<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDED 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 DECEMBER 31, 1994
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE AT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO
_____________________
Commission file number 033-36775
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-0609840
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
West 929 Sprague Ave., Spokane, WA 99204
(Address of principal executive offices) (Zip Code)
(509)838-3111
(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
required to be fined 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 ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: (Not Applicable)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes / / 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.
130 SHARES - Common "A" at January 31, 1995
0 SHARES - Common "B" at January 31, 1995
<PAGE>
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
INDEX
Part I - Financial Information: Page No.
Consolidated Condensed Balance Sheets --
December 31, 1994 (Unaudited) and
September 30, 1994 3
Consolidated Condensed Statements of Income
Three Months Ended December 31, 1994
and 1993 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows
Three Months Ended December 31, 1994 and 1993
(Unaudited) 6
Notes to Consolidated Condensed Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
Part II - Other Information
<PAGE>
Part I - Financial Information
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
(Unaudited)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 5,278,438 $ 29,275,716
Investments:
Trading Securities, at market 1,920,938
Available-for-Sale Securities,
at market 78,638,715 89,070,866
Held-to-Maturity Securities,
at amortized cost (market value
$181,789,004 and $184,740,248) 199,736,482 200,179,999
Accrued Interest on Investments 4,786,912 3,311,822
-------------- ------------
Total Cash and Investments 290,361,485 321,838,403
-------------- ------------
Real Estate Contracts and Mortgage
Notes 585,374,044 567,256,298
Real Estate for Sale and
Development - Including
Foreclosed Real Estate 78,252,100 76,765,465
-------------- ------------
Total Real Estate Assets 663,626,144 644,021,763
Less Allowance for Losses (8,506,657) (9,108,383)
-------------- ------------
Net Real Estate Assets 655,119,487 634,913,380
-------------- ------------
Deferred Acquisition Costs 74,324,728 74,107,517
Land, Building and Equipment - net
of accumulated depreciation 7,861,545 9,586,595
Other Assets, net of allowance 24,023,356 22,844,008
-------------- --------------
TOTAL ASSETS $1,051,690,601 $1,063,289,903
============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
(Unaudited)
<S> <C> <C>
LIABILITIES
Life Insurance and Annuity Reserves $ 759,083,678 $ 744,644,625
Debenture Bonds 202,429,877 199,376,783
Other Debt Payable 32,131,572 62,123,139
Accounts Payable and Accrued
Expenses 13,747,044 12,756,072
Deferred Income Taxes Payable 9,959,496 10,304,980
Minority Interest in Consolidated
Subsidiaries 1,452,939 1,458,980
-------------- --------------
TOTAL LIABILITIES 1,018,804,606 1,030,664,579
-------------- --------------
STOCKHOLDERS' EQUITY
Preferred Stock, Series A, B, C, D,
E Cumulative with Variable Rate,
$10 Par Value, Authorized 8,325,000
Issued 2,159,548 Shares and
2,143,691 Shares (Liquidation
Preference $44,917,350 and
$43,331,750, respectively) 21,595,475 21,436,910
Class A Common Stock - Voting,
$2,250 Par Value, Authorized
222 Shares, Issued 130 Shares,
respectively 293,417 292,121
Class B Common Stock - Non Voting,
$2,250 Par Value, Authorized 222 Shares,
Issued 0 and 2 Shares, respectively 4,500
Additional Paid-In Capital 12,292,010 10,981,492
Retained Earnings 2,243,652 2,745,678
Net Unrealized Gains (Losses) on
Investments (3,538,559) (2,835,377)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 32,885,995 32,625,324
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,051,690,601 $1,063,289,903
============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
December 31,
1994 1993
<S> <C> <C>
REVENUES:
Insurance Premiums Earned $ 750,000 $ 625,000
Interest and Earned Discounts 21,733,852 21,919,926
Real Estate Sales 9,338,789 7,447,290
Fees, Commissions, Service
and Other Income 975,630 1,017,913
Realized Investment Gains (Losses) (165,598) 270,653
Realized Gains on Sales of
Receivables 54,500
---------- ----------
TOTAL REVENUES 32,632,673 31,335,282
---------- ----------
EXPENSES:
Insurance Policy and Annuity
Benefits 10,878,406 10,622,644
Interest Expense 4,571,765 5,056,243
Cost of Real Estate Sold 9,445,463 7,268,782
Provision for Losses on Real
Estate Assets 700,396 1,615,252
Salaries and Employee
Benefits 2,339,306 2,112,101
Commissions to Agents 2,695,546 1,688,795
Other Operating and
Underwriting Expenses 1,408,912 2,542,310
Less Increase in Deferred
Acquisition Costs (189,933) (163,508)
---------- ----------
TOTAL EXPENSES 31,849,861 30,742,619
---------- ----------
Income Before Income Taxes
and Minority Interest 782,812 592,663
Provision For Income Taxes (265,468) (210,954)
---------- ----------
Income Before Minority
Interest 517,344 381,709
(Income) Loss of Consolidated
Subsidiaries Allocated to
Minority Stockholders 6,041 (61,546)
---------- ----------
NET INCOME $ 523,385 $ 320,163
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1994 1993
<S> <C> <C>
Net Cash Provided By
Operating Activities $ 9,217,627 $12,051,729
----------- -----------
Cash Flows From Investing Activities:
Principal Payments on Real Estate
Contracts and Mortgage Notes 26,842,758 26,627,277
Proceeds From Real Estate Sales 609,834 1,088,913
Proceeds From Investment Maturities 1,316,195 1,527,366
Proceeds from Sale of Available
for Sale Securities 25,299,803 28,535,888
Purchase of Available for Sale
Securities (17,380,831) (66,042,752)
Purchase of Held to Maturity
Investments (4,126,480)
Proceeds From Sale Real Estate Contracts 54,500
Acquisition of Mortgage Notes (38,870,490) (23,745,028)
Additions to Real Estate Held (8,016,640) (5,254,964)
Capital Expenditures (80,772) (77,329)
----------- ------------
Net Cash Used In Investing Activities (10,280,143) (41,412,609)
------------ ------------
Cash Flows From Financing Activities:
Borrowings From Banks and Others 30,677,500
Receipts From Life and Annuity Products 30,498,734 17,016,485
Withdrawals on Life and Annuity Products (26,095,706) (26,226,654)
Repayment to Banks and Others (60,941,310) (1,094,017)
Issuance of Debenture Bonds 10,897,221 9,130,111
Issuance of Preferred Stock 1,529,959 349,088
Repayment of Debenture Bonds (8,411,669) (7,480,822)
Cash Dividends (1,025,411) (767,066)
Redemption of Capital Stock (64,080) (7,602)
----------- -----------
Net Cash Used In Financing Activities (22,934,762) (9,080,477)
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents (23,997,278) (38,441,357)
Cash and Cash Equivalents at Beginning
of Period 29,275,716 72,903,375
----------- -----------
Cash and Cash Equivalents at End
of Period $ 5,278,438 $34,462,018
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to
present fairly the financial position as of December 31, 1994, and the
results of operations for the three months ended December 31, 1994 and
1993 and changes in cash flows for the three months ended December 31,
1994 and 1993. The results of operations for the three month period
ended December 31, 1994 and 1993 are not necessarily indicative of the
results to be expected for the full year.
2. The principal amount of receivables as to which payments were in
arrears more than three months was $18,500,000 at December 31, 1994
and $19,000,000 at September 30, 1994.
3. Metropolitan Mortgage & Securities Co., Inc had no outstanding legal
proceedings other than normal proceedings associated with receivable
foreclosures.
4. Certain amounts in the prior year's consolidated condensed financial
statements have been reclassified to conform with the current year's
presentation. These reclassifications had no effect on net income or
retained earnings as previously reported.
5. On December 15, 1994 the Company reached an agreement with Summit
Securities, Inc. (Summit), whereby it will sell Metropolitan
Investment Securities, Inc. (MIS) to Summit, effective January 31,
1995. Additionally, the Company is negotiating the sale of Old
Standard Life Insurance Company (OSL) to Summit. Both MIS and OSL are
wholly-owned subsidiaries of the Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pending Transactions:
On December 15, 1994, Metropolitan Mortgage & Securities Co., Inc.
(Metro or the Company) and Summit Securities Inc. (Summit) entered into an
understanding that on January 31, 1995, Metropolitan Investment Securities
(MIS) would be sold to Summit. The purchase price is currently estimated
at $287,000, the approximate net book value of MIS. MIS is a limited-
purpose broker dealer and the exclusive broker/dealer for the securities
sold by Metro and Summit. It is not anticipated that this sale will
materially affect the business of MIS. Also on December 15, 1994, Metro
and Summit entered into an understanding that on January 31, 1995, Metro
will discontinue its property development division, which consists of a
group of employees experienced in real estate development. On the same
date, Summit will commence the operation of a property development
subsidiary employing those same individuals who had previously been
employed by Metro. Summit Property Development Corporation is negotiating
an agreement with Metro to provide property development services to Metro.
Metro is also currently negotiating the sale of Old Standard Life
Insurance Company (OSL) to Summit. OSL is engaged in the business of
acquiring receivables using funds derived from the sale of annuities, and
funds derived from receivable cash flows. It is currently anticipated that
this sale will occur during the first quarter of calendar 1995. The
purchase price is currently estimated at $2.6 million, the approximate net
book value of OSL, with future contingency payments based on the earnings
of OSL. The final purchase price will be established based upon an
actuarial valuation of OSL. The source of funds will be cash or cash
equivalents transferred to Metro from Summit in exchange for all the common
stock of OSL.
Financial Condition and Liquidity:
As of December 31, 1994, the Company had cash or cash equivalents of
$5.3 million and liquid investments (trading or available-for-sale
securities) of $80.6 million compared to $29.3 million in cash and cash
equivalents and $89.1 million in liquid investments at September 30, 1994.
Management believes that cash, cash equivalents and liquidity provided by
other investments are adequate to meet planned asset additions, debt
retirements or other business operational requirements during the next
twelve months. During the three month period ended December 31, 1994 the
decrease in cash, cash equivalents and investments was offset by a
corresponding increase in net real estate assets.
The real estate receivable portfolio totaled $585.4 million at
December 31, 1994 compared to $567.3 million at September 30, 1994. During
the three months ended December 31, 1994, the increase resulted from the
acquisition of real estate receivables of $38.9 million plus an additional
$8.7 million of loans to facilitate the sale of real estate being partially
offset by principal collections on receivables of $26.8 million along with
reductions due to foreclosed receivables of approximately $2.3 million.
Life insurance and annuity policy reserves increased $14.5 million during
the three month period ended December 31, 1994 to approximately $759.1 from
$744.6 million at September 30, 1994. This increase resulted from credited
earnings of $10.1 million along with $4.4 of new cash flow as receipts from
sales of new life and annuity products of $30.5 million exceeded
withdrawals of $26.1 million from existing policies. Net debenture bonds
outstanding increased by $3.0 million during the three month period ended
December 31, 1994. Net cash flow from the issuance of debentures less
maturities was $2.5 million with the remaining increase the result of
earnings credited. Additionally, the Company had net cash flow of
approximately $1.5 million from the sale of preferred stock. During the
three month period ended December 31, 1994 , the Company reduced short term
borrowings by $30.0 million to an approximate outstanding amount of $30.7
at December 31, 1994.
Total assets decreased $11.6 million to $1,051.7 million at December
31, 1994 from $1,063.3 million at September 30, 1994. There were no
significant changes in asset classifications during the three months ended
December 31, 1994, with the exception of the shifting of cash, cash
equivalents and liquid investments into new real estate receivable
investments and the use of cash and liquid investments to pay down short
term borrowings.
At December 31, 1994, the Company had net unrealized losses on
securities available-for-sale in the amount of $3.5 million as compared to
net unrealized losses of $2.8 million at September 30, 1994. Net
unrealized losses on securities available-for-sale is presented as a
separate component of stockholders' equity.
Results of Operations:
The Company recorded net income before preferred dividends for the
three months ended December 31, 1994 of $523,385 compared to $320,163 for
the prior year's period. Comparing the current year's three month period
with the prior year's, the earnings increase is primarily attributable to
an improvement in the spread between interest sensitive income and interest
sensitive expense by approximately $168,000 and a reduction of earnings of
consolidated earnings allocated to minority stockholders of approximately
$68,000. The statements of income for the periods showed the following
variances, which in the aggregate resulted in a small total variance in net
income: (1) a reduction of $42,000 in fees, commissions, service and other
income plus an additional $776,000 reduction in net gains from the sale of
real estate, investments and receivables which was offset by a similar
reduction in the provision for loss on real estate assets of $915,000; (2)
an increase of $1,007,000 in commissions to agents, primarily from the sale
of insurance products, plus an increase of $227,000 in salary and benefits
being offset by a decrease of $1,134,000 in other operating expenses; and
(3) an increase of $1,029,000 in capitalized deferred acquisition costs,
primarily associated with the increased sale of insurance products during
the period, which was offset by an increase of $1,002,000 in the
amortization of previously capitalized acquisition costs.
For the three months ended December 31, 1994, the Company reported a
positive spread on its interest sensitive assets and liabilities of $7.0
million as compared to $6.8 million in the prior year's period. The total
interest spread has remained relatively flat in the current rising interest
rate environment as the Company has successfully increased asset yields to
offset increased liability costs.
The Company realized net losses of $107,000 on sales of $9.3 million
of real estate in the current period compared to net gains of $179,000 on
sales of $7.4 million in the prior year. It has been the policy of
management to actively sell its real estate in order to return the
investment to an earning asset. In addition to returning these assets to
earning status, the Company has been able to reduce other operating
expenses associated with its real estate, such as insurance, taxes,
maintenance and amenities. Additionally the Company realized net losses
from the sale of investments and receivables of $166,000 compared to net
gains of $325,000 in the prior year, again management making the decision
to take a loss on certain investments in order to take advantage of
reinvesting in higher yielding investment opportunities.
In conjunction with the rising interest rate environment, even though
it has attempted to be competitive in the insurance market, the Company has
been faced with higher than anticipated withdrawals of life and annuity
products. As a result of these excessive withdrawals along with a
narrowing of the increase in interest spreads, the Company has been forced
to increase the amortization of insurance related acquisition costs. In
the current year's period the amortization expense was $2.6 million
compared to $1.6 million in the prior year's period.
New Accounting Rules:
In May 1993, Statement of Financial Accounting Standards No. 114 (SFAS
No. 114) "Accounting by Creditors for Impairment of a Loan" was issued.
Additionally, in October 1994, Statement of Financial Accounting Standards
No. 118 (SFAS No. 118) "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures" (an amendment to SFAS No. 114) was
issued. SFAS No. 114 (as amended by SFAS No. 118) requires that certain
impaired loans be measured based on the present value of expected cash
flows discounted at the loans' effective interest rate or the fair value of
the collateral. The Company adopted this new standard on October 1, 1995.
The adoption of SFAS No. 114 and SFAS No. 118 had no material effect on the
consolidated financial statements.
<PAGE>
PART II - OTHER INFORMATION
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.
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
(Registrant)
/s/ C. PAUL SANDIFUR, JR.
Date 2/21/95
--------------- -------------------------------------------------
C. Paul Sandifur, Jr., President
/s/ ERNEST JURDANA
Date 2/21/95
--------------- -------------------------------------------------
Ernest Jurdana, Chief Financial
Officer
/s/ STEVEN CROOKS
Date 2/21/95
--------------- -------------------------------------------------
Steven Crooks, Controller
(Principal Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> DEC-31-1994
<CASH> 5,278
<SECURITIES> 285,083
<RECEIVABLES> 585,374
<ALLOWANCES> 8,507
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 15,803
<DEPRECIATION> 7,941
<TOTAL-ASSETS> 1,051,691
<CURRENT-LIABILITIES> 0
<BONDS> 234,561
<COMMON> 293
0
21,595
<OTHER-SE> 10,998
<TOTAL-LIABILITY-AND-EQUITY> 1,051,691
<SALES> 0
<TOTAL-REVENUES> 32,633
<CGS> 0
<TOTAL-COSTS> 26,578
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 700
<INTEREST-EXPENSE> 4,572
<INCOME-PRETAX> 783
<INCOME-TAX> 265
<INCOME-CONTINUING> 517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 523
<EPS-PRIMARY> (3,862.00)
<EPS-DILUTED> (3,862.00)
</TABLE>
