UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: June 30, 2000 Commission file number: 001-11981
MUNICIPAL MORTGAGE & EQUITY, LLC
(Exact Name of Registrant as Specified in Its Charter)
Delaware 52-1449733
(State of Organization) (I.R.S. Employer Identification No.)
218 North Charles Street, Suite 500, Baltimore, Maryland 21201
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, Including Area Code:(410) 962-8044
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
The Company had 17,436,979 Common Shares outstanding as of August 4, 2000.
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, LLC
INDEX TO FORM 10-Q
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Part II - OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited)
June 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ......................................................... $ 81,889 $ 54,417
Interest receivable ............................................................... 8,624 8,118
Investment in mortgage revenue bonds, net (Note 3) ................................ 428,292 391,544
Investment in other bond related investments (Note 4) ............................. 10,069 8,338
Loans receivable (Note 5) ......................................................... 354,560 286,489
Restricted assets ................................................................. 9,526 15,833
Other assets ...................................................................... 8,787 8,246
Property and equipment ............................................................ 916 894
Goodwill .......................................................................... 27,151 27,867
--------------- ---------------
Total assets ...................................................................... $ 929,814 $ 801,746
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable (Note 6) ............................................................ $ 330,919 $ 261,956
Accounts payable, accrued expenses and other liabilities .......................... 19,303 19,327
Investment in other bond related investments (Note 4) ............................. 8,997 8,249
Distributions payable ............................................................. 1,818 1,444
Long-term debt .................................................................... 67,000 67,000
--------------- ---------------
Total liabilities ................................................................. 428,037 357,976
--------------- ---------------
Commitments and contingencies ..................................................... - -
Preferred shareholders' equity in a subsidiary company (Note 2).................... 137,676 80,159
Shareholders' equity:
Preferred shares:
Series I (14,933 shares issued and outstanding) ............................... 9,569 10,105
Series II (7,226 shares issued and outstanding) ............................... 4,753 5,720
Preferred capital distribution shares:
Series I (7,798 shares issued and outstanding) ................................ 3,479 3,756
Series II (3,164 shares issued and outstanding) ............................... 1,215 1,632
Term growth shares (2,000 shares issued and outstanding) .......................... 165 165
Common shares (17,541,570 shares, including 17,528,011 issued, and 13,559
deferred shares at June 30, 2000 and 17,538,140 shares, including
17,528,011 issued, and 10,129 deferred shares at December 31, 1999) ........... 324,684 324,443
Less common shares held in treasury at cost (104,872 shares
and 146,076, respectively) .................................................... (1,757) (2,481)
Less unearned compensation - deferred shares ..................................... (4,645) (3,468)
Accumulated other comprehensive income ............................................ 26,638 23,739
--------------- ---------------
Total shareholders' equity ........................................................ 364,101 363,611
--------------- ---------------
Total liabilities and shareholders' equity ........................................ $ 929,814 $ 801,746
=============== ===============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
(unaudited)
For the three months ended For the six months ended
June 30, June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
INCOME:
Interest on mortgage revenue bonds and other bond related investments .. $ 9,798 $ 8,793 $ 19,725 $ 16,107
Interest on loans ...................................................... 7,552 423 14,385 1,071
Loan origination and brokerage fees .................................... 1,380 74 1,996 144
Loan servicing fees .................................................... 876 269 2,838 527
Interest on short-term investments ..................................... 898 441 1,970 684
Other income ........................................................... 1,436 79 2,271 167
Net gain on sales ...................................................... 19 15 19 1,478
------------- ------------- ------------- -------------
Total income ........................................................... 21,959 10,094 43,204 20,178
------------- ------------- ------------- -------------
EXPENSES:
Salaries and benefits .................................................. 3,652 892 6,984 1,777
Operating expenses ..................................................... 1,730 776 3,506 983
Goodwill and other intangibles amortization ............................ 358 - 716 -
Interest expense ....................................................... 7,173 854 13,900 900
------------- ------------- ------------- -------------
Total expenses ......................................................... 12,913 2,522 25,106 3,660
------------- ------------- ------------- -------------
Net income before income allocated to preferred shareholders
in a subsidiary company and income taxes ......................... 9,046 7,572 18,098 16,518
Income allocable to preferred shareholders in a subsidiary company ..... 1,818 545 3,262 545
------------- ------------- ------------- -------------
Net income before income taxes ........................................ 7,228 7,027 14,836 15,973
Income taxes ........................................................... 193 - 184 -
------------- ------------- ------------- -------------
Net income ............................................................. $ 7,035 $ 7,027 $ 14,652 $ 15,973
============= ============= ============= =============
Net income allocated to:
Preferred shares:
Series I ....................................................... $ 204 $ 229 $ 427 $ 584
============= ============= ============= =============
Series II ...................................................... 84 101 176 285
============= ============= ============= =============
Preferred capital distribution shares:
Series I ....................................................... $ 82 $ 96 $ 172 $ 256
============= ============= ============= =============
Series II ...................................................... 21 30 47 93
============= ============= ============= =============
Term growth shares ............................................... $ 165 $ 154 $ 332 $ 282
============= ============= ============= =============
Common shares .................................................... $ 6,479 $ 6,417 $ 13,498 $ 14,473
============= ============= ============= =============
Basic net income per share:
Preferred shares:
Series I ........................................................ $ 13.65 $ 15.32 $ 28.59 $ 39.10
============= ============= ============= =============
Series II ....................................................... 11.61 13.93 24.41 39.44
============= ============= ============= =============
Preferred capital distribution shares:
Series I ........................................................ $ 10.50 $ 12.24 $ 22.04 $ 32.78
============= ============= ============= =============
Series II ....................................................... 6.67 9.62 14.98 29.36
============= ============= ============= =============
Common shares ..................................................... $ 0.37 $ 0.38 $ 0.77 $ 0.86
============= ============= ============= =============
Weighted average common shares outstanding ........................ 17,435,385 16,803,650 17,430,954 16,806,381
Diluted net income per share:
Common shares ..................................................... $ 0.36 $ 0.37 $ 0.76 $ 0.85
============= ============= ============= =============
Weighted average common shares outstanding ........................ 17,822,075 17,475,546 17,791,655 17,253,422
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) (unaudited)
For the three months ended For the six months ended
June 30, June 30,
--------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net income ................................................... $ 7,035 $ 7,027 $ 14,652 $ 15,973
------------ ------------ ------------- -------------
Other comprehensive income:
Unrealized gains on investments:
Unrealized holding gains arising during the period ....... 5,286 4,523 2,899 3,047
Reclassification adjustment for losses
included in net income ................................ -- -- -- 787
------------ ------------ ------------- -------------
Other comprehensive income ................................... 5,286 4,523 2,899 3,834
------------ ------------ ------------- -------------
Comprehensive income ......................................... $ 12,321 $ 11,550 $ 17,551 $ 19,807
============ ============ ============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except share data) (unaudited)
Preferred Capital Accumulated
Preferred Shares Distribution Shares Term Other
-------------------- ------------------ Growth Common Treasury Unearned Comprehensive
Series I Series II Series I Series II Shares Shares Shares Compensation Income (Loss) Total
--------- ---------- --------- ---------- ----- --------- -------- ------------ ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 .... $10,105 $ 5,720 $ 3,756 $ 1,632 $ 165 $ 324,443 $(2,481) $(3,468) $23,739 $ 363,611
Net income ................ 427 176 172 47 332 13,498 -- -- -- 14,652
Unrealized losses
on investments,
net of reclassifications -- -- -- -- -- -- -- -- 2,899 2,899
Distributions ............. (963) (1,143) (449) (464) (332) (14,287) -- -- -- (17,638)
Reissuance of treasury
shares................... -- -- -- -- -- (715) 724 -- -- 9
Deferred shares issued
under the Non-Employee
Directors' Share Plans .. -- -- -- -- -- 67 -- -- -- 67
Deferred share grants ..... -- -- -- -- -- 1,678 -- (1,678) -- --
Amortization of deferred
compensation ............ -- -- -- -- -- -- -- 501 -- 501
------- ------- ------- ------- ----- --------- -------- -------- ------- ---------
Balance, June 30, 2000 ...... $ 9,569 $ 4,753 $ 3,479 $ 1,215 $ 165 $ 324,684 $(1,757) $(4,645) $26,638 $ 364,101
======= ======= ======= ======= ===== ========= ======== ======== ======== =========
Preferred Capital
Preferred Shares Distribution Shares Term
-------------------- ------------------- Growth Common Treasury
SHARE ACTIVITY: Series I Series II Series I Series II Shares Shares Shares
--------- ---------- -------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 ... 14,933 7,226 7,798 3,164 2,000 17,392,064 146,076
Reissuance of treasury
shares ............... -- -- -- -- -- 41,204 (41,204)
Deferred shares
issued under the
Non-Employee Directors'
Share Plans .......... -- -- -- -- -- 3,430 --
------- -------- ------- ------- ------ --------- ---------
Balance, June 30, 2000 .... 14,933 7,226 7,798 3,164 2,000 17,436,698 104,872
======= ======== ======= ======= ====== ========== =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
<CAPTION>
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
For the six months ended
June 30,
----------------------------------
2000 1999
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income ...................................................................... $ 14,652 $ 15,973
Adjustments to reconcile net income to net cash provided by operating activities:
Income allocated to preferred shareholders in a subsidiary company .......... 3,262 545
Decrease in valuation allowance on parity working capital loans ............. -- (531)
Net gain on sales ........................................................... (19) (1,478)
Net amortization of premiums, discounts and fees on investments ............. 154 147
Depreciation and amortization ............................................... 806 29
Deferred share compensation expense ......................................... 501 306
Deferred shares issued under the Non-Employee Directors' Share Plans ........ 67 31
Director fees paid and share awards made by reissuance of treasury shares ... 9 9
Increase in interest receivable ............................................. (506) (1,884)
Increase in other assets .................................................... 101 (393)
Increase in accounts payable, accrued expenses and other liabilities ........ 109 892
--------- ---------
Net cash provided by operating activities ....................................... 19,136 13,646
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of mortgage revenue bonds, other bond related investments,
loan originations and other investments ..................................... (197,972) (104,348)
Principal payments received ..................................................... 82,121 232
Net proceeds from sales of investments .......................................... 12,538 51,177
Purchases of property and equipment ............................................. (112) (56)
Net reduction(investment) in restricted assets .................................. 6,307 (853)
--------- ---------
Net cash used in investing activities ........................................... (97,118) (53,848)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from credit facilities ............................................... 200,516 --
Repayment of credit facilities .................................................. (132,053) --
Issuance of preferred shares in a subsidiary company ............................ 57,616 80,300
Retirement of preferred shares .................................................. -- (927)
Purchase of treasury shares ..................................................... -- (289)
Distributions ................................................................... (17,638) (15,717)
Distributions to preferred shares in a subsidiary company ....................... (2,987) --
--------- ---------
Net cash provided by financing activities ....................................... 105,454 63,367
--------- ---------
Net increase in cash and cash equivalents ....................................... 27,472 23,165
Cash and cash equivalents at beginning of period ................................ 54,417 23,164
--------- ---------
Cash and cash equivalents at end of period ...................................... $ 81,889 $ 46,329
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ................................................................... $ 13,232 $ --
========= =========
Income taxes paid ............................................................... $ 316 $ --
========= =========
DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Investments and long-term debt recorded under SFAS No. 125 upon conversion
of P-FLOATS to Term Securitization Facility ................................. $ -- $ 67,000
========= =========
Investment in a partnership under a note payable obligation ..................... $ 500 $ --
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
MUNICIPAL MORTGAGE & EQUITY, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Municipal Mortgage & Equity, LLC ("MuniMae") and its subsidiaries (together
with MuniMae, the "Company") are principally engaged in originating, investing
in and servicing investments in multifamily housing debt and equity. The Company
primarily holds a portfolio of tax-exempt mortgage revenue bonds issued by state
and local government authorities to finance multifamily housing developments
secured by nonrecourse mortgage loans on the underlying properties. The assets
of MuniMae TE Bond Subsidiary, LLC and its subsidiaries (collectively, "TE Bond
Sub"), a majority owned subsidiary of MuniMae, are solely those of TE Bond Sub
and are not available to creditors of MuniMae. The equity interest in TE Bond
Sub held by MuniMae is subject to the claims of creditors of the Company and in
certain circumstances could be foreclosed upon. The accompanying unaudited
consolidated financial statements have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission and in the
opinion of management contain all adjustments (consisting of only normal
recurring accruals) necessary to present a fair statement of the results for the
periods presented. These results have been determined on the basis of accounting
principles and policies discussed in Note 1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, as amended (the "Company's 1999
Form 10-K"). Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's 1999 Form 10-K. Certain 1999 amounts have been
reclassified to conform to the 2000 presentation.
NOTE 2 - PREFERRED SHAREHOLDERS' EQUITY IN SUBSIDIARY
On June 2, 2000, TE Bond Sub sold to institutional investors $60 million of
Series B Cumulative Preferred Shares (the "Series B Preferred Shares" or the
"Series B Preferred Share Offering"). On May 27, 1999, TE Bond Sub sold to
institutional investors $84 million of Series A Cumulative Preferred Shares (the
"Series A Preferred Shares" or the "Series A Preferred Share Offering"). The
Series A Preferred Shares bear interest at 6.875% per annum or, if lower, the
aggregate net income of the issuing company, TE Bond Sub. The Series A Preferred
Shares have a senior claim to the income derived from the investments owned by
TE Bond Sub. The Series B Preferred Shares bear interest at 7.75% per annum or,
if lower, the aggregate net income of the issuing company, TE Bond Sub, after
payment of distributions to the Series A Preferred Shares. Any income from TE
Bond Sub available after payment of the cumulative distributions of the Series A
and Series B Preferred Shares is allocated to the Company. Cash distributions on
the Series A and Series B Preferred Shares will be paid quarterly on each
January 31, April 30, July 31 and October 31. The Series A and Series B
Preferred Shares are subject to remarketing on specified dates as indicated on
the table below. On the remarketing date, the remarketing agent will seek to
remarket the shares at the lowest distribution rate that would result in a
resale of the Series A and Series B Preferred Shares at a price equal to par
plus all accrued but unpaid distributions. The Series A and Series B Preferred
Shares will be subject to mandatory tender on specified dates, as indicated
below, and on all subsequent remarketing dates at a price equal to par plus all
accrued but unpaid distributions. The following table provides a summary of
certain terms of the Series A and Series B Preferred Shares.
Series A Series B
Preferred Shares Preferred Shares
---------------- ----------------
Issue date ............... May 27, 1999 June 2, 2000
Number of shares ......... 42 30
Par amount per share ..... $2,000,000 $2,000,000
Dividend rate ............ 6.875% 7.75%
First remarketing date ... June 30, 2009 November 1, 2010
Mandatory tender date .... June 30, 2009 November 1, 2010
Redemption date .......... June 30, 2049 June 30, 2050
The following table reflects the composition of the Series A and Series B
Preferred Shareholders' equity in TE Bond Sub.
<TABLE>
Series A Series B
Preferred Shares Preferred Shares Total
---------------- ---------------- -----
<S> <C> <C> <C>
Balance, December 31, 1999 ......... $ 80,159 $ -- $ 80,159
Issuance of preferred shares ....... -- 57,616 57,616
Income allocable to preferred shares 2,888 374 3,262
Distributions ...................... (2,987) (374) (3,361)
-------- -------- ----------
Balance, June 30, 2000 ............. $ 80,060 $ 57,616 $ 137,676
======== ======== ==========
</TABLE>
The assets of TE Bond Sub and its subsidiaries, while indirectly controlled
by MuniMae and thus included in the consolidated financial statements of the
Company, are legally owned by TE Bond Sub and are not available to the creditors
of the Company. The assets owned by TE Bond Sub and its subsidiaries are
identified in footnotes to the Investment in Mortgage Revenue Bonds table in
Note 3 and in footnotes to the Other Bond Related Investments table in Note 4.
The fair value of such assets aggregated $368.4 million at June 30, 2000.
NOTE 3 - INVESTMENTS IN MORTGAGE REVENUE BONDS
The Company holds a portfolio of tax-exempt mortgage revenue bonds and
certificates of participation in grantor trusts holding tax-exempt mortgage
revenue bonds ("COPs"). The tax-exempt mortgage revenue bonds are issued by
state and local government authorities to finance multifamily housing
developments secured by nonrecourse mortgage loans on the underlying properties.
The COPs represent a pro rata interest in a trust that holds a tax-exempt
mortgage revenue bond. The Company's rights and the specific terms of the bonds
are defined by the various loan documents which were negotiated at the time of
settlement. The basic terms and structure of each bond are described in Note 5
to the Company's 1999 Form 10-K.
The following table provides certain information with respect to the bonds
held by the Company at June 30, 2000 and December 31, 1999.
<TABLE>
June 30, 2000
-----------------------------------------------
Base Face Amortized Unrealized Fair
Investment in Mortgage Year Interest Maturity Amount Cost Gain (Loss) Value
Revenue Bonds Acquired Rate(12) Date (000s) (000s) (000s) (000s)
--------------------------------- ---------- ---------- ---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Participating Bonds (1):
Alban Place ...................(2),(4),(5) 1986 7.875 Oct. 2008 $ 10,065 $ 10,065 $ (85) $ 9,980
Cobblestone ...................(4),(10) 1999 7.125 Aug. 2039 6,800 6,732 68 6,800
Creekside Village .............(2),(4),(5) 1987 7.500 Nov. 2009 11,760 7,396 408 7,804
Crossings .....................(4),(10) 1997 8.000 Jul. 2007 6,875 6,782 692 7,474
Emerald Hills .................(2),(4),(5) 1988 7.750 Apr. 2008 6,725 6,725 2,126 8,851
Lakeview Garden ...............(2),(4),(5) 1987 7.750 Aug. 2007 9,003 4,919 633 5,552
Mountain View (Willowgreen) ...(2),(4) 1986 8.000 Dec. 2010 9,275 6,769 1,084 7,853
Newport On Seven ..............(2),(5),(6) 1986 8.125 Aug. 2008 10,125 7,898 3,042 10,940
North Pointe ..................(2),(4) 1986 7.875 Aug. 2006 25,185 12,739 7,446 20,185
Northridge Park ...............(2),(4),(5) 1987 7.500 Jun. 2012 8,815 8,815 109 8,924
Southfork Village .............(2),(7) 1988 7.875 Jan. 2009 10,375 10,375 3,563 13,938
Stone Mountain ................(8) 1997 7.875 Oct. 2027 33,900 34,089 (19) 34,070
Villas at LaRiveria ...........(4),(10) 1999 7.125 Jun. 2034 8,850 8,744 29 8,773
----------- ----------- ---------- ------------
Subtotal participating bonds 157,753 132,048 19,096 151,144
----------- ----------- ---------- ------------
Non-Participating Bonds:
Baytown ....................... 2000 7.750 Jun. 2030 5,000 4,950 50 5,000
Charter House ................. 1996 7.450 Jul. 2026 30 30 - 30
Cielo Vista ...................(4),(10) 1999 7.125 Sep. 2034 9,520 9,447 9 9,456
Country Club ..................(10) 1999 7.250 Aug. 2029 2,490 2,459 (131) 2,328
Delta Village .................(4),(10) 1999 7.125 Jun. 2035 2,011 1,977 (171) 1,806
Gannon - Cedar Run ............(4),(10) 1998 7.125 Dec. 2025 13,200 13,238 (236) 13,002
Gannon - Dade .................(9) 1998 7.125 Dec. 2029 55,050 55,329 (1,104) 54,225
Gannon - Whispering Palms .....(9) 1998 7.125 Dec. 2029 12,750 12,810 (252) 12,558
Gannon Bond ...................(4),(10) 1998 7.125 Dec. 2029 3,500 3,500 (53) 3,447
Hidden Valley .................(10) 1996 8.250 Jan. 2026 1,650 1,650 23 1,673
Lake Piedmont .................(4),(10) 1998 7.725 Apr. 2034 19,122 19,028 (4,578) 14,450
Oakbrook ......................(10) 1996 8.200 Jul. 2026 3,120 3,149 95 3,244
Oakmont/Towne Oaks ............(4),(10) 1998 7.200 Jan. 2034 11,262 11,240 (642) 10,598
Orangevale ....................(10) 1998 7.000 Oct. 2013 2,382 2,382 (72) 2,310
Paola .........................(10) 1999 7.250 Aug. 2029 1,050 1,037 (89) 948
Parkwood ......................(4),(10) 1999 7.125 Jun. 2035 3,910 3,842 (112) 3,730
Riverview .....................(10) 2000 7.500 Jul. 2032 10,670 10,537 - 10,537
Riverset Phase II ............. 1996 9.500 Oct. 2019 110 105 8 113
Sahuarita .....................(10) 1999 7.125 Jun. 2029 1,879 1,868 (202) 1,666
Shadowbrook ...................(4),(10) 1999 6.850 Jun. 2029 5,780 5,767 (16) 5,751
Torries Chase .................(10) 1996 8.150 Jan. 2026 2,020 2,020 43 2,063
University Courtyard ..........(10) 2000 7.250 Mar. 2040 9,850 9,749 (47) 9,702
Villa Hialeah - refunded ......(4),(5) 1999 6.000 Aug. 2019 10,250 8,005 1,348 9,353
Western Hills .................(10) 1998 7.000 Dec. 2029 3,036 3,036 (255) 2,781
Wheeler Creek .................(10) 1998 (13) Jan. 2003 7,012 6,900 - 6,900
Woodmark ......................(10) 1999 7.125 Jun. 2039 10,200 10,073 (536) 9,537
----------- ----------- ---------- ------------
Subtotal non-participating bonds 206,854 204,128 (6,920) 197,208
----------- ----------- ---------- ------------
</TABLE>
<PAGE>
<TABLE>
June 30, 2000
----------------------------------------------
Base Face Amortized Unrealized Fair
Investment in Mortgage Year Interest Maturity Amount Cost Gain (Loss) Value
Revenue Bonds Acquired Rate (12) Date (000s) (000s) (000s) (000s
--------------------------------- ---------- ----------- ---------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Participating Subordinate Bonds (1):
Barkley Place .................(3),(4),(10) 1995 16.000 Jan. 2030 3,480 2,445 4,004 6,449
Gilman Meadows ................(3),(4),(10) 1995 3.000 Jan. 2030 2,875 2,530 1,970 4,500
Hamilton Chase ................(3),(4),(10) 1995 3.000 Jan. 2030 6,250 4,140 116 4,256
Mallard Cove I ................(3),(4),(10) 1995 3.000 Jan. 2030 1,670 798 335 1,133
Mallard Cove II ...............(3),(4),(10) 1995 3.000 Jan. 2030 3,750 2,429 1,008 3,437
Meadows .......................(3),(4),(10) 1995 16.000 Jan. 2030 3,635 3,716 436 4,152
Montclair .....................(3),(4),(10) 1995 3.000 Jan. 2030 6,840 1,691 2,729 4,420
Newport Village ...............(3),(4),(10) 1995 3.000 Jan. 2030 4,175 2,973 1,516 4,489
Nicollet Ridge ................(3),(4),(10) 1995 3.000 Jan. 2030 12,415 6,075 2,686 8,761
Riverset Phase II ............. 1996 10.000 Oct. 2019 1,489 - 1,375 1,375
Steeplechase ..................(3),(4),(10) 1995 16.000 Jan. 2030 5,300 4,224 (160) 4,064
Whispering Lake ...............(3),(4),(10) 1995 3.000 Jan. 2030 8,500 4,779 4,290 9,069
Winter Oaks B bond ............(10) 1999 7.500 Jul. 2022 2,184 2,133 (15) 2,118
Winter Oaks C bond ............(10) 1999 10.000 Jul. 2022 2,141 1,654 310 1,964
----------- --------- ----------- ---------
Subtotal participating subordinate bonds 64,704 39,587 20,600 60,187
----------- --------- ----------- ---------
Non-Participating Subordinate Bonds:
CapReit portfolio ............. 1999 9.000 Sept.2004 13,000 12,870 - 12,870
Cinnamon Ridge ................ 1999 5.000 Jan. 2015 1,832 1,218 (27) 1,191
Farmington Meadows ............(10) 1999 8.000 Aug. 2039 1,995 1,950 49 1,999
Independence Ridge ............(10) 1996 12.500 Dec. 2015 1,045 1,045 94 1,139
Locarno .......................(10) 1996 12.500 Dec. 2015 675 675 44 719
Olde English Manor ............(11) 1998 14.000 Nov. 2033 1,273 1,268 (173) 1,095
Rillito Village ............... 1999 10.000 Dec. 2033 860 856 (116) 740
----------- --------- ----------- ---------
Subtotal non-participating subordinate bonds 20,680 19,882 (129) 19,753
----------- --------- ------------ ---------
Total investment in mortgage revenue bonds $ 449,991 $ 395,645 $ 32,647 $428,292
=========== ========= =========== =========
</TABLE>
<PAGE>
<TABLE>
December 31, 1999
----------------------------------------------
Base Face Amortized Unrealized Fair
Investment in Mortgage Year Interest Maturity Amount Cost Gain (Loss) Value
Revenue Bonds Acquired Rate(12) Date (000s) (000s) (000s) (000s)
--------------------------------- ---------- ---------- --------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Participating Bonds (1):
Alban Place .................. (2),(4),(5) 1986 7.875 Oct. 2008 $ 10,065 $ 10,065 $ 209 $ 10,274
Cobblestone .................. (4),(10) 1999 7.125 Aug. 2039 6,800 6,732 - 6,732
Creekside Village ............ (2),(4),(5) 1987 7.500 Nov. 2009 11,760 7,396 422 7,818
Crossings .................... (4),(10) 1997 8.000 Jul. 2007 6,910 6,817 637 7,454
Emerald Hills ................ (2),(4),(5) 1988 7.750 Apr. 2008 6,725 6,725 1,655 8,380
Lakeview Garden .............. (2),(4),(5) 1987 7.750 Aug. 2007 9,003 4,919 612 5,531
Mountain View (Willowgreen) .. (2),(4) 1986 8.000 Dec. 2010 9,275 6,769 1,038 7,807
Newport On Seven ............. (2),(5),(6) 1986 8.125 Aug. 2008 10,125 7,898 2,964 10,862
North Pointe ................. (2),(4) 1986 7.875 Aug. 2006 25,185 12,739 7,329 20,068
Northridge Park .............. (2),(4),(5) 1987 7.500 Jun. 2012 8,815 8,815 6 8,821
Southfork Village ............ (2),(7) 1988 7.875 Jan. 2009 10,375 10,375 2,800 13,175
Stone Mountain ............... (8) 1997 7.875 Oct. 2027 33,900 34,108 (208) 33,900
Villas at LaRiveria .......... (4),(10) 1999 7.125 Jun. 2034 8,850 8,744 (115) 8,629
---------- --------- --------- ---------
Subtotal participating bonds 157,788 132,102 17,349 149,451
---------- --------- ---------- ---------
Non-Participating Bonds:
Baytown ....................... 2000 7.750 Jun. 2030 - - - -
Charter House ................. 1996 7.450 Jul. 2026 30 30 - 30
Cielo Vista ...................(4),(10) 1999 7.125 Sep. 2034 9,540 9,467 (165) 9,302
Country Club ..................(10) 1999 7.250 Aug. 2029 2,490 2,459 (93) 2,366
Delta Village .................(4),(10) 1999 7.125 Jun. 2035 2,011 1,977 (94) 1,883
Gannon - Cedar Run ............(4),(10) 1998 7.125 Dec. 2025 13,200 13,238 (434) 12,804
Gannon - Dade .................(9) 1998 7.125 Dec. 2029 55,050 55,329 (1,793) 53,536
Gannon - Whispering Palms .....(9) 1998 7.125 Dec. 2029 12,750 12,810 (443) 12,367
Gannon Bond ...................(4),(10) 1998 7.125 Dec. 2029 3,500 3,500 (96) 3,404
Hidden Valley .................(10) 1996 8.250 Jan. 2026 1,660 1,660 45 1,705
Lake Piedmont .................(4),(10) 1998 7.725 Apr. 2034 19,134 19,040 (3,403) 15,637
Oakbrook ......................(10) 1996 8.200 Jul. 2026 3,135 3,164 101 3,265
Oakmont/Towne Oaks ............(4),(10) 1998 7.200 Jan. 2034 11,275 11,253 (711) 10,542
Orangevale ....................(10) 1998 7.000 Oct. 2013 2,435 2,435 (116) 2,319
Paola .........................(10) 1999 7.250 Aug. 2029 1,050 1,037 (39) 998
Parkwood ......................(4),(10) 1999 7.125 Jun. 2035 3,910 3,842 (113) 3,729
Riverview .....................(10) 2000 7.500 Jul. 2032 - - - -
Riverset Phase II ............. 1996 9.500 Oct. 2019 110 105 8 113
Sahuarita .....................(10) 1999 7.125 Jun. 2029 51 39 6 45
Shadowbrook ...................(4),(10) 1999 6.850 Jun. 2029 5,780 5,767 13 5,780
Torries Chase .................(10) 1996 8.150 Jan. 2026 2,030 2,030 75 2,105
University Courtyard ..........(10) 2000 7.250 Mar. 2040 - - - -
Villa Hialeah - refunded ......(4),(5) 1999 6.000 Aug. 2019 10,250 8,005 1,015 9,020
Western Hills .................(10) 1998 7.000 Dec. 2029 3,040 3,040 (243) 2,797
Wheeler Creek .................(10) 1998 (13) Jan. 2003 373 261 - 261
Woodmark ......................(10) 1999 7.125 Jun. 2039 10,200 10,073 (485) 9,588
---------- ---------- ----------- ---------
Subtotal non-participating bonds 173,004 170,561 (6,965) 163,596
---------- ---------- ----------- ---------
</TABLE>
<PAGE>
<TABLE>
December 31, 1999
------------------------------------------------
Base Face Amortized Unrealized Fair
Investment in Mortgage Year Interest Maturity Amount Cost Gain (Loss) Value
Revenue Bonds Acquired Rate (12) Date (000s) (000s) (000s) (000s)
--------------------------------- ---------- ---------- ---------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Participating Subordinate Bonds (1):
Barkley Place .................(3),(4),(10) 1995 16.000 Jan. 2030 3,480 2,445 3,775 6,220
Gilman Meadows ................(3),(4),(10) 1995 3.000 Jan. 2030 2,875 2,530 1,903 4,433
Hamilton Chase ................(3),(4),(10) 1995 3.000 Jan. 2030 6,250 4,140 (6) 4,134
Mallard Cove I ................(3),(4),(10) 1995 3.000 Jan. 2030 1,670 798 316 1,114
Mallard Cove II ...............(3),(4),(10) 1995 3.000 Jan. 2030 3,750 2,429 951 3,380
Meadows .......................(3),(4),(10) 1995 16.000 Jan. 2030 3,635 3,716 110 3,826
Montclair .....................(3),(4),(10) 1995 3.000 Jan. 2030 6,840 1,691 2,511 4,202
Newport Village ...............(3),(4),(10) 1995 3.000 Jan. 2030 4,175 2,973 1,323 4,296
Nicollet Ridge ................(3),(4),(10) 1995 3.000 Jan. 2030 12,415 6,075 2,605 8,680
Riverset Phase II ............. 1996 10.000 Oct. 2019 1,489 -- 1,294 1,294
Steeplechase ..................(3),(4),(10) 1995 16.000 Jan. 2030 5,300 4,224 (323) 3,901
Whispering Lake ...............(3),(4),(10) 1995 3.000 Jan. 2030 8,500 4,779 4,540 9,319
Winter Oaks B bond ............(10) 1999 7.500 Jul. 2022 2,184 2,133 (58) 2,075
Winter Oaks C bond ............(10) 1999 10.000 Jul. 2022 2,141 1,654 251 1,905
----------- ---------- ---------- ----------
Subtotal participating subordinate bonds 64,704 39,587 19,192 58,779
------------ ---------- ---------- ----------
Non-Participating Subordinate Bonds:
CapReit portfolio ............. 1999 9.000 Sept.2004 13,000 12,870 -- 12,870
Cinnamon Ridge ................ 1999 5.000 Jan. 2015 1,899 1,285 (145) 1,140
Farmington Meadows ............(10) 1999 8.000 Aug. 2039 1,999 1,954 45 1,999
Independence Ridge ............(10) 1996 12.500 Dec. 2015 1,045 1,045 52 1,097
Locarno .......................(10) 1996 12.500 Dec. 2015 675 675 81 756
Olde English Manor ............(11) 1998 14.000 Nov. 2033 1,273 1,268 (160) 1,108
Rillito Village ............... 1999 10.000 Dec. 2033 860 856 (108) 748
------------ ---------- ---------- ----------
Subtotal non-participating subordinate bonds 20,751 19,953 (235) 19,718
------------ ---------- ---------- ----------
Total investment in mortgage revenue bonds $ 416,247 $ 362,203 $ 29,341 $ 391,544
============ ========== =========== ==========
(1) These bonds also contain additional interest features contingent on available cash flow.
(2) One of the original 22 bonds.
(3) Series B Bonds derived from original 22 bonds.
(4) These assets were pledged as collateral as of June 30, 2000.
(5) TE Bond Sub owns an 87% interest in these investments.
(6) The 13% interest in these bonds was pledged as collateral as of June 30, 2000.
(7) The original bond was traunched into two smaller bonds with 87% wnership to TE Bond Sub. The 87% bond owned by
TE Bond Sub was pledged as collateral at June 30, 2000.
(8) The underlying bond is held in a trust; TE Bond Sub owns the principal and base interest trust certificate which was
pledged as collateral at June 30, 2000.
(9) The underlying bonds are held in a trust; TE Bond Sub owns a certificate in the trust which represents the
residual cash flows generated on the underlying bonds.
(10)Investments held by TE Bond Sub or its subsidiaries. (See Note 2 to the consolidated financial statements.)
(11) The underlying bonds are held in a trust; TE Bond Sub owns an 81% senior interest in the trust.
(12) The base interest rate represents the permanent base interest rate on the investment as of June 30, 2000.
(13) The permanent interest rate resets monthly based on 90% of the 30 day treasury bill.
</TABLE>
<PAGE>
In the second quarter the Company originated $30.8 million (par amount) in
mortgage revenue bonds collateralized by three apartment communities with 744
units for a total purchase price of $27.4 million. Of the $30.8 million in
mortgage revenue bonds originated in the second quarter, the Company sold the
$15.1 million revenue bond collateralized by the Sante Fe apartment community
located in Phoenix, Arizona to Merrill Lynch. This bond was sold to generate
investment proceeds for new investments. It is anticipated that this bond will
be deposited into the Merrill Lynch P-FLOATs(sm) program (defined in Note 4) and
that the Company will purchase a RITES(sm) investment (defined in Note 4).The
weighted average permanent interest rate on the two bonds retained by the
Company is 7.58% per annum and the maturity dates range from June 2025 to July
2032. The Company received $0.5 million in construction administration and
origination fees related to these transactions. These fees are recognized into
income over the life of the investment or of the services provided.
In order to facilitate the securitization of certain assets at higher
leverage ratios than otherwise available to the Company without the posting of
additional collateral, the Company has pledged additional bonds to a pool that
acts as collateral for the senior interests in certain P-FLOATs(sm) trusts.
Additionally, the Company pledged investments as collateral for the term debt
financing completed in March 1999. At June 30, 2000 the total carrying amount of
the mortgage revenue bonds pledged as collateral was $266.1 million.
NOTE 4 - OTHER BOND RELATED INVESTMENTS AND FINANCIAL RISK MANAGEMENT
The Company's other bond related investments are primarily investments in
Residual Interest Tax-Exempt Securities Receipts ("RITES(sm)"), a security
offered by Merrill Lynch through its RITES(sm)/Puttable Floating Option
Tax-Exempt Receipts ("P-FLOATs(sm)") Program. The RITES(sm) are part of a
program under which a bond is placed into a trust and two types of securities
are sold by the trust, P-FLOATs(sm) and RITES(sm). The P-FLOATs(sm) are the
senior security and bear interest at a rate that is reset weekly by the
Remarketing Agent, Merrill Lynch, to result in the sale of the P-FLOATs(sm) at
par. The RITES(sm) are the subordinate security and receive the residual
interest. The residual interest is the remaining interest on the bond after
payment of all fees and the P-FLOATs(sm) interest. In conjunction with the
purchase of the RITES(sm) with respect to fixed rate bonds, the Company enters
into interest rate swap contracts to hedge against interest rate exposure on the
Company's investment in the RITES(sm). In order to facilitate the securitization
of certain assets at higher leverage ratios than otherwise available, the
Company has pledged additional bonds to a pool that acts as collateral for the
senior interests in certain P-FLOATs(sm) trusts. The following table provides
certain information with respect to the other bond related investments held by
the Company at June 30, 2000 and December 31, 1999.
<PAGE>
<TABLE>
June 30, 2000
-----------------------------------------------------------------------
Face Amortized Unrealized Fair Value
Year Amount Cost Gain (Loss) Assets Liabilities (4)
Other Bond Related Investments: Acquired (000s) (000s) (000s) (000s) (000s)
----------------------------------- ---------- ---------- ----------- ------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment in RITES (1):
Briarwood ....................... 1999 $ 135 $ 104 $ (481) $ -- $ (377)
Charter House ................... 1996 80 263 (183) 80 --
Cinnamon Ridge .................. 2000 5 331 (41) 290 --
Indian Lakes .................... 1997 3,250 3,367 (213) 3,154 --
LaPaloma ........................ 1999 8 8 (306) -- (298)
LeMirador (Coleman Senior) ...... 1999 165 4 (8) -- (4)
Meridan at Bridgewater .......... 1999 5 46 (41) 5 --
Oklahoma City ................... 1998 195 242 (2,908) -- (2,666)
Olde English Manor .............. 1999 76 96 (266) -- (170)
Palisades Park .................. 1999 100 94 (295) -- (201)
Pavillion ....................... 1999 5 5 (357) -- (352)
Queen Anne IV ................... 1998 65 65 (137) -- (72)
Rancho Mirage/Castle Hills ...... 2000 5 5 -- 5 --
Rillito Village ................. 1999 65 64 (470) -- (406)
Riverset Phase I ................ 2000 5 1,079 256 1,335 --
Riverset Phase II ............... 1996 75 262 (9) 253 --
Sienna (Italian Gardens) ........ 1999 160 -- (8) -- (8)
Silver Springs .................. 2000 5 35 (30) 5 --
Sonterra ........................ 1998 5 33 (605) -- (572)
Southgate Crossings ............. 1997 90 536 (162) 374 --
Southwood ....................... 1997 440 308 (735) -- (427)
Village at Sun Valley ........... 2000 5 5 (140) -- (135)
Village Green ................... 2000 5 26 (19) 7 --
Woodglen ........................ 1999 5 36 (351) -- (315)
---------- ---------- ----------- ---------- ----------
Subtotal investment in RITES ......... 4,954 7,014 (7,509) 5,508 (6,003)
---------- ---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Interest rate agreements (2) ......... Various 67 3,506 4,561 (988)
---------- ----------- ---------- ----------
Investment in total return swaps (3):
Club West (3/30/99 - 7/19/02) ..... 1999 7,960 -- (760) -- (760)
Honey Creek (10/1/99 - 6/30/00) .... 1999 -- -- -- -- --
Willow Key (3/30/99 - 7/19/02) ..... 1999 17,440 -- (1,246) -- (1,246)
---------- ---------- ----------- ---------- ----------
Total investment in total return swaps 25,400 -- (2,006) -- (2,006)
---------- ---------- ----------- ---------- ----------
Total other bond related investments . $ 7,081 $ (6,009) $ 10,069 $ (8,997)
========== =========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
December 31, 1999
-------------------------------------------------------------------
Face Amortized Unrealized Fair Value
Year Amount Cost Gain (Loss) Assests Liabilities (4)
Other Bond Related Investments: Acquired (000s) (000s) (000s) (000s) (000s)
---------------------------------- --------- ---------- ----------- ------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment in RITES (1):
Briarwood ....................... 1999 $ 135 $ 104 $ (762) $ -- $ (658)
Charter House ................... 1996 80 283 (203) 80 --
Cinnamon Ridge .................. 2000 -- -- -- -- --
Indian Lakes .................... 1997 3,270 3,398 (423) 2,975 --
LaPaloma ........................ 1999 8 7 (372) -- (365)
LeMirador (Coleman Senior) ...... 1999 165 4 (121) -- (117)
Meridan at Bridgewater .......... 1999 5 48 (43) 5 --
Oklahoma City ................... 1998 195 247 (2,255) -- (2,008)
Olde English Manor .............. 1999 76 97 (181) -- (84)
Palisades Park .................. 1999 100 96 (576) -- (480)
Pavillion ....................... 1999 5 5 (433) -- (428)
Queen Anne IV ................... 1998 65 65 (250) -- (185)
Rancho Mirage/Castle Hills ...... 2000 -- -- -- -- --
Rillito Village ................. 1999 65 64 (501) -- (437)
Riverset Phase I ................ 2000 -- -- -- -- --
Riverset Phase II ............... 1996 75 333 (33) 300 --
Sienna (Italian Gardens) ........ 1999 160 -- (120) -- (120)
Silver Springs .................. 2000 -- -- -- -- --
Sonterra ........................ 1998 5 34 (712) -- (678)
Southgate Crossings ............. 1997 96 571 (311) 260 --
Southwood ....................... 1997 440 298 (983) -- (685)
Village at Sun Valley ........... 2000 -- -- -- -- --
Village Green ................... 2000 -- -- -- -- --
Woodglen ........................ 1999 5 37 (32) 5 --
---------- ---------- ----------- ---------------------------
Subtotal investment in RITES ......... 4,950 5,691 (8,311) 3,625 (6,245)
---------- ---------- ----------- ---------------------------
---------- ----------- ---------------------------
Interest rate agreements (2) ......... Various -- 4,638 4,713 (75)
---------- ----------- ---------------------------
Investment in total return swaps (3):
Club West (3/30/99 - 7/19/02) ..... 1999 7,960 -- (753) -- (753)
Honey Creek (10/1/99 - 6/30/00) .... 1999 19,865 -- (25) -- (25)
Willow Key (3/30/99 - 7/19/02) ..... 1999 17,440 -- (1,151) -- (1,151)
---------- ---------- ----------- ---------------------------
Total investment in total return swaps 45,265 -- (1,929) -- (1,929)
---------- ---------- ----------- ---------------------------
Total other bond related investments . $ 5,691 $ (5,602) $ 8,338 $ (8,249)
========== =========== ===========================
(1) Investment held by a wholly owned subsidiary of TE Bond Sub.
(2) The Company enters into interest rate swap and cap contracts to hedge
against interest rate exposure on the Company's investment in RITES. The
amounts disclosed represent the net fair values of all the Company's swaps
at the reporting date.
(3) Face amount represents notional amount of swap agreements and the (dates)
represent the effective date and the termination date of the swap.
(4) The aggregate negative fair value of the investments is included in
liabilities for financial reporting purposes. The negative fair value of
these investments is considered temporary and is not indicative of the
future earnings on these investments.
</TABLE>
<PAGE>
In the second quarter, the Company purchased three RITES(sm) investments
($15,000 par value) for $0.4 million.
NOTE 5 - LOANS RECEIVABLE
The Company's loans receivable primarily consist of construction loans and
taxable loans. The Company's rights and the specific terms of the loans are
defined by the various loan documents which were negotiated at the time of
settlement. The basic terms and structure of the loans are described in Note 9
to the Company's 1999 Form 10-K. The following table summarizes loans receivable
by loan type at June 30, 2000 and December 31, 1999
(000s) June 30, December 31,
Loan Type 2000 1999
--------- --------- ---------
Taxable construction loans $ 319,088 $ 271,492
Taxable loans ............ 30,804 10,795
Other loans .............. 5,024 4,558
--------- ---------
354,916 286,845
Allowance for loan losses (356) (356)
--------- ---------
Total .................... $ 354,560 $ 286,489
========== ==========
NOTE 6 - NOTES PAYABLE
The Company's notes payable primarily consist of notes payable and advances
under line of credit arrangements. The notes payable are borrowings by Midland
used to finance construction lending and working capital needs. The general
terms of the Company's notes payable are discussed in Note 11 to the Company's
1999 Form 10-K and are summarized as follows:
June 30, December 31,
(000s) 1999 2000
------ --------- ------------
Notes payable .......................... $262,195 $229,847
Group Trust Warehouse Facility ......... 31,570 28,641
Residential Funding Warehouse Facility.. 37,154 468
Bank Line of Credit .................... -- 3,000
-------- ---------
$330,919 $261,956
======== ========
NOTE 7 - EARNINGS PER SHARE
The following table reconciles the numerators and denominators in the basic
and diluted EPS calculations for Common Shares for the three and six months
ended June 30, 2000 and 1999.
<PAGE>
<TABLE>
<CAPTION>
Muncipal Mortgage & Equity, LLC
Reconciliation of Basic and Diluted EPS
For the three months ended June 30, 2000 For the three months ended June 30, 1999
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ -------------- ---------- ------------ --------------- ----------
(in thousands, except share and per share data)
Basic EPS
<S> <C> <C> <C> <C> <C> <C>
Income allocable to common shares $ 6,479 17,435,385 $ 0.37 $ 6,417 16,803,650 $ 0.38
========= =========
Effect of Dilutive Securities
Options and deferred shares - 386,690 - 244,822
Convertible preferred shares
to the extent dilutive - - 131 427,074
------------- -------------- ------------ --------------
Diluted EPS
Income allocable to common shares
plus assumed conversions $ 6,479 17,822,075 $ 0.36 $ 6,548 17,475,546 $ 0.37
============= ============== ========= ============ ============== =========
For the six months ended June 30, 2000 For the six months ended June 30, 1999
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ -------------- ---------- ------------ -------------- ---------
(in thousands, except share and per share data)
Basic EPS
Income allocable to common shares $ 13,498 17,430,954 $ 0.77 $ 14,473 16,806,381 $ 0.86
========= =========
Effect of Dilutive Securities
Options and deferred shares - 360,701 - 233,504
Convertible preferred shares
to the extent dilutive - - 131 213,537
------------- -------------- ------------ --------------
Diluted EPS
Income allocable to common shares
plus assumed conversions $ 13,498 17,791,655 $ 0.76 $ 14,604 17,253,422 $ 0.85
============= ============== ========= ============ ============== =========
</TABLE>
<PAGE>
NOTE 8 - DISTRIBUTIONS
On July 20, 2000, the Board of Directors declared distributions for the
three months ended June 30, 2000 for shareholders of record on August 1, 2000.
The payment date is August 15, 2000. The per share distributions are shown in
the following table:
PAGE>
<TABLE>
<CAPTION>
Preferred Capital
Common Preferred Shares Distribution Shares
------------------------------- ------------------------------
Shares Series I Series II Series I Series II
------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Distributions paid on May 12, 2000
to holders of record on May 1, 2000:
For the three months ended
March 31, 2000 ......................... $ 0.4125 $ 13.00 $ 12.50 $ 10.00 $ 7.50
Distributions paid on August 15, 2000 to holders of record on August 1, 2000:
For the three months ended
June 30, 2000 .......................... $ 0.4175 $ 13.00 $ 12.50 $ 10.00 $ 7.50
</TABLE>
<PAGE>
NOTE 9 - BUSINESS SEGMENT REPORTING
In the fourth quarter of 1999, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information," which establishes standards for reporting information
about a company's operating segments. In October 1999, as a result of the
Midland acquisition, the Company restructured its operations into two business
segments: (1) an operating segment consisting of Midland and other subsidiaries
that primarily generate taxable fee income by providing loan servicing, loan
origination and other related services and (2) an investing segment consisting
primarily of subsidiaries holding investments producing tax-exempt interest
income. The accounting policies of the segments are the same as those described
in Note 1 to the Company's 1999 Form 10-K. A complete description of the
Company's reporting segments is described in Note 21 to the Company's 1999 Form
10-K.
The following table reflects the results of the Company's segments for the
three and six months ended June 30, 2000.
<TABLE>
<CAPTION>
Municipal Mortgage & Equity, LLC
Segment Reporting
(in thousands)
For the three months ended June 30, 2000
-----------------------------------------------------------
Total
Investing Operating Adjustments Consolidated
<S> <C> <C> <C> <C>
Interest on mortgage revenue and other
bond related investments .............. $ 9,365 $ 433 $ -- $ 9,798
Interest on loans ...................... 304 7,248 -- 7,552
Loan origination and brokerage fees .... -- 2,191 (1) (811) 1,380
Loan servicing fees .................... -- 876 -- 876
Short-term investment income ........... 720 178 -- 898
Other fee income ....................... -- 1,436 -- 1,436
Net gain on sales ...................... 10 9 -- 19
------------ ------------- ------------- --------------
Total income ....................... 10,399 12,371 (811) 21,959
------------ ------------- ------------- --------------
Salaries and benefits .................. 355 3,297 -- 3,652
Operating expenses ..................... 293 1,437 -- 1,730
Goodwill amortization .................. -- 358 -- 358
Interest expense ....................... 846 6,327 -- 7,173
------------ ------------- ------------- --------------
Total expenses ..................... 1,494 11,419 -- 12,913
------------ ------------- ------------- --------------
Net income before allocations to
preferred shareholders in a
subsidiary company .................... 8,905 952 (811) 9,046
Allocations to preferred
shareholders .......................... 1,818 -- -- 1,818
------------ ------------- ------------- --------------
Net income before income taxes ......... 7,087 952 (811) 7,228
Income taxes ........................... -- 193 -- 193
------------ ------------- ------------- --------------
Net income ............................. $ 7,087 $ 759 $ (811) $ 7,035
============ ============= ============= ==============
Notes:
(1) Adjustments represent origination fees on purchased investments which are
deferred and amortized into income over the life of the investment.
</TABLE>
<PAGE>
<TABLE>
Municipal Mortgage & Equity, LLC
Segment Reporting
(in thousands)
For the six months ended June 30, 2000
------------------------------------------------------------
Total
Investing Operating Adjustments Consolidated
------------ ------------ ----------------------------
<S> <C> <C> <C> <C>
Interest on mortgage revenue bonds
and other bond related investments $ 18,832 $ 893 $ -- $ 19,725
Interest on loans 608 13,777 -- 14,385
Loan origination and brokerage fees -- 3,007 (1)(1,011) 1,996
Loan servicing fees -- 2,838 -- 2,838
Short-term investment income 1,377 593 -- 1,970
Other fee income -- 2,271 -- 2,271
Net gain on sales 10 9 -- 19
------------ ------------ ------------ ------------
Total income 20,827 23,388 (1,011) 43,204
------------ ------------ ------------ ------------
Salaries and benefits 687 6,297 -- 6,984
Operating expenses 629 2,877 -- 3,506
Goodwill amortization -- 716 -- 716
Interest expense 1,692 12,208 -- 13,900
------------ ------------ ------------ ------------
Total expenses 3,008 22,098 -- 25,106
------------ ------------ ------------ ------------
Net income before allocations to
preferred shareholders in a
subsidiary company 17,819 1,290 (1,011) 18,098
Allocations to preferred shareholders 3,262 -- -- 3,262
------------ ------------ ------------ ------------
Net income before income taxes 14,557 1,290 (1,011) 14,836
Income taxes -- 184 -- 184
------------ ------------ ------------ ------------
Net income $ 14,557 $ 1,106 $ (1,011) $ 14,652
============ ============ ============ ============
Notes:
(1) Adjustments represent origination fees on purchased investments which are
deferred and amortized into income over the life of the investment.
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General Business
Municipal Mortgage & Equity, LLC (the "Company") is in the business of
originating, investing in and servicing investments in multifamily housing debt
and equity. The Company is a limited liability company that, as a result of a
merger effective August 1, 1996 (the "Merger"), is the successor to the business
of SCA Tax Exempt Fund Limited Partnership (the "Partnership").
On October 20, 1999, the Company acquired Midland Financial Holdings, Inc.
("Midland") for approximately $45 million. The consolidated earnings of Midland
are included in the Company's results of operations from the date of the
Company's acquisition of Midland.
Results of Operations
Quarterly Results Analysis
Total income for the three months ended June 30, 2000 increased by
approximately $11.9 million over the same period last year due primarily to
increased collections of interest on bonds, other bond related investments and
loans of $8.1 million and an increase in loan servicing fees and other income of
$3.3 million due primarily to income attributable to Midland.
Salary, benefits and operating expenses for the three months ended June 30,
2000 increased by approximately $3.7 million over the same period last year due
primarily to salary and operating expenses generated by Midland of $3.1 million
and increased administrative costs. The Company also recorded amortization of
goodwill and intangibles of $0.4 million associated with the October 1999
acquisition of Midland.
The Company incurred interest expense of $7.2 million for the three months
ended June 30, 2000 as a result of interest expense from short-term borrowings
associated with construction lending activity at Midland of $6.4 million and the
term debt financing completed in March 1999 of $0.8 million.
The Company recorded income allocable to preferred shareholders of TE Bond
Sub of $1.8 million for the three months ended June 30, 2000 as a result of the
June 2000 and May 1999 Preferred Equity Offerings (see Note 2 to the
consolidated financial statements).
Year-to-Date Results Analysis
Total income for the six months ended June 30, 2000 increased by
approximately $23.0 million over the same period last year due primarily to (1)
increased collections of interest on bonds, other bond related investments and
loans of $16.9 million, (2) an increase in loan servicing fees, loan origination
fees and other income of $6.3 million due primarily to income attributable to
Midland, and (3) increase in interest on short term investments of $1.3 million
primarily related to interest income on loan escrow accounts held by Midland.
This increase was partially offset by the one time gain on sale of demand notes
recorded in March 1999.
Salary, benefits and operating expenses for the six months ended June 30,
2000 increased by approximately $7.7 million over the same period last year due
primarily to salary and operating expenses generated by Midland of $6.0 million
and increased administrative costs. The Company also recorded amortization of
goodwill and intangibles of $0.7 million associated with the October 1999
acquisition of Midland.
The Company incurred interest expense of $13.9 million for the six months
ended June 30, 2000 as a result of interest expense from short-term borrowings
associated with construction lending activity at Midland of $12.2 million and
the term debt financing completed in March 1999 of $1.7 million.
The Company recorded income allocable to preferred shareholders of TE Bond
Sub of $3.3 million for the six months ended June 30, 2000 as a result of the
June 2000 and May 1999 Preferred Equity Offerings (see Note 2 to the
consolidated financial statements).
Liquidity and Capital Resources
The Company's primary objective is to maximize shareholder value through
increases in Cash Available for Distribution ("CAD") per Common Share and
appreciation in the value of its Common Shares. The Company seeks to achieve its
growth objectives by growing its investing and operating business segments. The
Company grows its investment segment by acquiring, servicing and managing
diversified portfolios of mortgage bonds and other bond related investments.
Growth in the operating segment is derived from increasing levels of fees
generated by affordable housing equity syndications, loan servicing and
origination and brokerage services. In order to facilitate this growth strategy,
the Company will require additional capital in order to pursue acquisition
opportunities. The Company expects to finance its acquisitions through a
financing strategy that (1) takes advantage of attractive financing available in
the tax-exempt securities markets; (2) minimizes exposure to fluctuations of
interest rates; and (3) maintains maximum flexibility to manage the Company's
short-term cash needs. To date, the Company has primarily used two sources,
securitizations and Common Share or Preferred Share equity offerings, to finance
its acquisitions. Through Midland's management of capital for others, including
Fannie Mae, the Company has expanded its access to capital.
In March 1999, the Company converted a portion of its investment in the
Merrill Lynch P-FLOATs(sm) program into a longer term securitization facility.
Going forward, the Company intends to use a combination of this longer term
securitization facility and the Merrill Lynch P-FLOATs(sm) securitization
program. The P-FLOATs(sm) program allows the Company to securitize bonds
relatively quickly and allows the Company to purchase interests in bonds it has
previously securitized. A longer term securitization facility allows the Company
to reduce its exposure to credit and annual renewal risks associated with the
liquidity and credit enhancement features of the P-FLOATs(sm) trusts and allows
the Company to reduce its reliance on interest rate swaps. The combination of
these two vehicles allows the Company the flexibility it needs to finance
acquisitions.
In the second quarter, the Company participated in $70.5 million of bond
and taxable loan investment transactions. Of this amount, $28.0 million were
bond or loan transactions retained by the Company.
Through the use of securitizations, the Company expects to employ leverage
and maintain overall leverage ratios in the 40% to 55% range, with certain
assets at significantly higher ratios, approximately 99%, while not leveraging
other assets at all. The Company calculates leverage by dividing the total
amount of on-balance sheet debt of the investing semgent plus the total amount
of senior interests in its investments, which it considers the equivalent of
off-balance sheet financing, by the sum of total assets owned by the Company
plus senior interests owned by others adjusted for reserves equal to the net
assets of the operating segment. Under this method, the Company's leverage ratio
at June 30, 2000 was approximately 47%.
In order to facilitate the securitization of certain assets at higher
leverage ratios, the Company has pledged additional bonds to the pool that acts
as collateral for the senior interests in the trust.
Preferred Equity Offering by Subsidiary
On June 2, 2000, TE Bond Sub sold to institutional investors 30 shares of
$2,000,000 par-value 7 3/4 % Series B Cumulative Preferred Shares ("Series B
Preferred Shares"). The Series B Preferred Shares bear interest at 7.75% per
annum or, if lower, the aggregate net income of the issuing company, TE Bond
Sub, after payment of distributions to any senior securities. Cash distributions
on the Series B Preferred Shares will be paid quarterly on each January 31,
April 30, July 31 and October 31. The Series B Preferred Shares are subject to
remarketing on November 1, 2010. On the remarketing date, the remarketing agent
will seek to remarket the shares at the lowest distribution rate that would
result in a resale of the Series B Preferred Shares at a price equal to par plus
all accrued but unpaid distributions. The Series B Preferred Shares will be
subject to mandatory tender on November 1, 2010 and on all subsequent
remarketing dates at a price equal to par plus all accrued but unpaid
distributions. The Series B Preferred Shares must be redeemed no later than June
30, 2050.
Cash Flow
At June 30, 2000, the Company had cash and cash equivalents of
approximately $81.9 million.
Cash flow from operating activities was $19.1 million and $13.6 million for
the six months ended June 30, 2000 and 1999, respectively. The increase in cash
flow for 2000 versus 1999 is due primarily to an increase in income from new
investments and an increase in other income attributable to Midland.
The Company is required to distribute to the holders of its Preferred
Shares and Preferred Capital Distribution Shares ("Preferred CD Shares") cash
flow attributable to such shares (as defined in the Company's Amended and
Restated Certificate of Formation and Operating Agreement). The Company is
required to distribute 2.0% of the net cash flow to the holders of Term Growth
Shares. The balance of the Company's net cash flow is available for distribution
to the Common Shares and the Company's current policy is to distribute to Common
Shareholders at least 80% of the annual CAD to Common Shares.
Certain of the bonds held by the Company are participating bonds that
provide for payment of contingent interest in addition to base interest at a
fixed rate. Additionally, the mortgage loans underlying all of the bonds and
certain bond related investments held by the Company are nonrecourse. As a
result of these two factors, all debt service on the bonds, and therefore, cash
flow available for distribution to all shareholders, is dependent upon the
performance of the underlying properties.
The Company uses CAD as the primary measure of its dividend paying ability.
CAD differs from net income because of slight variations between generally
accepted accounting principles ("GAAP") income and actual cash received. There
are several differences between CAD and GAAP income. The first is the treatment
of loan origination fees, which for CAD purposes are recognized as income when
received but for GAAP purposes are amortized into income over the life of the
associated investment. The other significant differences are noncash gains and
losses associated with bond valuations and sales for GAAP purposes and
amortization of goodwill and intangibles, which are not included in the
calculation of CAD.
For the three months ended June 30, 2000 and 1999, CAD to Common Shares was
$7.7 million and $7.1 million, respectively. Regular cash distributions to
common shareholders attributable to the three months ended June 30, 2000 and
1999 were $7.3 million and $6.8 million, respectively. The Company's Common
Share dividend for the three months ended June 30, 2000 of $0.4175 represents a
payout ratio of 94.9% of CAD. The Company's Common Share dividend for the three
months ended June 30, 1999 of $0.400 represents a payout ratio of 95.3% of CAD.
The Company expects to meet its cash needs in the short term, which consist
primarily of funding new investments, operating expenses and dividends on the
Common Shares and other equity, from cash on hand, operating cash flow, equity
proceeds and securitization proceeds. The Company's business plan includes
making additional investments during 2000.
<PAGE>
Income Tax Considerations
MuniMae is organized as a limited liability company and as a result, no
recognition of income taxes is made. Instead, the distributive share of
MuniMae's income, deductions and credits is included in each shareholder's
income tax return. The Company records cash dividends received from subsidiaries
organized as corporations as dividend income for tax purposes.
However, as a result of the Midland acquisition, in October 1999, the
Company restructured its operations into two segments, an operating segment and
an investing segment (see Note 9 to the consolidated financial statements). The
operating segment, which is directly or indirectly wholly owned by MuniMae,
consists primarily of entities subject to income taxes. The Company provides for
income taxes in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial statement carrying
amounts and the tax basis of assets and liabilities.
The Company has elected under Section 754 of the Internal Revenue Code to
adjust the basis of the Company's property on the transfer of shares to reflect
the price each shareholder paid for their shares. While the bulk of the
Company's recurring income is tax-exempt, from time to time the Company may sell
or securitize various assets, which may result in capital gains and losses for
tax purposes. Since the Company is taxed as a partnership, these capital gains
and losses are passed through to shareholders and are reported on each
shareholder's Schedule K-1. The capital gain and loss allocated from the Company
may be different to each shareholder due to the Company's 754 election and is a
function of, among other things, the timing of the shareholder's purchase of
shares and the timing of transactions which generate gains or losses for the
Company. This means that for assets purchased by the Company prior to a
shareholder's purchase of shares, the shareholder's basis in the assets may be
significantly different than the Company's basis in those same assets. Although
the procedure for allocating the basis adjustment is complex, the result of the
election is that each share is homogeneous, while each shareholder's basis in
the assets of the Company may be different. Consequently, the capital gains and
losses allocated to shareholders may be significantly different than the capital
gains and losses recorded by the Company.
A portion of the Company's interest income is derived from private activity
bonds that for income tax purposes, are considered tax preference items for
purposes of alternative minimum tax ("AMT"). AMT is a mechanism within the
Internal Revenue Code to ensure that all taxpayers pay at least a minimum amount
of taxes. All taxpayers are subject to the AMT calculation requirements although
the vast majority of taxpayers will not actually pay AMT. As a result of AMT,
the percentage of the Company's income that is exempt from federal income tax
may be different for each shareholder depending on that shareholder's individual
tax situation.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Since December 31, 1999 there has been no material change to the
information included in Item 7A of the Company's 1999 Form 10-K.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
Securities Sale
On June 2, 2000, TE Bond Sub sold 30 Series B Preferred Shares. The Series
B Preferred Shares were offered and sold to "qualified institutional buyers"
through Merrill Lynch and PaineWebber, Incorporated, without being registered
under the Securities Act pursuant to the exemption afforded by Rule 144A under
the Securities Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Amendment No. 1 to the Amended and Restated Certificate of
Formation and Operating Agreement of the Company (filed as Item 6
(a) Exhibit 3.1 to the Company's report on Form 10-Q, filed with
the Commission on May 14, 1998 and incorporated by reference
herein).
3.2 By-laws of the Company (filed as Item 16 Exhibit 4.2 to the
Company's Registration Statement on Form S-3/A - Amendment #1,
File No. 333-56049, filed with the Commission on June 29, 1998 and
incorporated by reference herein).
27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the quarter ended June
30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MUNICIPAL MORTGAGE & EQUITY, LLC
(Registrant)
By: /s/ Mark K. Joseph
Mark K. Joseph
Chairman of the Board, Chief Executive Officer (Principal Executive
Officer), and Director
By: /s/ Gary Mentesana
Gary Mentesana
Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
DATED: August 11, 2000
INDEX TO EXHIBITS
Exhibit
Number
Document
27 Financial Data Schedule
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