<PAGE>
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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, 1999
--------------
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
(323) 938-6300
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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS SHARES OUTSTANDING AT AUGUST 9, 1999
----- ------------------------------------
<S> <C>
Common Stock, $0.01 par value 10,000
Series A Preferred Shares, $0.01 par value 1,426,000
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</TABLE>
<PAGE>
PEOPLE'S PREFERRED CAPITAL CORPORATION
FIRST QUARTER 1999 REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Condition - June 30, 1999
and December 31, 1998 3
Statements of Earnings - For the three and six months ended
June 30, 1999 and June 30, 1998 4
Statements of Cash Flows - For the six months ended
June 30, 1999 and June 30, 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II OTHER INFORMATION
Item 1: Legal Proceedings 15
Item 2: Changes in Securities 15
Item 3: Defaults upon Senior Securities 15
Item 4: Submission of Matters to a Vote of Security Holders 15
Item 5: Other Information 15
Item 6: Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE>
PEOPLE'S PREFERRED CAPITAL CORPORATION
STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 2,911 $ 1,301
Mortgage loans, net (Note 2) 68,527 69,457
Due from affiliate 620 1,277
Accrued interest receivable 373 370
Other assets 6 --
------- -------
Total assets $72,437 $72,405
------- -------
------- -------
LIABILITIES:
Accounts payable and accrued liabilities $ 31 $ 42
------- -------
Total liabilities 31 42
------- -------
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 317 274
------- -------
Total stockholders' equity 72,406 72,363
------- -------
Total liabilities and stockholders' equity $72,437 $72,405
------- -------
------- -------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
PEOPLE'S PREFERRED CAPITAL CORPORATION
STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
--------------------------- -------------------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Interest on mortgage loans $1,359 $1,376 $2,718 $2,819
Interest on deposits 39 78 77 115
------ ------ ------ ------
Total revenues: 1,398 1,454 2,795 2,934
------ ------ ------ ------
EXPENSES:
Servicing fees 44 44 87 86
Management fees 50 50 100 100
Professional fees 20 8 38 58
Other 7 7 15 11
------ ------ ------ ------
Total expenses 121 109 240 255
------ ------ ------ ------
Net earnings $1,277 $1,345 $2,555 $2,679
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
PEOPLE'S PREFERRED CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,555 $ 2,679
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Increase (decrease) in accrued interest receivable (3) 18
Decrease in due from affiliates 657 1,035
Decrease in dividends payable -- (460)
Increase in other assets (6) (5)
Decrease in accrued expenses (11) --
-------- --------
Net cash provided by operating activities 3,192 3,267
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan purchases (10,401) (8,100)
Mortgage loan principal repayments 11,376 10,358
Purchase of accrued interest (45) --
-------- --------
Net cash provided by investing activities 930 2,258
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividends paid (1,738) (1,738)
Common stock dividends paid (774) (48)
-------- --------
Net cash used in financing activities (2,512) (1,786)
-------- --------
Net increase in cash and cash equivalents 1,610 3,739
Cash and cash equivalents at beginning of period 1,301 44
-------- --------
-------- --------
Cash and cash equivalents at end of period $ 2,911 $ 3,783
-------- --------
-------- --------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
PEOPLE'S PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
We are a real estate investment trust ("REIT") that was formed in June
1997 in order to acquire, hold and manage mortgage assets and other authorized
investments. All of our common stock is owned by People's Bank of California
(the "Bank"). We expect that all of our mortgage assets will be acquired from
the Bank or purchased from other companies that are not affiliated with us. To
date, all of our mortgage assets have been acquired by the Bank.
As a REIT, dividends paid to our stockholders are deductible for
federal and state income tax purposes. Under the Internal Revenue Code, REITs
are subject to numerous organizational and operational requirements, including a
requirement that they distribute at least 95% of their taxable income, as
calculated on an annual basis. If we fail to qualify for taxation as a REIT in
any year, our income will be taxed at regular corporate rates, and we may not be
able to qualify for treatment as a REIT for that year and the next four years.
In October 1997, we completed the sale of 1,426,000 shares of 9.75%
Noncumulative Exchangeable Preferred Stock, Series A (our "Series A Preferred
Shares") at an offering price of $25.00 per share. Our Board of Directors,
including a majority of our independent directors authorized the filing of a
Registration Statement with the SEC for the issuance of Series B Preferred
Shares, which will be parity stock with respect to the Series A shares. The
Registration Statement was filed on August 9, 1999.
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 and six months ended June 30, 1999 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 audited
financial statements and accompanying notes thereto as of December 31, 1998
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 filed on March 30, 1999.
6
<PAGE>
NOTE 2 - MORTGAGE LOANS, NET
Mortgage Loans, net consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
1-4 unit residential mortgage loans $ 59,163 $ 58,126
Multi-family and commercial loans 9,617 11,584
------------- -----------------
68,780 69,710
Allowance for loan losses (253) (253)
------------- -----------------
------------- -----------------
Total residential mortgage loans, net $ 68,527 $ 69,457
------------- -----------------
------------- -----------------
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
WHEN USED IN THIS FORM 10-Q OR FUTURE FILINGS BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION ("SEC"), IN THE COMPANY'S PRESS RELEASES OR
OTHER PUBLIC OR STOCKHOLDER COMMUNICATIONS, OR IN ORAL STATEMENTS MADE WITH AN
APPROVAL OF AN AUTHORIZED EXECUTIVE OFFICER, THE WORDS OR PHRASES "WOULD BE",
"WILL ALLOW", "INTENDS TO", "WILL LIKELY RESULT", "ARE EXPECTED TO", "WILL
CONTINUE", "IS ANTICIPATED", "ESTIMATE", "PROJECT", OR SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE LITIGATION REFORM ACT OF 1995.
THE COMPANY WISHES TO CAUTION READERS NOT TO PLACE UNDUE RELIANCE ON
ANY SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE MADE, AND
TO ADVISE READERS THAT VARIOUS FACTORS, INCLUDING REGIONAL AND NATIONAL ECONOMIC
CONDITIONS, SUBSTANTIAL CHANGES IN LEVELS OF MARKET INTEREST RATES, CREDIT AND
OTHER RISK OF LENDING AND INVESTMENT ACTIVITIES AND COMPETITIVE AND REGULATORY
FACTORS, COULD AFFECT THE COMPANY'S FINANCIAL PERFORMANCE AND COULD CAUSE THE
COMPANY'S ACTUAL RESULTS FOR FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE
ANTICIPATED OR PROJECTED. THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY
DISCLAIMS ANY OBLIGATION, TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT
OCCURRENCES OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH
STATEMENTS.
7
<PAGE>
A Summary of Selected Financial Data of the Company is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- -------------------------
1999 1998 1999 1998
--------- ---------- --------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Interest on mortgage loans $1,359 $1,376 $2,718 $2,819
Total revenues 1,398 1,454 2,795 2,934
Net earnings 1,277 1,345 2,555 2,679
Weighted average interest rate on
mortgage loans 7.52% 8.28% 7.52% 8.28%
</TABLE>
<TABLE>
<CAPTION>
At June 30, At December 31,
1999 1998
----------- ---------------
<S> <C> <C>
STATEMENT OF CONDITION:
Mortgage loans, net $68,527 $69,457
Total assets 72,437 72,405
Total stockholders' equity 72,406 72,363
</TABLE>
OVERVIEW
Our principal business objective is to acquire, hold and manage
mortgage assets and other authorized investments that will generate net income
for distribution to our stockholders. As June 30, 1999, we had total assets of
$72.4 million, total liabilities of $31,000 and total stockholders' equity of
$72.4 million. As of that date, $68.8 million or 95.0% of our assets were
comprised of Mortgage Loans. At June 30, 1999, our loan portfolio contained 265
residential mortgage loans, representing approximately 86.0% of the unpaid book
balance of the Mortgage Loans contained in our portfolio, and 53 commercial
mortgage loans, representing approximately 14.0% of the unpaid book balance of
the Mortgage Loans contained in our portfolio. An aggregate of $59.2 million or
86.0% of our Mortgage Loans at June 30, 1999 were secured by single-family
(one-to-four-unit) residential properties with a weighted average yield of 7.24%
and $9.6 million or 14.0% of our Mortgage Loans were secured by multi-family
residential and commercial properties with a weighted average yield of 9.24%.
The overall yield on our portfolio as of June 30, 1999 was 7.52%.
The composition of our Mortgage Loan portfolio is expected to change
with the proposed purchase of mortgage loans which is contemplated in connection
with the offering of Series B Shares. The portfolio of Mortgage Loans expected
to be acquired in connection with the offering will contain a greater proportion
of commercial real estate loans (when compared with our existing portfolio),
which will increase the overall percentage of commercial real estate loans in
our loan portfolio and correspondingly increase the weighted average portfolio
yield. These loans are also expected to be less seasoned and to have greater
average outstanding balances than the loans presently held in our loan
portfolio. The larger average outstanding loans expected to be included in the
proposed portfolio of additional loans are consistent with the larger balance
8
<PAGE>
loans the Bank has been originating and purchasing since completion of the
initial public offering in May 1998 of PBOC Holdings, Inc.
Although we have the authority to acquire an unlimited number of
mortgage assets from unaffiliated third parties, all of our mortgage assets
acquired through June 30, 1999 have been acquired from the Bank (although a
portion of our mortgage assets were acquired by the Bank from unaffiliated third
parties) and all of the mortgage loans which we intend to purchase in connection
with the Offering will be purchased from the Bank. We have no present plans or
expectations with respect to purchase of mortgage assets from unaffiliated third
parties. We may also acquire from time to time mortgage-backed securities and a
limited amount of non-mortgage related securities.
Our board of directors is composed of six members, two of whom are
independent directors. In addition, we currently have four officers. We have no
other employees and do not anticipate that we will require additional employees.
RESIDENTIAL MORTGAGE LOANS. The following table sets forth as of June
30, 1999 certain information with respect to each type of Residential Mortgage
Loan included in the Company's portfolio (dollars in thousands):
TYPE OF RESIDENTIAL MORTGAGE LOAN PRODUCT
<TABLE>
<CAPTION>
Average
Remaining Average
Principal Percentage of Average Term Net Note
Type Balance Portfolio Initial LTV (in months) Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7/23 step rate $ 1,146 1.9% 83.3% 279 7.41%
15 year fixed rate 3,875 6.5 62.0 114 7.78
30 year fixed rate 54,142 91.6 67.8 320 7.20
----------------------------------------------------------------------------------------------
$59,163 100.0% 67.6% 305 7.24%
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
</TABLE>
The Residential Mortgage Loans included in our 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. The interest rates of the fixed-rate Residential Mortgage Loans
included in our portfolio range from 6.0% per annum to 13.5% per annum. At June
30, 1999, the weighted average net interest rate of the Residential Mortgage
Loans included in our portfolio was approximately 7.24% per annum.
9
<PAGE>
COMMERCIAL MORTGAGE LOANS. The following table sets forth as of June
30, 1999 certain information with respect to each type of Commercial Mortgage
Loan included in the Company's portfolio (dollars in thousands):
TYPE OF COMMERCIAL MORTGAGE LOAN PRODUCT
<TABLE>
<CAPTION>
Average
Average Remaining Average
Principal Percentage of Initial Term Net Note
Type Balance Portfolio LTV (in months) Rate
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial fixed rate
balloon $4,077 42.4% 68.3% 90 9.19%
Commercial fixed rate 1,369 14.2 74.4 113 9.74
Multi-family fixed rate
balloon 1,879 19.6 47.5 93 8.72
Multi-family fixed rate 2,292 23.8 74.4 90 9.45
--------------------------------------------------------------------------------------
$9,617 100.0% 68.4% 94 9.24%
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
Of the Commercial Mortgage Loans included in our portfolio,
approximately 61.9% are not fully amortizing and will have significant principal
balances (or "balloon payments") due upon maturity.
All of the Commercial Mortgage Loans included in our portfolio at June
30, 1999 bear interest at fixed rates. The interest rates of the fixed-rate
Commercial Mortgage Loans range from 8.5% per annum to 11.0% per annum. The
weighted average net interest rate of the Commercial Mortgage Loans in our
portfolio at June 30, 1999 was approximately 9.24% per annum.
ASSET QUALITY
At June 30, 1999, there were six Residential Mortgage Loans 30 to 59
days past due as to principal and interest aggregating $1.4 million, or 2.3% of
the Residential Mortgage Loan portfolio. At December 31, 1998, there were three
Residential Mortgages 30 to 59 days past due as to principal and interest
aggregating $299,000, or 0.5% of the Residential Mortgage Loan portfolio. In
addition, there was one loan 120 days and over past due in the amount of $75,000
or 0.1% of the Residential Mortgage Loan portfolio. No Commercial Mortgage Loans
were past due as of June 30, 1999 and December 31, 1998.
ALLOWANCE FOR LOAN LOSSES
We maintain an allowance for loan losses to absorb potential loan
losses from the entire loan portfolio. At June 30, 1999, the allowance for loan
losses amounted to $253,000 or 0.37 % of total loans. We have not incurred any
loan losses since our inception. On an ongoing basis, we monitor the loan
portfolio and evaluate the adequacy of the allowance for loan losses. Based upon
our analysis, we believe that the allowance for loan losses as of June 30, 1999
is sufficient
10
<PAGE>
to absorb any unidentified losses that currently exist in the portfolio. We 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.
FINANCIAL CONDITION
At each of June 30, 1999 and December 31, 1998, we had total assets of
$72.4 million. As of June 30, 1999, an aggregate of $68.8 million or 95.0% of
our assets was comprised of mortgage loans ("Mortgage Loans").
During the six months ended June 30, 1999 and the year ended December
31, 1998 we purchased from the Bank additional residential Mortgage Loans with
an aggregate principal balance of $10.4 million and $23.1 million, respectively.
As of June 30, 1999, our Current Portfolio of Mortgage Loans (the "Current
Portfolio") was comprised of $59.2 million of Residential Mortgage Loans and
$9.6 million of Commercial Mortgage Loans, or 86.0% and 14.0% of our total
portfolio of Mortgage Loans, respectively. The weighted average yield or our
Current Portfolio as of such date was 7.52% At June 30, 1999, amounts due from
affiliates aggregated $620,000, accrued interest amounted to $373,000 and we
maintained an allowance for loan losses of $253,000.
At June 30, 1999, our total liabilities amounted to $31,000, as
compared to $42,000 at December 31, 1998. At June 30, 1999, stockholders' equity
amounted to $72.4 million, after taking into consideration earnings of $2.6
million and aggregate dividend payments on the Common Stock and the Series A
Preferred Shares of $2.5 million during the year. At December 31, 1998
stockholders' equity amounted to $72.4 million.
RESULTS OF OPERATIONS
We reported net earnings of $2.6 million for the six months ended June
30, 1999 compared to $2.7 million for the comparable period in 1998. The
decrease in earnings during the six month period was due to a decrease in
interest earned on Mortgage Loans, which offset decreased expenses.
Total revenues for the six months ended June 30, 1999 decreased from
$2.9 million to $2.8 million over the comparable prior period due to decreased
interest on Mortgage Loans and deposits.
Total expenses for the six months ended June 30, 1999 decreased to
$240,000 from $255,000 during the six months ended June 30, 1998, primarily due
to a decrease in professional fees. Advisory fee payments to the Bank were
$100,000 during each of the six month periods ended June 30, 1999 and 1998. The
Bank received $14,000 and $15,000, for servicing our Commercial Mortgage Loans
and $34,000 and $1,700, for servicing a portion of our Residential Mortgage
Loans during the six months ended June 30, 1999 and 1998. Temple Inland Mortgage
11
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Corporation, which services a portion of our Residential Mortgage Loans,
received $38,000 and $69,000, servicing fees during the six months ended
June 30, 1999 and 1998, respectively.
For the three months ended June 30, 1999 we reported net earnings of
$1.3 million compared to $1.3 million for three months ended June 30, 1998.
Total revenues were $1.4 million for the three months ended June 30, 1999
compared to total revenues of $ 1.5 million for the three months ended June
30,1998. This decrease was due to a decrease in interest on mortgage loans and
deposits. Total expenses amounted to $121,000 for the second quarter ended June
30, 1999 compared to $109,000 for the second quarter ended June 30, 1998. This
increase in expenses was mainly due to an increase in audit and legal expenses.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all of our financial commitments and to capitalize
on opportunities for our business expansion. In managing liquidity, we take into
account various legal limitations placed on a REIT.
Our 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 our 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 Internal Revenue Code of 1986, as amended (the "Code"), or a
combination of these methods. Our organizational documents do not contain any
limitation on the amount or percentage of debt, funded or otherwise, that we
might incur. Notwithstanding the foregoing, we may not, without the approval of
a majority of the Company's independent directors, incur debt in excess of 20%
of our total stockholders' equity. Any such debt incurred may include
intercompany advances made by the Bank to us.
We also may issue additional series of preferred stock. However, we 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. We
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 our independent
directors. Our Board of Directors, including a majority of our independent
directors, authorized the filing of a Registration Statement with the SEC for
the issuance of Series B Preferred Shares, which will be parity stock with
respect to the Series A shares. The Registration Statement was filed on
August 9, 1999.
12
<PAGE>
INTEREST RATE RISK. Our interest rate risk is primarily related to loan
prepayments and payoffs. The average maturity of loans is substantially less
than their average contractual terms because of prepayments and, in the case of
conventional mortgage loans, due-on-sale clauses, which generally give us the
right to declare a loan immediately due and payable in the event, among other
things, that the borrower sells the real property subject to the mortgage and
the loan is not repaid. The average life of Mortgage Loans tends to increase
when the current mortgage loan rates are substantially higher than rates on
existing Mortgage Loans and, conversely, decrease when rates on existing
mortgages are substantially lower than current mortgage loan rates (due to
refinancings of adjustable rate and fixed rate loans at lower rates). Since
December 31, 1998 there were no significant changes in the anticipated
maturities or repricing of our interest earning assets.
YEAR 2000
During 1997, we finalized its plan to address issues related to the
Year 2000 ("Y2K") problem. The Y2K issue is primarily a result of computer
software recognizing a two-digit date field rather than the full four digits,
which identify the appropriate year. Date-sensitive computer programs, hardware
or equipment controlled by microprocessor chips may not appropriately deal with
the year "00".
Our loan portfolio is currently serviced by the Bank and Temple Inland
Mortgage Corporation. The Bank utilizes Fiserv CBS, a third party vendor, to
process substantially all of its data processing functions. The Bank has
contacted its critical vendors, including Temple Inland, and has received
confirmation that they will be Y2K compliant. The Bank is working with Fiserv
CBS and other critical vendors to ensure that their operational and financial
systems will not be adversely effected by the Y2K problem.
The Bank has completed the validation or testing phase of the Y2K
compliance plan. The Bank developed an extensive test plan that contained test
requirements and criteria, manpower assignments and target dates. A dedicated
Y2K test local area network was established to communicate with the Fiserv CBS
test system. Detailed test scripts designed to test date-related functions were
processed on the system for the FFIEC's recommended critical test dates. The
results are reviewed to ensure the system is functioning properly. Dates up to
up through and including December 31, 2001 were successfully tested. Temple
Inland is also testing their systems currently and has indicated that they will
be Y2K compliant.
We have developed a contingency plan to address course of action in the
unlikely event that we or our vendors and/or business partners are not ready for
Y2K. The plan will thoroughly tested during the upcoming months to ensure an
orderly continuation of key operations in the event a problem occurs.
We have not incurred any significant expenses to date and does not
expect to incur any in conjunction with the Y2K problem.
13
<PAGE>
Our plans to complete Y2K compliance are based on management's and our
Board's best estimates. There can be no guarantee that these estimates will be
achieved, and the ending results could be significantly different due to
unforeseen circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Item 2. Management Discussion and Analysis of Financial Condition
and Results of Operations--Interest Rate Risk".
14
<PAGE>
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
15
<PAGE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibit Description
------- -----------
<S> <C> <C>
3(a)(i) Amended Articles of Incorporation of the Company.*
3(a)(ii) Form of Amended and Restated Articles of Incorporation of the Company.**
3(b) By-laws of the Company.**
4 Specimen of certificate representing Series A Preferred Shares.**
10(a) Residential Mortgage Loan Purchase and Warranties Agreement between the Company and
the Bank.*
10(a)(1) Amendment to Residential Mortgage Loan Purchase and
Warranties Agreement between the Company and the
Bank.*
10(b) Commercial Mortgage Loan Purchase and Warranties Agreement between the Company and
the Bank.*
10(c) Residential Mortgage Loan Servicing Agreement between the Bank and the Temple
Inland Mortgage Corporation.**
10(d) Assignment, Assumption and Recognition Agreement between the Company, the Bank and
Temple Inland Mortgage Corporation.*
10(e) Commercial Mortgage Loan Servicing Agreement between the Company and the Bank.*
10(f) Advisory Agreement between the Company and the Bank.***
27 Financial Data Schedule.
</TABLE>
- ------------
* Incorporated by reference to the Registration Statement on Form S-11 (File
No. 333-84823) as filed with the Securities and Exchange Commission on
August 9, 1999.
** Incorporated by reference to the Registration Statement on Form S-11 (File
No. 333-31501) of People's Preferred Capital Corporation, as filed with the
Securities and Exchange Commission on July 10, 1997.
16
<PAGE>
*** Incorporated by reference to Amendment No. 1 to the Registration Statement
on Form S-11 (File No. 333-31501) of People's Preferred Capital
Corporation, as filed with the Securities and Exchange Commission on
September 8, 1997.
(b) No reports on Form 8-K have been filed during the quarter ended June 30,
1999.
17
<PAGE>
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: August 12, 1999
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PEOPLE'S
PREFERRED CAPITAL CORPORATION
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,911
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 68,780
<ALLOWANCE> 253
<TOTAL-ASSETS> 72,437
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 31
<LONG-TERM> 0
14
0
<COMMON> 0
<OTHER-SE> 72,392
<TOTAL-LIABILITIES-AND-EQUITY> 72,437
<INTEREST-LOAN> 2,718
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 77
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 2,795
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 240
<INCOME-PRETAX> 2,555
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,555
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.52
<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>
