<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to _______________
Commission file number: 0-23131
People's Preferred Capital Corporation
(Exact name of registrant as specified in its charter)
Maryland 95-4642529
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5900 Wilshire Boulevard, Los Angeles, California 90036
(Address of principal executive offices)
(213) 938-6300
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $0.01 par value 10,000
Series A Preferred Shares, $0.01 1,426,000
(Class)
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PEOPLE'S PREFERRED CAPITAL CORPORATION
FIRST QUARTER 1998 REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
PART I FINANCIAL INFORMATION --------
<S> <C>
Item 1. Financial Statements
Statements of Financial Condition - March 31, 1998
and December 31, 1997 3
Statement of Earnings - For the three months ended
March 31, 1998 4
Statement of Cash Flows - For the three months ended
March 31, 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II OTHER INFORMATION
Item 1: Legal Proceedings 11
Item 2: Changes in Securities 11
Item 3: Defaults upon Senior Securities 11
Item 4: Submission of Matters to a Vote of Security Holders 11
Item 5: Other Information 11
Item 6: Exhibits and Reports on Form 8-K 11
</TABLE>
2
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PEOPLE'S PREFERRED CAPITAL CORPORATION
STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-----------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 5,322 $ 44
Mortgage loans, (Note 2) 66,142 70,423
Due from affiliate 669 1,723
Accrued interest receivable 411 407
Other assets 9 --
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TOTAL ASSETS $72,553 $72,597
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LIABILITIES:
Dividends payable to the Bank $ -- $ 460
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TOTAL LIABILITIES -- 460
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share,
4,000,000 shares authorized:
Preferred stock series A, issued and outstanding
1,426,000 shares, liquidation value $35,650 14 14
Common stock, par value $.01 per share, 4,000,000
shares authorized:
10,000 shares issued and outstanding -- --
Additional paid-in capital 72,075 72,075
Retained earnings 464 48
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TOTAL STOCKHOLDERS' EQUITY 72,553 72,137
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $72,553 $72,597
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---------------------
</TABLE>
See accompanying notes to financial statements.
3
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PEOPLE'S PREFERRED CAPITAL CORPORATION
STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES:
Interest on mortgage loans $ 1,443
Interest on deposits 37
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Total revenues: 1,480
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EXPENSES:
Servicing fees 42
Management fees 50
Professional fees 50
Other 4
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Total expenses 146
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Net earnings $ 1,334
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</TABLE>
See accompanying notes to financial statements.
4
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PEOPLE'S PREFERRED CAPITAL CORPORATION
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,334
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Increase in accrued interest receivable (4)
Decrease in due from affiliates 1,054
Decrease in dividends payable (460)
Increase in other assets (9)
--------
Net cash provided by operating activities 1,915
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CASH FLOWS FROM INVESTING ACTIVITIES:
Mortgage loan principal repayments 4,281
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Net cash provided by investing activities 4,281
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CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividends paid (870)
Common stock dividends paid (48)
--------
Net cash used in financing activities (918)
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,278
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 44
--------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,322
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</TABLE>
See accompanying notes to financial statements.
5
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PEOPLE'S PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
People's Preferred Capital Corporation, (the "Company"), is a Maryland
corporation incorporated on June 19, 1997 which was created for the purpose
of acquiring, holding and managing mortgage loans secured by real estate
assets. The Company's outstanding common stock is wholly owned by People's
Bank of California, a federal savings bank (the "Bank").
The accompanying financial statements were prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions for meeting the requirements of Regulation S-X,
Article 10 and therefore do not include all disclosures necessary for
complete financial statements. In the opinion of management, all adjustments
have been made that are necessary for a fair presentation of the financial
position and results of operations and cash flows as of and for the period
presented. All such adjustments are of a normal recurring nature. The
results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the entire
fiscal year or any other interim period.
The financial statements should be read in conjunction with the
statement of financial condition and accompanying note thereto as of December
31, 1997 included in the Company's Annual Report on Form 10-K. All terms
used but not defined elsewhere herein have meanings ascribed to them in the
Company's Annual Report on Form 10-K.
NOTE 2 - MORTGAGE LOANS
Mortgage loans, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-----------------------------------
<S> <C> <C>
1-4 unit residential mortgage loans $ 54,116 $ 58,142
Multi-family and commercial loans, net 12,279 12,534
-----------------------------------
66,395 70,676
Allowance for loan losses (253) (253)
-----------------------------------
Total residential mortgage loans, net $ 66,142 $ 70,423
-----------------------------------
-----------------------------------
</TABLE>
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PEOPLE'S PREFERRED CAPITAL CORPORATION
<TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
<S> <C>
STATEMENT OF OPERATIONS:
Interest income $ 1,480
Total revenues $ 1,480
Net earnings $ 1,334
STATEMENT OF CONDITION:
Mortgage loans, net $66,142
Total assets $72,553
Total stockholders' equity $72,553
Average yield on mortgage loans 8.41%
</TABLE>
OVERVIEW
People's Preferred Capital Corporation's business is to acquire and
maintain a real estate loan portfolio. The income from this portfolio will
generate net income that must be distributed to the Company's stockholders in
order to maintain the tax exempt status as a real estate investment trust.
The Company anticipates that it will periodically reinvest loan principal
payments into newly acquired real estate loans.
RESIDENTIAL MORTGAGE LOANS. The following table sets forth as of March
31, 1998 certain information with respect to each type of Residential
Mortgage Loan included in the Company's portfolio (dollars in thousands):
<TABLE>
<CAPTION>
TYPE OF RESIDENTIAL MORTGAGE LOAN PRODUCT
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Principal Percentage of Remaining Note
Type Balance Portfolio Initial LTV Term Rate
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7/23 step rate $ 5,875 10.9% 80.0% 296 7.94%
15 year fixed rate 6,986 12.9 61.0 130 7.97
30 year fixed rate 41,255 76.2 76.2 313 8.23
-------------------------------------------------------------------
$ 54,116 100.0% 71.4% 288 8.16%
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</TABLE>
The Residential Mortgage Loans included in the Company's loan portfolio
are either fixed rate loans, or are "7/23 step rate" loans. The "7/23 step
rate" loan has a fixed interest rate for the first seven years, and adjusts
once thereafter to a rate which applies to the remaining 23 years equal to
150 basis points above the FNMA 30 year commitment rate for delivery as of a
date specified in the related mortgage note.
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COMMERCIAL MORTGAGE LOANS. The following table sets forth as of March
31, 1998 certain information with respect to each type of Commercial Mortgage
Loan included in the Company's portfolio (dollars in thousands):
<TABLE>
<CAPTION>
Principal Percentage of Initial Note
Type Balance Portfolio LTV Term Rate
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial fixed rate
balloon $ 5,274 42.9% 69.0% 106 9.42%
Commercial fixed rate 1,651 13.4 74.0 100 10.12
Multi-family fixed rate
balloon 1,677 13.7 58.0 111 9.10
Multi-family fixed rate 3,677 30.0 67.0 109 9.56
---------------------------------------------------------------------
$ 12,279 100.0% 67.6% 107 9.51%
---------------------------------------------------------------------
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</TABLE>
Of the Commercial Mortgage Loans included in the Company's portfolio,
approximately 56.6% are not fully amortizing and will have significant
principal balances (or "balloon payments") due upon maturity.
All the Commercial Mortgage Loans included in the Company's Portfolio
bear interest at fixed rates. The weighted average interest rate of the
portfolio at March 31, 1998 is 9.51%.
The following table schedules residential mortgage loans with past due
principal and interest payments at March 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
Number Principal Balance Percent of Portfolio
--------------------------------------------------
<S> <C> <C> <C>
30 to 59 days past due 1 $ 205 0.31%
</TABLE>
At March 31, 1998 there were no non accrual loans in the Company's loan
portfolio.
ALLOWANCE FOR LOAN LOSSES
The Company maintains an allowance for loan losses to absorb potential
loan losses from the entire loan portfolio. Management believes that the
allowance for loan losses as of March 31, 1998, is sufficient to absorb any
unidentified losses that currently exist in the portfolio. Management will
continue to review the loan portfolio to determine the extent to which any
changes in loss experience may require additional provisions in the future.
8
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FINANCIAL CONDITION
At March 31, 1998, the Company had total assets of $72.6 million,
unchanged from December 31, 1997. Mortgage loans totaled $66.1 million, or
91.2% of the Company's assets at the end of the quarter, compared to $70.4
million, or 97.0% of total assets, at December 31, 1997. The reduction in
loans represented receipt of loan principal repayments. No new loans were
purchased in the first quarter.
At March 31, 1998, the Company had no liabilities. The $460,000 of
dividends payable to the Bank at December 31, 1997, was paid during the first
quarter. Additionally, preferred stock dividends of $870,000 and common
stock dividends of $48,000 were both declared and paid during the first
quarter of 1998.
RESULTS OF OPERATIONS
The Company reported net interest income of $1.4 million for the
three-month period ended March 31, 1998. Expenses of $146,000 for the period
included $42,000 in servicing fees, $50,000 in management fees paid to the
Bank, and $54,000 in professional and other expenses. After deduction of
total expenses, net earnings totaled $1.3 million. When compared to the
preceding quarter ended December 31, 1997, net interest income was virtually
unchanged, while expenses increased $37,000, principally as a result of
professional expenses.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all of the Company's financial commitments and
to capitalize on opportunities for the Company's business expansion. In
managing liquidity, the Company takes into account various legal limitations
placed on a REIT.
The Company's principal liquidity needs are to maintain its current
portfolio size through the acquisition of additional Mortgage Loans as
Mortgage Loans currently in the portfolio mature or prepay and to pay
dividends on the Series A Preferred Shares. The acquisition of additional
Mortgage Loans is intended to be funded with the proceeds obtained from
repayment of principal balances by individual mortgagees. The Company has
not had and does not anticipate having any material capital expenditures.
To the extent that the Board of Directors determines that additional
funding is required, the Company may raise such funds through additional
equity offerings, debt financing or retention of cash flow (after
consideration of provisions of the Code requiring the distribution by a REIT
of at least 95% of its "REIT taxable income" and taking into account taxes
that would be imposed on undistributed income), or a combination of these
methods. The organizational documents of the Company do not contain any
limitation on the amount or percentage of debt, funded or otherwise, that the
Company might incur. Notwithstanding the foregoing, the Company may not,
without the approval of a majority of the Independent Directors, incur debt
in excess of 20% of the Company's
9
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total stockholders' equity. Any such debt incurred may include intercompany
advances made by the Bank to the Company.
The Company also may issue additional series of Preferred Stock.
However, the Company may not issue additional shares of Preferred Stock that
is or will be senior to the Series A Preferred Shares without obtaining the
prior consent of holders of at least 66 2/3% of the shares of Preferred Stock
outstanding at that time, including the Series A Preferred Shares, and the
Company may not issue additional shares of Preferred Stock on a parity with
the Series A Preferred Shares without the prior approval of a majority of the
Company's Independent Directors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
10
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PEOPLE'S PREFERRED CAPITAL CORPORATION
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 2: CHANGES IN SECURITIES
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is included herein:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
No reports on From 8-K have been filed during the
quarter ended March 31, 1998
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PEOPLE'S PREFERRED CAPITAL CORPORATION
/s/ Rudolf P. Guenzel
-------------------------------------
Rudolf P. Guenzel
President and Chief Executive Officer
/s/ J. Michael Holmes
-------------------------------------
J. Michael Holmes
Executive Vice President and Chief
Financial Officer
Date: May 15, 1998
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4
<INT-BEARING-DEPOSITS> 5,318
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 66,395
<ALLOWANCE> 253
<TOTAL-ASSETS> 72,553
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
14
<COMMON> 0
<OTHER-SE> 72,539
<TOTAL-LIABILITIES-AND-EQUITY> 72,553
<INTEREST-LOAN> 1,443
<INTEREST-INVEST> 0
<INTEREST-OTHER> 37
<INTEREST-TOTAL> 1,480
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 1,480
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 146
<INCOME-PRETAX> 1,334
<INCOME-PRE-EXTRAORDINARY> 1,334
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,334
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.41
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 253
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 253
<ALLOWANCE-DOMESTIC> 253
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
