume, due in large part
to the Marina and First Home acquisitions and increased Internet-generated loan
closings.
Net interest income increased to $3.3 million in 2000 from $1.7 million in
1999, an increase of $1.6 million or 92.0%. The improvement resulted from
increased loan originations and from more efficient cash management, including
the implementation of sweep accounts, which use existing cash balances overnight
to reduce outstanding borrowings.
Other income increased to $2.3 million in 2000 from $1.2 million in 1999,
an increase of $1.1 million, or 89.6%. 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 $27.9 million in 2000 from $11.6 million in 1999, an increase of
$16.3 million, or 140.2%. The increase was largely due to the inclusion of
expenses of Marina, First Home and the Roslyn Branches following the
acquisitions and increased staffing levels related to our MORTGAGESELECT.COM
Internet Web site. As of December 31, 2000, the Company employed 1,006 people
compared to 543 people at December 31, 1999.
Occupancy and Equipment Expenses. Occupancy and equipment expenses
increased to $5.6 million in 2000 from $2.4 million in 1999, an increase of $3.2
million, or 129.9%. The increase in costs is reflective of the acquisitions of
Marina, First Home and the Roslyn Branches, the opening of new community loan
offices and Internet call centers and greater depreciation charges as a result
of the Company's increased investments in computer networking.
Marketing and Promotion Expenses. Marketing and promotion expenses
increased to $4.1 million in 2000 from $1.8 million in 1999, an increase of
$2.3, or 128.7%. Increased advertising expenses in support of retail operations
and our MORTGAGESELECT.COM Internet Web site accounted for the increase.
Data Processing and Communications. Data processing and communication costs
increased to $2.8 million in 2000 from $1.1 million in 1999, an increase of $1.7
million, or 149.4%. The increase was a result of the acquisitions of Marina,
First Home and the Roslyn Branches, the growth in our MORTGAGESELECT.COM
Internet Web site and the opening of new office locations.
Other Expenses. Other expenses increased to $7.6 million in 2000 from $2.5
million in 1999, an increase of $5.1 million or 199.1%. These expenses, which
consist generally of office supplies, travel, professional fees and insurance,
have increased as a result of the growth in our MORTGAGESELECT.COM Internet Web
site, the acquisitions of Marina, First Home and the Roslyn Branches, new office
openings and higher employment levels.
Income Taxes. Income taxes increased to $4.3 million in 2000 from $1.4
million. in 1999, an increase of $2.8 million or 196.1%. The increase was
primarily due to increased revenue and a change in the tax status of AHM. Prior
to September 29, 1999, AHM elected to be treated as an S corporation. Income
taxes for 1999 also include a non-cash, non-recurring tax expense of $625,000
resulting from this change.
Net Income. Net income increased to $5.4 million in 2000 from $3.9 million
in 1999, an increase of $1.5 million, or 39.6%. The increase was generally a
result of an increase in loan volume, due in large part to the Marina and First
Home acquisitions and increased Internet-generated loan closings.
-15-
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 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.
Income Taxes. Income taxes increased to $1.4 million in 1999 from $328,000
in 1998, an 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.
LIQUIDITY AND CAPITAL RESOURCES
To originate a mortgage loan, the Company draws against a syndicated
warehouse facility that its subsidiaries, AHM and Marina, have entered into,
with a group of banks and financial institutions agented by First Union National
Bank ("First Union"), a committed facility with Morgan Stanley Dean Witter
Mortgage Capital, Inc. ("Morgan Stanley") and a pre-purchase facility with UBS
Paine Webber ("Paine Webber"). The First Union warehouse facility is for $115
million, the Morgan Stanley facility is for $75 million and the Paine Webber
facility is for $80 million. These facilities are secured by the mortgages owned
-16-
by the Company, and by certain of its other assets. Advances drawn under the
facilities bear interest at rates that vary depending on the type of mortgages
securing the advances. These loans are subject to sublimits, advance rates and
terms that vary depending on the type of securing mortgages and the ratio of the
Company's liabilities to its tangible net worth. At March 23, 2001, the
outstanding balance under the warehouse facility was $218 million, the
outstanding balance in drafts payable was $10 million and the maximum amount
available for additional borrowings was $52 million.
The documents governing the Company's First Union 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 ability of the
Company's subsidiaries to:
o transfer or sell assets;
o create liens on the collateral;
o incur additional indebtedness,
without obtaining the prior consent of First Union, which consent may not be
unreasonably withheld. These limits on the subsidiaries 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:
o the loan is rejected as "unsatisfactory for purchase" by the ultimate
investor and has exceeded its permissible 120-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, Morgan Stanley and Paine Webber warehouse
facilities, the Company has purchase and sale agreements with Fannie Mae and UBS
Warburg Real Estate Securities, Inc. 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. These loans are then sold together
with the commitment from the ultimate buyer to one of the two institutions
above, who subsequently take responsibility for consummating the final
transaction. These agreements allow the Company to accelerate the sale of its
mortgage loan inventory resulting in a more effective use of the warehouse
facility. The combined capacity available under the Company's purchase and sale
agreements is $317 million. Amounts sold and being held under these agreements
at December 31, 2000 and December 31, 1999 were $259 million and $117 million,
respectively. Amounts so held under these agreements at March 23, 2001 were $216
million. The maximum combined amount available for additional borrowings was
$101 million under the Company's purchase and sale agreements. 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 60 of the loans
it has sold.
As of December 31, 2000, the Company's warehouse facility borrowings were
$130.5 million and its outstanding drafts payable were $8.3 million compared to
$56.8 million in borrowings and $3.3 million in drafts payable as of December
31, 1999. At December 31, 2000, its loans held for sale were $144.0 million
compared to $65.1 million at December 31, 1999.
Cash and cash equivalents increased to $6.0 million at December 31, 2000
from $3.4 million at December 31, 1999.
-17-
The Company's primary uses of cash and cash equivalents during the year
ended December 31, 2000 were as follows:
o $5.3 million decrease in accounts payable, net of assumed
liabilities;
o $4.5 million net increase in mortgage loans held for sale;
o $2.1 million to purchase furniture and office and computer equipment
for new branch offices;
o $1.9 million to fund the acquisition of First Home; and
o $0.9 million increase in accounts receivable.
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 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.
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 1996 to 2000, 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 the Company 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.
-18-
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 45 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 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.
The following tables summarize the Company's interest rate sensitive
instruments:
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- -----------------
NOTIONAL AMOUNT FAIR VALUE NOTIONAL AMOUNT FAIR VALUE
--------------- ---------- --------------- ----------
Instruments:
Commitments to fund mortgages at agreed-upon rates............. $241,926,529 $7,453,609 $147,482,380 $1,391,777
Forward delivery commitments.............................. 224,172,000 (3,738,524) 33,634,595 (379,248)
Option contracts to buy securities........................ 10,000,000 167,150 35,000,000 439,856
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.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statements of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") in June of 1998 and No. 138 "Accounting for Certain
-19-
Derivative Instruments and Certain Hedging Activities, an Amendment of FASB
Statement No. 133" ("SFAS 138") in June of 2000.
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as:
o a hedge of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment;
o a hedge of the exposure to variable cash flows of a forecasted
transaction; or
o a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available for
sale security, or a foreign-currency-denominated forecasted
transaction.
Under SFAS 133, an entity that elects to apply hedge accounting is required
to establish at the inception of the hedge the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk.
SFAS 138 addresses a limited number of issues causing implementation
difficulties for numerous entities that apply SFAS 133 and amends the accounting
and reporting standards of SFAS 133 for certain derivative instruments and
certain hedging activities.
As part of the Company's secondary marketing activities, mortgage-backed
securities are purchased and sold forward and options are acquired on mortgage
and treasury securities. At December 31, 2000, forward delivery commitments
amounted to approximately $224 million and options to buy securities amounted to
approximately $10 million. These contracts have a high correlation to the price
movement of the loans being hedged. There is currently no recognition of
unrealized gains or losses on these contracts in the balance sheet or statement
of income. When the related loans are sold, the deferred gains or losses from
these contracts are recognized in the statement of income as a component of net
gains or losses on sales of mortgage loans.
On January 1, 2001, the Company adopted SFAS 133. The recognition of the
fair value of all freestanding derivative instruments resulted in recording an
asset in the amount of $7.5 million and a liability in the amount of $3.7
million. Together these two accounts will be adjusted for activities during the
first quarter of 2001 and will be reflected in the Company's consolidated
financial statements for period ending March 31, 2001. The transition adjustment
for the Company's derivatives resulted in an after tax gain of $2.1 million and
was recognized as a cumulative-effect-type adjustment to net income, effective
January 1, 2001.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinquishments of Liabilities" ("SFAS 140") in September
of 2000. SFAS 140 is a replacement of Statement of Financial Accounting
Standards No. 125 ("SFAS 125"), revising the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures. However, SFAS 140 carries over most of SFAS 125's
provisions without reconsideration. SFAS 140 is effective for transfers and
servicing of financial assets and extinquishments of liabilities occurring after
March 31, 2001, however, the disclosure requirements are effective for fiscal
years ending after December 15, 2000. The adoption of the provisions of SFAS 140
is not expected to have a material impact on the results of operations or the
financial position of the Company.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required to be included in this Item 7A regarding
Quantitative and Qualitative Disclosures about Market Risk is incorporated by
reference from "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Risk Management" and Note 12, "Commitments and
Contingencies", Note 17, "Fair Value of Financial Instruments" and Note 18,
"Newly Issued Accounting Standards", in the Notes to the Consolidated Financial
Statements.
-20-
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 included in 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 expected to be held on May 4, 2001, 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 Independent Auditors Report.
2. Financial Statement Schedules
None.
3. Exhibits
-21-
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, 2000, the Company did not file any
Reports on Form 8-K with the Securities Exchange Commission.
-22-
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, 2001.
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, 2001
- ----------------------------
Michael Strauss
/s/ Robert E. Burke Chief Financial Officer March 30, 2001
- ----------------------------
Robert E. Burke
/s/ Richard Silver Controller March 30, 2001
- ----------------------------
Richard Silver
/s/ Joseph P. Bryant Director March 30, 2001
- ----------------------------
Joseph P. Bryant
/s/ John A. Johnston Director March 30, 2001
- ----------------------------
John A. Johnston
/s/ C. Cathleen Raffaeli Director March 30, 2001
- ----------------------------
C. Cathleen Raffaeli
/s/ Leonard Schoen, Jr. Director March 30, 2001
- ----------------------------
Leonard Schoen, Jr.
/s/ Kenneth Slosser Director March 30, 2001
- ----------------------------
Kenneth Slosser
-23-
INDEX TO FINANCIAL STATEMENTS
AMERICAN HOME MORTGAGE HOLDINGS, INC.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 2000, AND 1999 AND FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2000:
Consolidated Balance Sheets as of December 31, 2000 and 1999 2
Consolidated Statements of Income for the Years Ended
December 31, 2000, 1999 and 1998 3
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998 5-6
Notes to Consolidated Financial Statements 7-25
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 subsidiaries (the "Company") as of December 31,
2000 and 1999, 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, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.
March 23, 2001
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
ASSETS
Cash and cash equivalents $ 6,005,392 $ 3,414,017
Accounts receivable 8,982,453 7,102,546
Mortgage loans held for sale- net 143,967,142 65,115,356
Mortgage loans held for investment - net 260,243 153,534
Real estate owned 355,817 112,865
Mortgage servicing rights - net 37,014 34,470
Premises and equipment - net 7,152,454 3,419,693
Prepaid expenses and security deposits 1,835,279 2,034,234
Goodwill 14,936,582 4,497,537
----------- ----------
TOTAL ASSETS $ 183,532,376 $ 85,884,252
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Warehouse lines of credit $ 130,483,671 $ 56,804,901
Drafts payable 8,349,482 3,313,686
Accrued expenses and other liabilities 9,065,255 4,416,534
Notes payable 3,972,281 1,947,578
Income taxes payable:
Current 2,358,254 846,463
Deferred 2,110,150 532,025
----------- ----------
Total liabilities 156,339,093 67,861,187
------------ ----------
COMMITMENTS AND CONTINGENCIES (Note 12) - -
MINORITY INTEREST 581,418 23,372
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, 8,985,584 and 8,286,747 shares
issued and outstanding in 2000 and 1999, respectively 89,855 82,534
Additional paid-in capital 20,462,791 17,249,390
Retained earnings 6,059,219 667,769
---------- ----------
Total stockholders' equity 26,611,865 17,999,693
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 183,532,376 $ 85,884,252
============= ============
See notes to consolidated financial statements.
-2-
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
REVENUES:
Gain on sales of mortgage loans $ 52,730,668 $ 21,957,076 $18,980,534
Interest income - net 3,271,064 1,703,498 734,179
Other 2,278,321 1,201,436 502,223
---------- ---------- ----------
Total revenues 58,280,053 24,862,010 20,216,936
---------- ---------- ----------
EXPENSES:
Salaries, commissions and benefits - net 27,893,827 11,611,275 9,430,382
Occupancy and equipment 5,583,648 2,428,870 1,653,709
Marketing and promotion 4,058,105 1,774,169 1,236,461
Data processing and communications 2,825,895 1,132,970 951,508
Provision for loss 127,000 27,967 152,955
Other 7,625,057 2,549,636 1,542,997
---------- ---------- ----------
Total expenses 48,113,532 19,524,887 14,968,012
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 10,166,521 5,337,123 5,248,924
INCOME TAXES 4,266,727 1,441,125 328,209
---------- ---------- ----------
INCOME BEFORE MINORITY INTEREST 5,899,794 3,895,998 4,920,715
MINORITY INTEREST IN INCOME OF
CONSOLIDATED JOINT VENTURES 508,344 35,112 50,760
---------- ---------- ----------
NET INCOME $ 5,391,450 $ 3,860,886 $ 4,869,955
============ =========== ===========
Earnings per share - basic $ 0.63 $ 0.69 $ 0.97
Earnings per share - diluted $ 0.63 $ 0.69 $ 0.97
Weighted average number of shares - basic 8,579,859 5,595,251 4,999,900
Weighted average number of shares - diluted 8,579,859 5,602,587 4,999,900
See notes to consolidated financial statements.
-3-
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
ADDITIONAL
COMMON PAID-IN RETAINED TOTAL
STOCK CAPITAL EARNINGS EQUITY
BALANCE, JANUARY 1, 1998 $ 50,000 $ 267,600 $ 2,255,947 $ 2,573,547
Net income - - 4,869,955 4,869,955
Distributions - - (1,519,395) (1,519,395)
-------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1998 50,000 267,600 5,606,507 5,924,107
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 Mortgage Co., Inc. 7,534 4,842,610 - 4,850,144
-------- -------- ----------- -----------
BALANCE, DECEMBER 31, 1999 82,534 17,249,390 667,769 17,999,693
Net income - - 5,391,450 5,391,450
Issuance of common stock,
purchase of First Home Mortgage Corp 4,898 2,206,462 - 2,211,360
Issuance of common stock,
purchase of Marina Mortgage Co., Inc. 2,010 968,019 - 970,029
Issuance of common stock,
Omnibus Stock Plan 333 - - 333
Issuance of common stock,
purchase of Coastline 80 38,920 - 39,000
-------- -------- ----------- -----------
BALANCE, DECEMBER 31, 2000 $ 89,855 $ 20,462,791 $ 6,059,219 $ 26,611,865
======== ============ =========== ============
See notes to consolidated financial statements.
-4-
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,391,450 $ 3,860,886 $ 4,869,955
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Gain on equity securities - - (76,088)
Depreciation and amortization 1,562,334 378,282 284,304
Provision for loss 127,000 27,967 152,955
Origination of mortgage loans held for sale (2,769,766,933) (1,283,174,874) (1,141,240,923)
Proceeds on sale of mortgage loans 2,694,153,009 1,265,275,964 1,131,144,305
Proceeds on sale of equity securities, trading - - 176,088
Purchases of equity securities, trading - - (100,000)
Issuance of restricted stock 333 - -
Increase in income taxes payable:
Current 1,511,791 846,463 -
Deferred 1,578,125 532,025 -
(Increase) decrease in operating assets:
Accounts receivable (893,109) (4,007,135) (1,909,944)
Mortgage servicing rights (7,000) (1,000) (13,581)
Prepaid expenses and security deposits 1,167,511 (1,194,400) (20,385)
Increase (decrease) in operating liabilities:
Accrued expenses and other liabilities (5,345,612) (89,800) 413,293
--------------- --------------- -------------
Net cash used in operating activities (70,521,101) (17,545,622) (6,320,021)
--------------- --------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of real estate owned - net (242,952) - 186,000
Net sales (purchases) of loans held for investment 728,342 (64,634) (10,083)
Acquisition of Marina Mortgage Co., Inc. (329,844) -
Acquisition of First Home Mortgage Corp., net (1,872,376) - -
Acquisition of Roslyn Mortgage Lending (200,000) - -
Purchases of premises and equipment - net (2,057,712) (1,352,171) (1,169,222)
Increase (decrease) in minority interest 558,046 (77,388) 50,760
--------------- --------------- -------------
Net cash used in investing activities (3,086,652) (1,824,037) (942,545)
--------------- --------------- -------------
CONTINUED
-5-
AMERICAN HOME MORTGAGE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in warehouse lines of credit $ 71,030,144 $ 11,266,343 $ 9,615,855
Increase in drafts payable 4,933,072 3,313,686 -
Increase in notes payable 235,912 1,947,578 -
S Corporation distributions - (8,799,624) (1,519,395
Proceeds from issuance of capital stock - 12,164,180 -
------------ ------------ -----------
Net cash provided by financing activities 76,199,128 19,892,163 8,096,460
------------ ------------ -----------
NET INCREASE IN CASH 2,591,375 522,504 833,894
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,414,017 2,891,513 2,057,619
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,005,392 $ 3,414,017 $ 2,891,513
============ ============ ===========
SUPPLEMENTAL DISCLOSURE - Cash paid for:
Interest $ 6,533,695 $ 2,121,589 $ 1,674,266
Taxes 1,176,811 536,607 180,299
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
On October 15, 2000, the Company issued 201,043 shares of common stock as
additional consideration for the purchase of Marina Mortgage Co, Inc.
On August 31, 2000, the Company issued 8,000 shares of common stock for the
purchase of Coastline .
On June 30, 2000, the Company issued 489,804 shares of common stock in
exchange for 100% of the outstanding shares of First Home Mortgage Corp.
On December 30, 1999, the Company issued 753,413 shares of common stock in
exchange for 100% of the outstanding shares of Marina Mortgage Co., Inc.
The Company purchased the all of the stock of First Home Mortage Corp. and
Marina Mortgage Co., Inc during 2000 and 1999, respectively. In conjuction
with the acquistions, liabilities were assumed as follows:
2000 1999
Fair value of assets acquired $ 18,518,210 $ 20,346,988
Stock issued 2,211,360 4,850,145
Cash paid 3,075,000 -
------------ ------------
Liabilities assumed $ 13,231,850 $ 15,496,843
============ ============
See notes to consolidated financial statements.
-6-
AMERICAN HOME MORTGAGE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OWNERSHIP - American Home Mortgage Holdings, Inc. is a holding company
whose principal assets are its investments in its wholly-owned
subsidiaries, American Home Mortgage Corp.