FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1997
/ / 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 2-63708
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 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 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 / / N/A
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 July 31, 1997
0 SHARES - Common "B" at July 31, 1997
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
Index
Part I - Financial Information:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
June 30, 1997 and
September 30, 1996 (unaudited)
Consolidated Condensed Statements of Income
Three and Nine Months Ended June 30, 1997
and 1996 (unaudited)
Consolidated Condensed Statements of Cash Flows
Nine Months Ended June 30, 1997 and 1996
(unaudited)
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Item 3: Quantative and Qualitative Disclosures about Market Risk
Not currently applicable. Pursuant to General Instructions to
Item 305, disclosures are applicable to the registrant in filings with
the commission that include financial statements for fiscal years
ended after June 15, 1998.
Part I - Financial Information
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
(unaudited)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 42,414,304 $ 35,226,746
Restricted Cash and Cash Equivalents 132,652,334
Investments:
Trading Securities, at Market 8,902,636
Available-for-Sale Securities,
at market 47,186,351 38,554,498
Held-to-Maturity Securities,
at amortized cost (market value
$114,929,073 and $119,200,084) 118,446,213 124,748,490
Accrued Interest on Investments 2,342,360 1,516,390
-------------- -------------
Total Cash and Investments 219,291,864 332,698,458
-------------- -------------
Real Estate Contracts and Mortgage
Notes and Other Receivables 792,159,770 758,427,480
Real Estate for Sale and
Development - Including
Foreclosed Real Estate 81,404,957 84,333,288
------------- -------------
Total Receivables and
Real Estate Assets 873,564,727 842,760,768
Less Allowance for Losses (9,500,783) (10,192,584)
------------- -------------
Net Receivables and
Real Estate Assets 864,063,944 832,568,184
------------- -------------
Deferred Acquisition Costs, Net 73,056,725 74,530,361
Land, Building and Equipment - net
of accumulated depreciation 9,065,040 8,516,598
Other Assets, net of allowance 34,422,581 34,345,227
-------------- ------------
TOTAL ASSETS $1,199,900,154 $1,282,658,828
============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
(unaudited)
<S> <C> <C>
LIABILITIES
Life Insurance and Annuity Reserves $ 833,348,929 $ 837,366,108
Debenture Bonds 180,180,951 192,173,751
Other Debt Payable 93,445,293 38,601,146
Securities Sold, Not Owned 132,652,334
Accounts Payable and Accrued
Expenses 25,594,096 18,082,782
Deferred Income Taxes 14,759,346 15,894,831
Minority Interest in Consolidated
Subsidiaries 1,585,674 1,544,544
------------- --------------
TOTAL LIABILITIES 1,148,914,289 1,236,315,496
------------- --------------
STOCKHOLDERS' EQUITY
Preferred Stock, Series A, B, C, D,
E Cumulative with Variable Rate,
$10 Par Value, Authorized 8,325,000
Issued 2,123,556 Shares and
2,151,820 Shares (Liquidation
Preference $50,705,465 and
$49,495,906, respectively) 21,235,559 21,518,198
Class A Common Stock - Voting,
$2,250 Par Value, Authorized
222 Shares, Issued 130 Shares 293,417 293,417
Additional Paid-In Capital 18,287,402 16,791,670
Retained Earnings 11,704,459 8,731,070
Net Unrealized Losses on
Investments (534,972) (991,023)
------------ -------------
TOTAL STOCKHOLDERS' EQUITY 50,985,865 46,343,332
------------ -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,199,900,154 $1,282,658,828
============== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1997 1996 1997 1996
-------------------------- ---------------------------
<S> <C> <C>
REVENUES:
Insurance Premiums Earned $ 750,000 $ 750,000 $ 2,250,000 $ 2,250,000
Interest and Earned Discounts 23,401,038 22,572,267 70,280,631 67,247,148
Real Estate Sales 9,820,370 13,326,831 23,972,756 36,618,195
Fees, Commissions, Service
and Other Income 1,227,344 1,069,167 3,612,928 2,521,857
Realized Investment Gains (Losses) 1,416,282 (3,039) (699,877) 21,051
Realized Gains on Sales of
Receivables 38,988 7,602,836 11,586,529 8,738,556
------------ ---------- ---------- -----------
TOTAL REVENUES 36,654,022 45,318,062 111,002,967 117,396,807
------------ ---------- ----------- -----------
EXPENSES:
Insurance Policy and Annuity
Benefits 12,772,479 12,127,104 37,837,493 35,936,979
Interest Expense 4,309,694 4,315,805 14,128,615 12,396,569
Cost of Real Estate Sold 9,572,797 12,851,751 24,715,458 35,381,532
Provision for Losses on Real
Estate Assets 1,400,781 1,353,838 3,397,615 3,625,331
Salaries and Employee
Benefits 3,544,021 2,609,658 9,914,179 7,444,466
Commissions to Agents 1,614,104 2,692,753 5,838,189 8,054,364
Other Operating and
Underwriting Expenses 939,060 1,793,455 4,756,478 4,952,040
Decease (Increase) in Deferred
Acquisition Costs 1,223,639 65,442 1,456,012 (136,558)
---------- ---------- --------- ---------
TOTAL EXPENSES 35,376,575 37,809,806 102,044,039 107,654,723
---------- ---------- ------------ -----------
Income Before Income Taxes and
Minority Interest 1,277,447 7,508,256 8,958,928 9,742,084
Provision For Income Taxes (443,662) (2,563,902) (3,061,713) (3,324,295)
----------- ---------- ----------- --------
Income Before Minority
Interest 833,785 4,944,354 5,897,215 6,417,789
Income of Consolidated
Subsidiaries Allocated to
Minority Stockholders (13,600) (38,464) (75,900) (74,662)
---------- ----------- --------- ---------
NET INCOME 820,185 4,905,890 5,821,315 6,343,127
Preferred Stock Dividends (1,060,687) (1,006,688) (3,097,647) (2,830,583)
----------- ----------- ---------- ---------
Income (Loss) Applicable to
Common Stockholders $ (240,502) $ 3,899,202 $2,723,668 $ 3,512,544
=========== =========== ========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1997 1996
-----------------------
<S> <C> <C>
Net Cash Provided By (Used In)
Operating Activities $(95,354,775) $ 38,669,083
------------ -----------
Cash Flows From Investing Activities:
Change in Restricted Cash and Cash
Equivalents 132,652,334
Principal Payments on Real Estate
Contracts and Mortgage Notes
and Other Receivables 88,032,412 87,452,164
Proceeds From Real Estate Sales 6,045,297 9,600,449
Proceeds From Investment Maturities 14,371,647 23,497,107
Proceeds from Sale of Available-
for-Sale Securities 22,556,364 31,684,176
Purchase of Available-for-Sale
Securities (46,409,515) (4,289,580)
Purchase of Held-to-Maturity
Securities (99,625) (12,181,445)
Proceeds From Sale of Real Estate
Contracts and Mortgage Notes
and Other Receivables 184,761,380 135,535,851
Acquisition of Real Estate Contracts and
Mortgage Notes and Other Receivables (285,109,122) (297,574,808)
Additions to Real Estate Held (16,563,297) (23,267,320)
Capital Expenditures (1,335,335) (1,012,383)
----------- ------------
Net Cash Provided By (Used In)
Investing Activities 98,902,540 (50,555,789)
----------- ------------
Cash Flows From Financing Activities:
Net Change in Short Term Borrowings from
Brokers and Banks 55,948,711 (4,750,375)
Receipts From Life and Annuity Products 48,298,041 84,971,944
Withdrawals on Life and Annuity Products (87,604,090) (75,290,856)
Repayment to Banks and Others (2,326,345) (2,002,042)
Issuance of Debenture Bonds 24,988,240 7,650,338
Issuance of Preferred Stock 1,667,187 1,596,054
Repayment of Debenture Bonds (34,029,931) (19,276,305)
Preferred Stock Dividends (3,097,647) (2,830,622)
Redemption of Capital Stock (454,094) (311,935)
Receipt of Contingent Sale Price
for Subsidiary Sold to Related Party 249,721
---------- -------------
Net Cash Provided By (Used In)
Financing Activities 3,639,793 (10,243,799)
----------- -------------
Net Increase (Decrease) in Cash and
Cash Equivalents 7,187,558 (22,130,505)
Cash and Cash Equivalents at Beginning
of Period 35,226,746 32,798,627
------------ ------------
Cash and Cash Equivalents at End
of Period $ 42,414,304 $ 10,668,122
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying
unaudited consolidated condensed financial statements
contain all adjustments necessary to present fairly the
Company's financial position as of June 30, 1997, and
the results of operations for the three and nine months
ended June 30, 1997 and 1996 and the changes in cash
flows for the nine months ended June 30, 1997 and 1996.
The results of operations for the nine month periods
ended June 30, 1997 and 1996 are not necessarily
indicative of the results to be expected for the full
year. As provided for in regulations promulgated by the
Securities and Exchange Commission, all financial
statements included herein are unaudited; however, the
condensed consolidated balance sheet at September 30,
1996 has been derived from the audited consolidated
balance sheet. These financial statements should be
read in conjunction with the consolidated financial
statements including notes thereto included in the
Company's fiscal 1996 Form 10-K.
2. The principal amount of receivables as to which payments
were in arrears more than three months was $30,800,000
at June 30, 1997 and $26,500,000 at September 30, 1996.
3. The Company had no outstanding legal proceedings other
than normal proceedings associated with receivable
foreclosures, and/or the general business activities of
the Company.
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. In November 1996, Metropolitan Mortgage & Securities
Co., Inc. (Metropolitan or the Company) and its
subsidiary Western United Life Assurance Company (WULA)
participated as two of the four co-sellers in a
receivable securitization sponsored by Metropolitan
Asset Funding, Inc., an affiliated company.
Approximately $126.7 million of receivables, with $115.5
million provided by Metropolitan and WULA, were sold in
a securitization transaction with proceeds, after costs,
of approximately $121.1 million, of which $110.4 million
was allocated to Metropolitan and WULA. With an
amortized carrying value of approximately $101.5 million
in the receivables sold in the securitization,
Metropolitan and WULA recorded approximately $8.9
million in pre-tax gains from their portion of the sale.
Metropolitan Asset Funding, Inc. sold approximately
$113.4 million in varying classes of mortgage pass-
through certificates. In addition to the certificates
sold to the public, approximately $13.3 million in
subordinate class certificates and residual class
certificates were returned to the various co-sellers of
the receivables included in the securitization.
Metropolitan and WULA received approximately $101.6
million, after costs, from the securitization and
received approximately $12.0 million (estimated fair
value) in subordinate class and residual class
certificates. As an economic hedge for this receivable
securitization sale, the Company had previously sold
short approximately $128 million of U.S. Treasury
securities of varying maturities. Concurrent with the
completion of the securitization transaction, the
Company purchased and delivered the borrowed securities.
The Company lost approximately $2.5 million on this
short sale. Thereby from an economic standpoint, the
Company realized an approximate $6.4 million in pre-tax
gains on the securitization sale.
6. In December 1995, the Company reassessed the
appropriateness of the classifications of its securities
investments. Based on this reassessment, the Company
transferred $72,572,322 of securities from the Held-to-
Maturity classification to the Available-for-Sale
classification. This transfer was based on guidance
included in the special report issued by the Financial
Accounting Standards Board, "A Guide to Implementation
of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities".
Additionally, during the quarter ended June 30, 1997,
the Company transferred $8,057,636 of residual class
certificates from prior receivable securitizations from
the Available-for-Sale classification to the Trading
classification. SFAS No. 115 establishes that trading
securities are to be measured at fair market value with
unrealized gains and losses included in earnings. During
the quarter ended June 30, 1997, $845,000 of unrealized
gains on trading securities are included in net
earnings.
7. In 1995, the Company sold its wholly owned subsidiary,
Old Standard Life Insurance Company (OSL) to Summit
Securities, Inc. (Summit), an affiliated company through
common control. In connection with the purchase, Summit
agreed to pay a contingent purchase price consideration
to Metropolitan based upon the future earnings of OSL.
During the quarter ended March 31, 1997, the Company
received approximately $250,000 of contingent purchase
price from Summit. Due to the affiliated nature of
these companies, payment was recorded an increase in
retained earnings.
8. The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported
amounts of revenues and expenses during the reporting
periods. Actual results could differ from those
estimates.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussions may contain some forward-looking
statements. A forward-looking statement may contain words
such as "will continue to be," "will be," "continue to,"
"expect to," "anticipates that," "to be," or "can impact."
Management cautions that forward-looking statements are
subject to risks and uncertainties that could cause the
Company's actual results to differ materially from those
projected in forward-looking statements.
Significant Transactions:
In November 1996, Metropolitan Mortgage & Securities
Co., Inc. (Metropolitan or the Company) and its subsidiary
Western United Life Assurance Company (WULA) participated as
two of the four co-sellers in a receivable securitization
sponsored by Metropolitan Asset Funding, Inc., an affiliated
company. Approximately $126.7 million of receivables, with
$115.5 million provided by Metropolitan and WULA, were sold
in a securitization transaction with proceeds, after costs,
of approximately $121.1 million, which $110.4 million was
allocated to Metropolitan and WULA. With an amortized
carrying value of approximately $101.5 million in the
receivables sold in the securitization, Metropolitan and WULA
recorded approximately $8.9 million in pre-tax gains from
their portion of the sale. Metropolitan Asset Funding, Inc.
sold approximately $113.4 million in varying classes of
mortgage pass-through certificates. In addition to the
certificates sold to the public, approximately $13.3 million
in support class certificates and residual class certificates
were returned to the various co-sellers of the receivables
included in the securitization. Metropolitan and WULA
received approximately $101.6 million, after costs, from the
securitization and received approximately $12.0 million
(estimated fair value) in support class and residual class
certificates. As an economic hedge for this receivable
securitization sale, the Company had previously sold short
approximately $128 million of U.S. Treasury securities of
varying maturities. Concurrent with the completion of the
securitization transaction, the Company purchased and
delivered the borrowed securities. The Company lost
approximately $2.5 million on this short sale. Thereby from
an economic standpoint, the Company realized an approximate
$6.4 million in pre-tax gains on the securitization sale.
On January 31, 1995, the Company concluded an agreement
with Summit Securities, Inc. (Summit), whereby it sold
Metropolitan Investment Securities, Inc. (MIS) to Summit, at
a sale price of $288,950, which approximated the current book
value of MIS at date of sale. On May 31, 1995, the Company
concluded an agreement with Summit, whereby it sold Old
Standard Life Insurance Company (OSL) to Summit effective May
31, 1995, at a sale price of $2,722,000, which approximated
the current book value of OSL at date of sale, with future
contingency payments based on earnings of OSL. The sales
price plus estimated future contingency payments approximates
the actuarial appraised valuation of OSL. During the three
months ended March 31, 1997, the Company received
approximately $250,000 of contingent consideration from
Summit.
On February 21, 1997, WULA entered into a reinsurance
agreement with OSL, whereby WULA agreed to reinsure 75% of
certain single premium deferred annuity contracts. The
amount of deferred annuity contracts coinsured with OSL
totaled approximately $21.3 million at June 30, 1997.
Financial Condition and Liquidity:
As of June 30, 1997, the Company had cash or cash
equivalents of $42.4 million and liquid investments (trading
or available-for-sale securities) of $56.1 million compared
to $20.1 million in cash or cash equivalents and $76.0
million in liquid investments at March 31, 1997, $63.2
million in cash and cash equivalents and $56.7 million in
liquid investments at December 31, 1996 and $35.2 million in
cash and cash equivalents and $38.6 million in liquid
investments at September 30, 1996. 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. At June 30, 1997, total cash
and investments, including restricted cash and held-to-
maturity securities, were $219.3 million as compared to
$332.7 million at September 30, 1996. During the nine month
period ended June 30, 1997, the Company used approximately
$95.4 million in its operating activities including $132.7
million to close the previously described short sale of U.S.
Treasury securities. Funds provided by investing activities
of $98.9 million resulted primarily from changes in
restricted cash of $132.7 million, sale proceeds and
collections of receivables of $272.8 million, investment
maturities of $14.4 million, real estate sales proceeds of
$6.0 million and proceeds from investment securities of $22.6
million being offset by new receivable acquisitions of $285.1
million, purchase of investment securities of $46.5 million,
addition to real estate held of $16.6 million and other
capital expenditures of $1.3 million. Funds provided by
financing activities of $3.6 million were primarily the
result of an increase of $55.9 million in short-term
borrowings, $1.2 million net cash inflow from preferred stock
sales less redemptions and a $250,000 contingent price
adjustment on the sale of a subsidiary, all of which were
used to finance a net cash outflow of $39.3 million in life
and annuity products, finance a net cash outflow of $9.0
million in debenture bonds, repayments to banks and others of
$2.3 million and payment of preferred stock dividends of $3.1
million.
The receivable portfolio totaled $792.2 million at June
30, 1997 compared to $720.7 million at March 31, 1997, $703.2
at million December 31, 1996 and $758.4 million at September
30, 1996. During the nine months ended June 30, 1997, the
increase primarily resulted from the acquisition of
receivables totaling $285.1 million plus an additional $17.9
million in loans to facilitate the sale of real estate being
partially offset by principal collections on receivables of
$88.0 million, reduction for the cost basis of receivables
sold of $173.2 million and reductions due to foreclosed
receivables of approximately $9.8 million.
Real estate held for sale and development decreased to
$81.4 million at June 30, 1997 from $82.2 million at March
31, 1997, $84.2 million at December 31, 1996 and $84.3
million at September 30, 1996. For the nine months ended
June 30, 1997, real estate additions of $27.1 million,
including $10.6 million of foreclosed receivables, were
offset by costs of real estate sold of $24.7 million,
depreciation of $2.6 million and charge-offs to the allowance
for losses of $2.7 million.
Life insurance and annuity policy reserves decreased
$4.1 million during the nine months ended June 30, 1997 to
approximately $833.3 million from $837.4 million at September
30, 1996. This decrease resulted from credited earnings of
$35.3 million offset by a $39.3 million of net cash outflow
as receipts from sales of new life and annuity products of
$48.3 million were exceeded by withdrawals of $87.6 million
from existing policies. Additionally, current year sales of
annuity products have been reduced through reinsurance of
over $21 million of annuity products to OSL through June 30,
1997. Net debenture bonds outstanding decreased by $12.0
million to $180.2 million at June 30, 1997 from $192.2
million at September 30, 1996. Net cash outflow from
maturities less issuance of debentures was approximately $9.0
million plus an additional $3.0 million decrease in credited
interest held. The Company had cash flow, net of
redemptions, of approximately $1.2 million from the sale of
preferred stock and reinvestment of preferred stock dividends
during the nine months ended June 30, 1997. During the nine
month period ended June 30, 1997, the Company increased the
portion of its other debt payable represented by short term
borrowings by $55.9 million to an approximate outstanding
amount of $91.4 million on June 30, 1997.
At June 30, 1997, the Company had negotiated lines-of-
credit with Contitrade Services, LLC and Smith Barney
Mortgage Capital Group. The Conti line was for $25 million
secured by timeshare receivables. The Company had drawn $17
million with interest at one-month libor + 250 bpts. as of
June 30, 1997. The Smith Barney line was for $100 million
secured by first position residential contracts and
mortgages. The Company had drawn $25 million with interest
at one-month libor + 100 bpts as of June 30, 1997. Both
lines were granted in conjunction with planned
securitizations of timeshare receivables and residential
mortgages.
Total assets decreased by $82.8 million to $1,199.9
million at June 30, 1997 from $1,282.7 million at September
30, 1996. At June 30, 1997, the Company had net unrealized
losses on securities available-for-sale in the amount of
$535,000 as compared to unrealized losses of $1.0 million at
September 30, 1996. 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 nine months ended June 30, 1997 of
$5,821,000 compared to $6,343,000 in the prior year's period.
Comparing the current year's nine month period with the
prior year's similar period, increases in gains from sales of
receivables, increases in other fees and commission revenues,
a reduction in the provision for losses on real estate
assets, a reduction in commission expense and decrease in
other operating expense were more than offset by a reduction
in the net interest spread, increased losses from the sale of
real estate, increased losses from the sale of investment
securities, increases in salaries and benefits and a decrease
in deferred acquisition costs (costs capitalized net of
amortization).
For the nine month period ended June 30, 1997, the
Company reported a positive spread on its interest sensitive
assets and liabilities of $20.6 million as compared to $21.2
million in the prior year's period. The reduction was
primarily the result of a reduction in the receivable
portfolio due to the securitization sale in November 1996
which took several months to reinvest along with the
contraction in portfolio investment earnings rates in the
current year's period as new investment yields are slightly
lower than previous investments. The Company has also
experienced reduced renewal rates on some of its life and
annuity policies and has continued to reinsure some annuity
products. Currently, the Company continues to control life
and annuity policy surrenders by maintaining current market
credited rates. Normally, the Company's investment earnings
rates are not as sensitive to market conditions as is its
life and annuity policy rates and thus a sustained rise in
interest rates could have a negative impact on its net
interest spread as its liabilities reprice faster than its
assets.
During the nine months ended June 30, 1997, the Company
realized net losses from the sale of investments of $700,000
compared to net gains of $21,000 in the prior year's period.
The current period loss was primarily the result of a short
sale of U.S. Treasury securities. The short sale was used by
the Company as an economic hedge of its receivable
securitization in November 1996. The $2.5 million loss on
the short sale was partially offset by gains on sales of
investment securities and gains on trading securities.
Additionally, in the current year's period, the Company
realized gains of $11.6 million from the sale of
approximately $173.2 million of receivable investments, while
in the prior year, sales of approximately $135.5 million of
receivable investments produced realized gains of $8.7
million. The Company realized losses of $743,000 on sales of
$24.0 million of real estate in the current year's period
compared to net gains of $1.2 million on sales of $36.6
million in the prior year. Significant in the current year
compared to the prior year is the level of the Company's
timeshare sales at its resort in Hawaii. In the current
year, the Company has recorded timeshare sales of
approximately $10.4 million with losses of $1.8 million as
compared to sales of $18.7 million and losses of $.8 million
in the prior year. The Company has experienced an
improvement in timeshare sales during the last two months and
expects future timeshare operations to continue to improve as
an off-site sales office has been closed which should reduce
operating expenses and the Company's selling agent has
replaced the project and sales managers. The Company
anticipates that these changes will improve the results from
timeshare operations in the future. 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.
In the nine months ended June 30, 1997, the Company
recorded other fees and commission revenues of $3.6 million
as compared to $2.5 million in the prior year. The increase
in the current year is primarily the result of net servicing
revenues related to the receivable securitizations.
In the nine months ended June 30, 1997, the Company made
provisions for losses on receivables and real estate assets
of approximately $3.4 million as compared to $3.6 million in
the prior year's period. The decreased provision in the
current year is primarily the result of the decrease in the
Company's portfolio of real estate held for sale and
development. The Company has experienced a slight increase
in receivable delinquency rates; however, a stable to
improving real estate market has offset the effects of the
delinquency rate increases.
In comparing the three months ended June 30, 1997 with
the prior year's similar period, net income was $820,000 on
revenues of $36.7 million as compared to net income of $4.9
million on revenues of $45.3 million. The reduction in
revenues was primarily the result of a $3.5 million reduction
in real estate sales, with sales of $9.8 million in 1997 as
compared to $13.3 million in 1996, and a decrease of $7.6
million in gains on the sale of receivables being partially
offset by an increase of $1.4 million in realized investment
gains, an $800,000 increase in interest income and a $160,000
increase in revenues from fees, commissions, service and
other income. Prior year net income included pre-tax gains
of approximately $7.1 million, after-tax $4.7 million, from a
receivable securitization in May 1996.
Net income for the comparative three months showed a
substantial reduction as improvements from (1) an slight
increase in the spread between interest sensitive income and
interest sensitive expense, (2) an increase in realized gains
on investments, and (3) a small increase in fees, commissions
and service income were more than offset by (1) a small
increase in losses on the sale of real estate, (2) a
substantial reduction in gains from the sale of receivables,
(3) a slight increase in the provision for loss on real
estate assets, (3) a small net increase in expenses,
including salaries, commissions, operating expenses and
deferred acquisition expenses.
For the three months ended June 30, 1997, the net
interest spread was $7.1 million compared to $6.9 million in
the prior year's similar period. The increase of only
$200,000 was primarily the result of the timing of the
reinvestment of the proceeds from its November 1996
receivable securitization.
During the three months ended June 30, 1997, the Company
recorded gains on the sale of investments of $1.4 million.
In the prior year, the Company recorded realized losses on
the sale of investments of $3,000.
During the three months ended June 30, 1997, the Company
realized gains on the sale of receivables of $39,000 compared
to $7.6 million in the prior year's similar period.
Significant in the prior year was the Company's first
receivable securitization in May 1996 at which approximately
$105.9 million in receivables were sold at gains of $7.1
million.
During the three months ended June 30, 1997, the Company
generated approximately $1.2 million of fee revenues as
compared to $1.1 million in the prior year. The increase is
primarily service fee income associated with the two
securitizations which the Company participated in during May
1996 and November 1996.
The Company realized gains of $248,000 on sales of $9.8
million of real estate in the current year's three month
period as compared to gains of $475,000 on sales of $13.3
million of real estate in the prior year's period. The
Company continues to actively sell its real estate in order
to return the investment to an earning asset and reduce
operating expenses associated with the holding of real
estate. Included in the current year were approximately
$168,000 in losses on sales of approximately $3.4 million in
timeshare sales, while the prior year included losses of
$85,000 on sales of $6.0 million.
In conjunction with the Company's evaluation of its real
estate assets, the Company provided for loss on these assets
of $1.4 million in the current year's three month period as
compared to $1.3 million in the prior year.
New Accounting Rules:
In February 1997, Statement of Financial Accounting
Standards No.128 (SFAS 128), "Earnings per Share" was issued.
SFAS 128 establishes standards for computing and presenting
earnings per share (EPS) and simplifies the existing
standards. This standard replaces the presentation of
primary EPS with a presentation of basic EPS. It also
requires the dual presentation of basic and diluted EPS on
the face of the income statement for all entities with
complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim
periods and requires restatement of all prior-period EPS data
presented. The Company does not believe that the application
of this standard will have a material effect on the
presentation of its earnings per share disclosures.
In June 1997, SFAS No.130, "Comprehensive Income" was
issued. SFAS No.130 becomes effective in 1998 and requires
reclassification of earlier financial statements for
comparative purposes. SFAS No.130 requires that amounts of
certain items, including foreign currency translation
adjustments and gains and losses on certain securities, be
included in comprehensive income in the financial statements.
SFAS No.130 does not require a specific format for the
financial statement in which comprehensive income is
reported, but does require that an amount representing total
comprehensive income be reported in that statement.
Management has not yet determined the effect, if any, of SFAS
No.130 on the consolidated financial statements.
Also in June 1997, SFAS No.131, "Disclosures about
Segments for an Enterprise and Related Information" (SFAS
No.131) was issued. This statement will change the way
public companies report information about segments of their
business in their annual financial statements and requires
them to report selected segment information in their
quarterly reports issued to stockholders. It also requires
entity-wide disclosures about the products and services an
entity provides, the material countries in which it holds
assets and reports revenues, and its major customers. SFAS
No.130 is effective for fiscal years beginning after December
31, 1997. Management has not yet determined the effect, if
any, of SFAS No.131 on the consolidated financial statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings or actions pending or
threatened against Metropolitan Mortgage & Securities Co., Inc. or to
which its property is subject.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of Security Holders
during the reporting period.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a). Exhibits
3(a). Restated Articles of Incorporation, as amended, dated
November 30, 1987. (Exhibit 3(a) to Metropolitan's
Annual Report on Form 10-K for fiscal 1987).
3(b). Amendment to Articles of Incorporation dated November
5, 1991. (Exhibit 3(c) to Registration No. 33-40220.)
3(c). Amendment to Articles of Incorporation dated September
20, 1992. (Exhibit 3(c) to Metropolitan's Annual
Report on Form 10-K for fiscal 1992.)
3(d). Bylaws as amended to October 31, 1988. (Exhibit 3(b)
to Metropolitan's Annual Report on Form 10-K for
fiscal 1988.)
4(a). Indenture, dated as of July 6, 1979, between
Metropolitan and Seattle-First National Bank, Trustee
(Exhibit 3 to Metropolitan's Annual Report on Form
10-K for fiscal 1979).
4(b). First Supplemental Indenture, dated as of October 3,
1980, between Metropolitan and Seattle-First
NationalBank, Trustee (Exhibit 4 to Metropolitan's
Annual Report on Form 10-K for fiscal 1980).
4(c). Second Supplemental Indenture, dated as of November
12, 1984, between Metropolitan and Seattle-First
National Bank, Trustee (Exhibit 4(d) to Registration
No. 2-95146).
4(d). Amended Statement of Rights, Designations and
Preferences of Variable Rate Preferred Stock, Series C
(Exhibit 4(g) to Registration No. 33-2699).
4(e). Statement of Rights, Designations and Preferences of
Variable Rate Preferred Stock, Series D (Exhibit 4(a)
to Registration No. 33-25702).
4(f). Statement of Rights, Designations and Preferences of
Variable Rate Preferred Stock, Series E-1, (Exhibit
4(a) to Registration No. 33-19238).
4(g). Amended Statement of Rights, Designations and
Preferences of Variable Rate Preferred Stock, Series
E-2 (Exhibit 4(a) to Registration No. 33-25702).
4(h). Statement of Rights, Designations and Preferences of
Variable Rate Preferred Stock, Series E-3 (Exhibit
4(a) to Registration No. 33-32586).
4(i). Statement of Rights, Designations and Preference of
Variable Rate Cumulative Preferred Stock, Series E-4
(Exhibit 4(h) to Registration No. 33-40221).
4(j). Form of Statement of Rights, Designations and
Preferences of Variable Rate Preferred Stock, Series
E-5. (Exhibit 4(i) to Registration No. 33-57396.)
4(k). Form of Statement of Rights, Designations and
Preferences of variable rate cumulative Preferred
Stock, Series E-6.
11. Statement Indicating Computation of Per-Share
Earnings. (SEE "CONSOLIDATED FINANCIAL STATEMENTS".)
*27. Financial Data Schedule
b). There have been no reports on Form 8-K filed during the
quarter which this report is filed.
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/STEVEN CROOKS
Date August 19, 1997
---------------------------------------------
Steven Crooks
Vice President
Principal Financial Officer
<PAGE><
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<CASH> 42,414
<SECURITIES> 176,578
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0
21,236
<OTHER-SE> 29,457
<TOTAL-LIABILITY-AND-EQUITY> 1,199,900
<SALES> 0
<TOTAL-REVENUES> 111,003
<CGS> 0
<TOTAL-COSTS> 84,517
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<INCOME-PRETAX> 8,959
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