<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 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 April 30, 1997
0 SHARES - Common "B" at April 30, 1997
<PAGE>
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
Index
Part I - Financial Information: Index to Part I
Item 1. Financial Statements
Consolidated Condensed Balance Sheets --
March 31, 1997 and
September 30, 1996 (unaudited)
Consolidated Condensed Statements of Income
Three and Six Months Ended March 31, 1997
and 1996 (unaudited)
Consolidated Condensed Statements of Cash Flows
Six Months Ended March 31, 1997 and 1996
(unaudited)
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
<PAGE>
Part I - Financial Information
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
September 30,
1997
1996
(unaudited)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 20,146,241 $
35,226,746
Restricted Cash and Cash Equivalents
132,652,334
Investments:
Available-for-Sale Securities,
at market 75,962,119
38,554,498
Held-to-Maturity Securities,
at amortized cost (market value
$115,830,548 and $119,200,084) 121,174,845
124,748,490
Accrued Interest on Investments 1,618,319
1,516,390
-------------- ---
- ----------
Total Cash and Investments 218,901,524
332,698,458
-------------- ---
- ----------
Real Estate Contracts and Mortgage
Notes and Other Receivables 720,729,519
758,427,480
Real Estate for Sale and
Development - Including
Foreclosed Real Estate 82,253,196
84,333,288
------------- ---
- ----------
Total Receivables and
Real Estate Assets 802,982,715
842,760,768
Less Allowance for Losses (9,976,896)
(10,192,584)
------------- ---
- ----------
Net Receivables and
Real Estate Assets 793,005,819
832,568,184
------------- ---
- ----------
Deferred Acquisition Costs, Net 74,398,522
74,530,361
Land, Building and Equipment - net
of accumulated depreciation 9,072,655
8,516,598
Other Assets, net of allowance 37,449,520
34,345,227
-------------- --
- ----------
TOTAL ASSETS $1,132,828,040
$1,282,658,828
==============
==============
</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>
March 31,
September 30,
1997
1996
(unaudited)
<S> <C> <C>
LIABILITIES
Life Insurance and Annuity Reserves $ 842,287,055 $
837,366,108
Debenture Bonds 183,496,611
192,173,751
Other Debt Payable 11,868,596
38,601,146
Securities Sold, Not Owned
132,652,334
Accounts Payable and Accrued
Expenses 27,559,198
18,082,782
Deferred Income Taxes 15,001,400
15,894,831
Minority Interest in Consolidated
Subsidiaries 1,587,844
1,544,544
------------- --
- ------------
TOTAL LIABILITIES 1,081,800,704
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 2,155,267 Shares and
2,151,820 Shares (Liquidation
Preference $50,518,508 and
$49,495,906, respectively) 21,552,665
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 17,779,728
16,791,670
Retained Earnings 11,944,961
8,731,070
Net Unrealized Losses on
Investments (543,435)
(991,023)
------------ -
- ------------
TOTAL STOCKHOLDERS' EQUITY 51,027,336
46,343,332
------------ -
- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,132,828,040
$1,282,658,828
==============
===============
</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
Six Months Ended
March 31,
March 31
1997 1996
1997 1996
--------------------------
- ---------------------------
<S> <C> <C>
REVENUES:
Insurance Premiums Earned $ 750,000 $ 750,000 $
1,500,000 $ 1,500,000
Interest and Earned Discounts 22,774,077 22,755,006
46,879,593 44,674,881
Real Estate Sales 7,305,686 12,683,339
14,152,386 23,291,364
Fees, Commissions, Service
and Other Income 1,177,497 761,133
2,385,584 1,452,690
Realized Investment Gains (Losses) 43,996 21,290
(2,116,159) 24,090
Realized Gains on Sales of
Receivables 1,712,582 1,051,230
11,547,541 1,135,720
------------ ---------- -
- --------- -----------
TOTAL REVENUES 33,763,838 38,021,998
74,348,945 72,078,745
------------ ---------- -
- ---------- ----------
EXPENSES:
Insurance Policy and Annuity
Benefits 12,009,603 11,748,235
25,065,014 23,809,875
Interest Expense 3,983,599 4,301,929
9,818,921 8,080,764
Cost of Real Estate Sold 7,702,652 12,063,139
15,142,661 22,529,781
Provision for Losses on Real
Estate Assets 1,410,613 1,336,950
1,996,834 2,271,493
Salaries and Employee
Benefits 3,337,224 2,553,940
6,370,158 4,834,808
Commissions to Agents 2,065,315 2,930,412
4,224,085 5,361,611
Other Operating and
Underwriting Expenses 1,517,514 1,530,022
3,817,418 3,158,585
Decease (Increase) in Deferred
Acquisition Costs (5,582) (192,868)
232,373 (202,000)
---------- ----------
- --------- ---------
TOTAL EXPENSES 32,020,938 36,271,759
66,667,464 69,844,917
---------- ---------- -
- ---------- ----------
Income Before Income Taxes and
Minority Interest 1,742,900 1,750,239
7,681,481 2,233,828
Provision For Income Taxes (595,884) (589,460)
(2,618,051) (760,393)
----------- ----------
- ---------- ---------
Income Before Minority
Interest 1,147,016 1,160,779
5,063,430 1,473,435
Income of Consolidated
Subsidiaries Allocated to
Minority Stockholders (26,740) (26,887)
(62,300) (36,198)
---------- -----------
- --------- ----------
NET INCOME 1,120,276 1,133,892
5,001,130 1,437,237
Preferred Stock Dividends (1,013,595) (900,489)
(2,036,960) (1,823,895)
---------- ------------
- ---------- ---------
Income (Loss) Applicable to
Common Stockholders $ 106,681 $ 233,403
$2,964,170 $ (386,658)
=========== ===========
========== ==========
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>
Six Months Ended
March 31,
1997 1996
----------------------
- -
<S> <C> <C>
Net Cash Provided By (Used In)
Operating Activities $(108,186,295) $
22,956,405
------------ -------
- ----
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 67,805,747
58,058,181
Proceeds From Real Estate Sales 3,137,570
3,072,548
Proceeds From Investment Maturities 11,065,918
13,003,474
Proceeds from Sale of Available-
for-Sale Securities 1,266,029
31,684,176
Purchase of Available-for-Sale
Securities (46,041,430)
(2,139)
Purchase of Held-to-Maturity
Securities (99,625)
(3,311,988)
Proceeds From Sale of Real Estate
Contracts and Mortgage Notes
and Other Receivables 172,200,857
18,311,296
Acquisition of Real Estate Contracts and
Mortgage Notes and Other Receivables (185,348,456)
(150,597,581)
Additions to Real Estate Held (10,858,716)
(16,135,196)
Capital Expenditures (1,061,356)
(619,562)
----------- -------
- -----
Net Cash Provided By (Used In)
Investing Activities 144,718,872
(46,536,791)
----------- -------
- -----
Cash Flows From Financing Activities:
Net Change in Short Term Borrowings from
Brokers and Banks (25,484,750)
7,913,375
Receipts From Life and Annuity Products 36,290,797
59,493,607
Withdrawals on Life and Annuity Products (54,523,739)
(45,305,669)
Repayment to Banks and Others (1,995,409)
(1,912,362)
Issuance of Debenture Bonds 21,561,718
7,650,338
Issuance of Preferred Stock 1,099,990
1,105,664
Repayment of Debenture Bonds (26,696,985)
(16,145,440)
Preferred Stock Dividends (2,036,960)
(1,823,895)
Redemption of Capital Stock (77,465)
(97,533)
Receipt of Contingent Sale Price
for Subsidiary Sold to Related Party 249,721
---------- -------
- ------
Net Cash Provided By (Used In)
Financing Activities (51,613,082)
10,878,085
----------- --------
- -----
Net Decrease in Cash and
Cash Equivalents (15,080,505)
(12,702,301)
Cash and Cash Equivalents at Beginning
of Period 35,226,746
32,798,627
------------ --------
- -----
Cash and Cash Equivalents at End
of Period $ 20,146,241 $
20,096,326
=============
============
</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 March 31, 1997, and
the results of operations for the three and six months
ended March 31, 1997 and 1996 and the changes in cash
flows for the six months ended March 31, 1997 and 1996.
The results of operations for the six month period ended
March 31, 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 $29,000,000
at March 31, 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".
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 $8.2 million at March 31, 1997.
Financial Condition and Liquidity:
As of March 31, 1997, the Company had cash or cash
equivalents of $20.1 million and liquid investments (trading
or available-for-sale securities) of $76.0 million compared
to $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 March 31,
1997, total cash and investments, including restricted cash
and held-to-maturity securities, were $218.9 million as
compared to $332.7 million at September 30, 1996. During the
six month period ended March 31, 1997, the Company used
approximately $108.2 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 $144.7 million resulted primarily
from changes in restricted cash of $132.7 million, sale
proceeds and collections of receivables of $240.0 million,
investment maturities of $11.1 million, real estate sales
proceeds of $3.1 million and proceeds from investment
securities of $1.3 million being offset by new receivable
acquisitions of $185.3 million, purchase of investment
securities of $46.1 million, addition to real estate held of
$10.9 million and other capital expenditures of $1.1 million.
Funds used in financing activities of $51.6 million, which
included a $1.0 million net cash inflow from preferred stock
sales less redemptions, were used primarily to payoff short-
term borrowings of $25.5 million, finance a net cash outflow
of $18.2 million in life and annuity products, finance a net
cash outflow of $5.1 million in debenture bonds, repayments
to banks and others of $2.0 million and payment of preferred
stock dividends of $2.0 million.
The receivable portfolio totaled $720.7 million at March
31, 1997 compared to $703.2 million December 31, 1996 and
$758.4 million at September 30, 1996. During the six months
ended March 31, 1997, the decrease primarily resulted from
the acquisition of receivables totaling $185.3 million plus
an additional $11.0 million in loans to facilitate the sale
of real estate being totally offset by principal collections
on receivables of $67.8 million, reduction for the cost basis
of receivables sold of $160.7 million and reductions due to
foreclosed receivables of approximately $5.4 million.
Real estate held for sale and development decreased to
$82.2 million at March 31, 1997 from $84.2 million at
December 31, 1996 and $84.3 million at September 30, 1996.
For the six months ended March 31, 1997, real estate
additions of $16.8 million, including $5.9 million of
foreclosed receivables, which were offset by costs of real
estate sold of $15.1 million, depreciation of $2.2 million
and charge-offs to the allowance for losses of $1.5 million.
Life insurance and annuity policy reserves increased
$4.9 million during the six months ended March 31, 1997 to
approximately $842.3 million from $837.4 million at September
30, 1996. This increase resulted from credited earnings of
$23.2 million offset by a $18.2 million of cash outflow as
receipts from sales of new life and annuity products of $36.3
million were exceeded by withdrawals of $54.5 million from
existing policies. Net debenture bonds outstanding decreased
by $8.7 million to $183.5 million at March 31, 1997 from
$192.2 million at September 30, 1996. Net cash inflow from
issuance less maturities of debentures was approximately $5.1
million plus an additional $3.6 million decrease in credited
interest held. Additionally, the Company had cash flow, net
of redemptions, of approximately $1.0 million from the sale
of preferred stock and reinvestment of preferred stock
dividends during the six months ended March 31, 1997. During
the six month period ended March 31, 1997, the Company
decreased the portion of its other debt payable represented
by short term borrowings by $25.5 million to an approximate
outstanding amount of $10.0 million on March 31, 1997.
Total assets decreased by $149.9 million to $1,132.8
million at March 31, 1997 from $1,282.7 million at September
30, 1996. At March 31, 1997, the Company had net unrealized
losses on securities available-for-sale in the amount of
$543,000 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 six months ended March 31, 1997 of
$5,001,000 compared to $1,437,000 in the prior year's period.
Comparing the current year's six 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
and a reduction in commission expense were only partially
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,
benefits and other operating expenses and related provision
for income taxes.
For the six month period ended March 31, 1997, the
Company reported a positive spread on its interest sensitive
assets and liabilities of $13.5 million as compared to $14.3
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.
While there has been some 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. 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 six months ended March 31, 1997, the Company
realized net losses from the sale of investments of $2.1
million compared to net gains of $24,000 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. Additionally, in the
current year's period, the Company realized gains of $11.5
million from the sale of approximately $160.7 million of
receivable investments, while in the prior year, sales of
approximately $17.2 million of receivable investments
produced realized gains of $1.1 million. The Company
realized losses of $1.0 million on sales of $14.2 million of
real estate in the current year's period compared to net
gains of $762,000 on sales of $23.3 million in the prior
year. Significant in the current year compared to the prior
year had been the result of the Company's timeshare sales at
its resort in Hawaii. In the current year, the Company has
recorded timeshare sales of approximately $7.0 million with
losses of $1.6 million as compared to sales of $11.9 million
and losses of $.7 million in the prior year. The Company
expects future timeshare operations 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 six months ended March 31, 1997, the Company
recorded other fees and commission revenues of $2.4 million
as compared to $1.5 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 six months ended March 31, 1997, the Company made
provisions for losses on receivables and real estate assets
of approximately $2.0 million as compared to $2.3 million in
the prior year's period. The decreased provision in the
current year is the result of the decrease in the receivable
portfolio and the real estate asset portfolio. 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 March 31, 1997 with
the prior year's similar period, net income was $1.1 million
on revenues of $33.8 million as compared to net income of
$1.1 million on revenues of $38.0 million. The reduction in
revenues was primarily the result of a $5.4 million reduction
in real estate sales, with sales of $7.3 million in 1997 as
compared to $12.7 million in 1996, being partially offset by
increased gains on the sale of receivables of approximately
$661,000 and increased revenues from fees, commissions,
service and other income of approximately $416,000.
Net income for the comparative three months was almost
identical as improvements from (1) an increased spread
between interest sensitive income and interest sensitive
expense, (2) an increase in overall gains from the sale of
receivables and investments, and (3) an increase in fees,
commissions and service income were totally offset by (1)
increased losses on the sale of real estate, (2) an increase
in the provision for loss on real estate assets, (3) a net
increase in expenses, including salaries, commissions,
operating expenses and deferred acquisition expenses.
For the three months ended March 31, 1997, the net
interest spread was $7.5 million compared to $7.4 million in
the prior year's similar period. The increase of only
$100,000 was primarily the result of the timing of the
reinvestment of the proceeds from its November 1996
receivable securitization.
During the three months ended March 31, 1997, the
Company recorded gains on the sale of investments of $44,000
and $1.7 million on the sale of receivables. In the prior
year, the Company recorded gains on the sale of investments
of $21,000 and $761,000 on the sale of receivables.
Receivable sales in 1997 were approximately $51 million as
compared to $15 million in 1996.
During the three months ended March 31, 1997, the
Company generated approximately $1.2 million of fee revenues
as compared to $761,000 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 losses of $400,000 on sales of $7.3
million of real estate in the current year's three month
period as compared to gains of $600,000 on sales of $12.7
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
$800,000 in losses on sales of approximately $3.2 million in
timeshare sales, while the prior year included losses of
$600,000 on sales of $5.6 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 June 1996, Statement of Financial Accounting
Standards No. 125 (SFAS 125), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities" was issued. SFAS 125 provides accounting and
reporting standards based on a consistent application of a
financial-components approach that focuses on control. Under
this approach, after a transfer of financial assets, an
entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered and
derecognizes liabilities when extinguished. This statement
provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are
secured borrowings. SFAS 125 is effective for transfers and
servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. The Company
applied this new statement effective January 1, 1997, and it
did not have a material effect on the Company's financial
position, results of operations or cash flows.
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.
<PAGE>
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
a). On February 24, 1997 the annual meeting to the
stockholders was convened.
b). The meeting included the election of the
following
directors:
C. Paul Sandifur, Jr.
Bruce J. Blohowiak
Harold W. Erfurth
Irv Marcus
Charles Stolz
Reuel Swanson
John Trimble
Neal Fosseen, Honoray Director
c). There were no other matters voted upon at the
meeting
d). N/A
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.
<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.
METROPOLITAN MORTGAGE & SECURITIES CO.,
INC.
(Registrant)
/s/STEVEN CROOKS
Date May 20, 1997
------------------------------------
- ---------
Steven Crooks
Vice President
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 20,146
<SECURITIES> 198,756
<RECEIVABLES> 720,730
<ALLOWANCES> 9,977
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 18,838
<DEPRECIATION> 9,765
<TOTAL-ASSETS> 1,132,828
<CURRENT-LIABILITIES> 0
<BONDS> 195,365
<COMMON> 293
0
21,553
<OTHER-SE> 29,181
<TOTAL-LIABILITY-AND-EQUITY> 1,132,828
<SALES> 0
<TOTAL-REVENUES> 74,349
<CGS> 0
<TOTAL-COSTS> 54,851
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,997
<INTEREST-EXPENSE> 9,819
<INCOME-PRETAX> 7,681
<INCOME-TAX> 2,618
<INCOME-CONTINUING> 5,063
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,001
<EPS-PRIMARY> 22,801.00
<EPS-DILUTED> 21,801.00
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