FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________ to ____________
Commission file number ____________
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.)
929 WEST SPRAGUE AVENUE, SPOKANE, WASHINGTON 99201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (509)838-3111
Former name, former address and former fiscal year, if changed since last
report: N/A.
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: N/A.
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.
Common "A": 130 shares at January 31, 1998.
Common "B": 0 shares at January 31, 1998.
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
As of December 31, 1997 and September 30, 1997 (unaudited)
Condensed Consolidated Statements of Income
Three Months Ended December 31, 1997 and 1996 (unaudited)
Condensed Consolidated Statements of Cash Flows
Three Months Ended December 31, 1997 and 1996 (unaudited)
Notes to Condensed Consolidated Financial Statements
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
______________ ______________
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 33,350,026 $ 58,924,958
Investments
Trading Securities, at market 42,735,241 34,477,091
Available-for-Sale Securities, at
market 33,396,028 36,621,351
Held-to-Maturity Securities, at
amortized cost (market value
$110,919,913 and $112,711,688) 110,898,282 113,730,535
Accrued Interest on Investments _____2,204,814 _____1,516,739
TOTAL CASH AND INVESTMENTS ___222,584,391 __ 245,270,674
Real Estate Contracts and Mortgage
Notes and Other Receivables 739,145,287 677,398,455
Real Estate for Sale and Development,
Including Foreclosed Real Estate 83,314,570 81,802,266
______________ ______________
Total Receivables and Real Estate
Assets 822,459,857 759,200,721
Less Allowance for Losses (12,505,834) (12,327,098)
______________ ______________
NET RECEIVABLES AND REAL ESTATE
ASSETS 809,954,023 746,873,623
______________ ______________
Deferred Acquisition Costs, Net 72,279,394 72,503,095
Land, Building and Equipment - net
of accumulated depreciation 21,194,199 9,408,578
Other Assets, net of allowance 33,323,966 38,333,490
______________ ______________
TOTAL ASSETS $1,159,335,973 $1,112,389,460
============== ==============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
______________ ______________
<S> <C> <C>
LIABILITIES
Life Insurance and Annuity Reserves $ 820,895,573 $ 825,368,988
Debenture Bonds 185,905,095 185,213,688
Other Debt Payable 58,359,507 4,917,779
Accounts Payable and Accrued Expenses 15,213,628 19,114,354
Deferred Income Taxes 21,917,235 22,029,778
Minority Interest in Consolidated
Subsidiaries 1,643,079 1,632,139
______________ ______________
TOTAL LIABILITIES 1,103,934,117 1,058,276,726
______________ ______________
STOCKHOLDERS' EQUITY
Preferred Stock, Series A, B, C, D,
E Cumulative with Variable Rate,
$10 Par Value, Authorized 8,325,000,
issued 2,085,904 Shares and
2,095,414 Shares (Liquidation
Preference $51,028,857 and
$50,729,084, respectively) 20,859,042 20,954,141
Class A Common Stock-Voting, $2,250
par value, authorized 222 shares,
issued 130 shares 293,417 293,417
Additional Paid-In Capital 18,993,174 18,596,231
Retained Earnings 15,786,247 14,536,114
Net Unrealized Gains (Losses) on
Investments, Net of Income Taxes (530,024) (267,169)
______________ ______________
TOTAL STOCKHOLDERS' EQUITY 55,401,856 54,112,734
______________ ______________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,159,335,973 $1,112,389,460
============== ==============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
____________ ____________
<S> <C> <C>
REVENUES
Insurance Premiums Earned $ 700,000 $ 750,000
Interest and Earned Discounts 22,223,453 24,105,516
Real Estate Sales 9,023,915 6,846,700
Fees, Commissions, Service and Other
Income 1,780,820 1,208,087
Investment Gains (Losses), Net 4,153,476 (2,160,155)
Realized Gains on Sales of Receivables 98,390 9,834,959
____________ ____________
TOTAL REVENUES 37,980,054 40,585,107
____________ ____________
EXPENSES
Insurance Policy and Annuity Benefits 12,265,107 13,055,411
Interest Expense 4,064,642 5,835,322
Cost of Real Estate Sold 8,457,734 7,440,009
Provision for Losses on Real Estate
Assets 1,766,034 586,221
Salaries and Employee Benefits 4,083,797 3,032,934
Commissions to Agents 1,958,130 2,158,770
Other Operating and Underwriting
Expenses 1,548,582 2,299,904
Decrease in Deferred Acquisition Costs 409,102 237,955
____________ ____________
TOTAL EXPENSES 34,553,128 34,646,526
____________ ____________
Income Before Income Taxes and
Minority Interest 3,426,926 5,938,581
Provision for Income Taxes (1,158,582) (2,022,167)
____________ ____________
Income Before Minority Interest 2,268,344 3,916,414
Income of Consolidated Subsidiaries
Allocated to Minority Stockholders (29,940) (35,560)
____________ ____________
Net Income 2,238,404 3,880,854
Preferred Stock Dividends (988,271) (1,023,365)
____________ ____________
INCOME APPLICABLE TO COMMON STOCKHOLDERS $ 1,250,133 $ 2,857,489
============ ============
Basic and Diluted Income per Share
Applicable to Common Stockholders $ 9,616 $ 21,981
============ ============
Weighted Average Number of shares of Common
Stock Outstanding 130 130
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1997 1996
______________ ______________
<S> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 5,421,022 $ (116,924,803)
______________ ______________
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 33,963,548 29,383,414
Proceeds From Real Estate Sales 5,833,371 709,061
Proceeds From Investment Maturities 4,213,283 6,596,423
Proceeds from Sale of Available-for-
Sale Securities 1,770,168
Purchase of Available-for-Sale
Securities (23,684,536)
Proceeds From Sale of Real Estate
Contracts and Mortgage Notes and
Other Receivables 11,407,020 119,209,316
Acquisition of Real Estate Contracts
and Mortgage Notes and Other
Receivables (109,894,173) (79,616,347)
Additions to Real Estate Held (4,070,583) (6,351,906)
Capital Expenditures (12,302,770) (198,228)
______________ ______________
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (69,080,136) 178,699,531
______________ ______________
CASH FLOWS FROM FINANCING ACTIVITIES
Net Change Short Term Borrowings From
Brokers and Banks 53,161,607 (30,328,500)
Receipts From Life and Annuity
Products 14,801,881 20,337,089
Withdrawals on Life and Annuity
Products (31,283,358) (25,369,936)
Ceding of Life and Annuity Products to
Reinsurers, Net 678,868
Repayment to Banks and Others (201,627) (55,545)
Issuance of Debenture Bonds 13,685,931 4,140,969
Issuance of Preferred Stock 541,239 549,743
Repayment of Debenture Bonds (12,072,693) (2,096,235)
Preferred Stock Dividends (988,271) (1,023,366)
Redemption of Capital Stock (239,395) (300)
______________ ______________
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 38,084,182 (33,846,080)
______________ ______________
Net Decrease in Cash and Cash Equivalents (25,574,932) 27,928,648
Cash and Cash Equivalents at Beginning
of Period 58,924,958 35,226,746
______________ ______________
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 33,350,026 $ 63,155,394
============== ==============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
METROPOLITAN MORTGAGE & SECURITIES CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the Company's financial position as of December 31, 1997,
and the results of operations for the three months ended December 31,
1997 and 1996 and the cash flows for the three months ended December 31,
1997 and 1996. The results of operations for the three month periods
ended December 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, 1997 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 1997
Form 10-K.
2. The principal amount of receivables as to which payments were in arrears
more than three months was $36,350,000 at December 31, 1997 and
$36,000,000 at September 30, 1997.
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 condensed consolidated 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, 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. The Company has retained residual interests in its
prior securitizations. At December 31, 1997, the Company held
approximately $21 Million in residuals at their estimated fair market
value. The Company currently values its residuals at an approximate 12%
return after losses with an approximate 15% prepayment rate.
6. 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 fact 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.
Accordingly, the Company applied this new standard during the quarter
ended December 31, 1997 and all prior-period EPS data has been restated.
The application of this standard did not have a material effect on the
presentation of the Company's EPS disclosures.
7. On November 14, 1997, the Company acquired an approximately 200,000
square foot office building located at 601 West First Avenue, Spokane,
Washington, approximately three blocks from the current headquarters.
Purchase price was approximately $11.7 Million with remodel costs
estimated at an additional $5 Million. Approximately 50% of the
building is currently leased by other tenants. The Company anticipates
moving its headquarters to this building in late Spring, 1998.
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
These discussions may contain 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. 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.
In September 1997, Metropolitan and WULA again participated as two of
the four co-sellers in a receivable securitization sponsored by Metropolitan
Asset Funding, Inc. Approximately $152.1 million of receivables, with $143.8
million provided by Metropolitan and WULA, were sold with proceeds, after
costs, of approximately $151.2 million, which $143.0 million was allocated to
Metropolitan and WULA. With an amortized carrying value of approximately
$135.8 million in the receivables sold in the securitization, Metropolitan and
WULA recorded approximately $7.2 million in pre-tax gains from their portion
of the sale. Additionally, in September 1997, the Company securitized and
sold approximately $29.7 million of timeshare receivables recording
approximately $1.5 million in pre-tax gains.
WULA entered into a reinsurance agreement with Old Standard Life
Insurance Company (OSL)(a company affiliated through common control), whereby
WULA reinsured 75% of the risk on six different annuity products through OSL.
This agreement became effective January 23, 1997 and continued through
September 30, 1997, during which time approximately $28 million in premiums
was reinsured through OSL. Effective October 1, 1997, the agreement was
suspended and is expected to be reinstated in the first quarter of calendar
1998.
On January 31, 1995, the Company concluded an agreement with Summit
Securities, Inc. (Summit) (a company affiliated through common control),
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 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. As of December 31, 1997, the Company has received
approximately $250,000 in contingent consideration.
Financial Condition and Liquidity:
As of December 31, 1997, the Company had cash or cash equivalents of
$33.4 million and liquid investments (trading or available-for-sale
securities) of $76.1 million compared to $58.9 million in cash and cash
equivalents and $71.1 million in liquid investments at September 30, 1997.
Management believes that cash and cash equivalents and other liquidity
provided by investments and available lines of credit, along with the
Company's ability to securitize real estate collateralized receivables, are
adequate to meet planned asset additions, debt retirements or other business
operational requirements during the next twelve months. Total cash and
investments at December 31, 1997, including held-to-maturity securities, were
$222.6 million as compared to $245.3 million at September 30, 1997. During
the three month period ended December 31, 1997, operating activities provided
funds of approximately $5.4 million. Funds used in investing activities of
$69.1 million were primarily the result of $109.9 million of new receivable
acquisitions, plus additions to real estate held of $4.1 million and new
capital expenditures of $12.3 million, which included the purchase of a new
home office headquarters building, exceeding the sale proceeds and collections
of receivables of $45.4 million, proceeds from the sale of real estate of $5.8
million and sales and maturities of investments of $6.0 million. Funds
provided by financing activities of $38.1 million were primarily the result of
increases in short-term borrowings of $53.2 million, and a $1.6 million net
cash inflow from debentures sales less maturities, exceeding the net cash
outflow of $15.8 million in life and annuity products, and payment of
preferred stock dividends of $1.0 million.
The receivable portfolio totaled $739.1 million at December 31, 1997
compared to $677.4 million at September 30, 1997. During the three months
ended December 31, 1997, the increase primarily resulted from the acquisition
of receivables totaling $109.9 million plus an additional $3.2 million in
loans to facilitate the sale of real estate being partially offset by
principal collections on receivables of $34.0 million, reduction for the cost
basis of receivables sold of $11.3 million and reductions due to foreclosed
receivables of approximately $7.2 million.
Real estate held for sale and development increased to $83.3 million at
December 31, 1997 from $81.8 million at September 30, 1997. For the three
months ended December 31, 1997, real estate additions of $11.3 million,
including $7.2 million of foreclosed receivables, were offset by costs of real
estate sold of $8.5 million, depreciation of $.3 million and charge-offs to
the allowance for losses of $1.0 million.
Life insurance and annuity policy reserves decreased $4.5 million during
the three months ended December 31, 1997 to approximately $820.9 million from
$825.4 million at September 30, 1997. This decrease was the result of
withdrawals in the amount of $31.3 million exceeding credited earnings of
$11.3 million, receipts from sales of new life and annuity products of $14.8
million and $.7 million in net reinsurance ceded. Net debenture bonds
outstanding increased by $.7 million to $185.9 million at December 31, 1997
from $185.2 million at September 30, 1997. Net cash inflow from issuance less
maturities of debentures was approximately $1.6 million less an additional $.9
million decrease in credited interest held. Additionally, the Company had
cash flow, net of redemptions, of approximately $.3 million from the
reinvestment of preferred stock dividends during the three months ended
December 31, 1997. During the three month period ended December 31, 1997, the
Company increased the portion of its other debt payable represented by short-
term borrowings by $53.2 million to an approximate outstanding amount of $56.1
million on December 31, 1997, principally to fund its acquisition of real
estate contracts and mortgage notes receivable.
Total assets increased by $46.9 million to $1,159.3 million at December
31, 1997 from $1,112.4 million at September 30, 1997. During the three-month
period, the Company primarily used existing cash and cash flow from short-term
borrowings to increase its receivable investment portfolio and purchase a new
home office headquarters.
At December 31, 1997, the Company had net unrealized losses on securities
available-for-sale in the amount of $530,000 as compared to unrealized losses
of $267,000 at September 30, 1997. 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, 1997 of $2,238,000 compared to $3,881,000 in the
prior year's period. Comparing the current year's three month period with the
prior year's similar period, a decrease in gains on the sale of receivables,
an increase in the provision for losses on real estate assets, and increased
salaries, commissions and benefits were only partially offset by an increase
in the net interest spread, increased gains from the sale of real estate,
increased gains on investments, an increase in other fees and commission
revenues and a reduction in other operating expenses along with a reduction in
related provision for income taxes.
For the three month period ended December 31, 1997, the Company reported
a positive spread on its interest sensitive assets and liabilities of $6.6
million as compared to $6.0 million in the prior year's period. The increase
was primarily the result of an increase in the receivable portfolio funded by
increases in short-term borrowings. It has been the strategy of management to
finance receivable portfolio increases with short-term borrowings in
anticipation of its next receivable securitization sale. Currently, the
Company is planning its next securitization for April 1998. While there has
been some contraction in the portfolio investments earning's rate in the
current year's period, the Company has also experienced reduced renewal rates
on some of its life and annuity policies and has used short-term borrowings
with a lower interest cost resulting in the improved net interest spread.
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 three months ended December 31, 1997, the Company realized
net gains on investments of $4.2 million, including $3.0 million in mark-to-
marks gains on trading securities, compared to net losses of $2.2 million in
the prior year's period. The current period gain includes both sales gains
and mark-to-market gains as lower interest rates have improved the valuation
of the trading securities, which primarily consists of the Company's retained
interests in residual certificates associated with securitizations. The prior
year's 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 prior
year's period, the Company realized gains of $9.8 million from the sale of
approximately $109.4 million of receivable investments, while in the current
year, sales of approximately $11.3 million of receivable investments produced
realized gains of $98,000. The Company realized gains of $566,000 on sales of
$9.0 million of real estate in the current year's period compared to losses of
$593,000 on sales of $6.8 million in the prior year. The increase in 1997
was primarily the result of a $1.2 million increase in the sale of development
property and a $1.0 million increase in sales of repossessed properties. It
has been the policy of management to actively market 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 three months ended December 31, 1997, the Company recorded other
fees and commission revenues of $1.8 million as compared to $1.2 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 three months ended December 31, 1997, the Company made provisions
for losses on receivables and real estate assets of approximately $1.8 million
as compared to $586,000 in the prior year's period. The increased provision
is the result of the increase in the receivable portfolio and the real estate
asset portfolio. The Company has experienced increased receivable delinquency
rates when comparing the current year's period with the prior year's period;
however, a stable to improving real estate market has offset the effects of
the delinquency rate increases.
.
New Accounting Rules:
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No.130, "Comprehensive Income" (SFAS No.130). SFAS No.130 becomes
effective in 1998 and requires reclassifications 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 effects, if any, of
SFAS No.130 on the consolidated financial statements.
Also, in June 1997, the FASB issued SFAS No.131, "Disclosures about
Segments for an Enterprise and Related Information" (SFAS No.131). 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 shareholders. 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. The Statement is
effective for fiscal years beginning after December 15, 1997. Management has
not yet determined the effect, if any, of SFAS No.131 on the consolidated
financial statements.
ITEM 3. QUANTITATIVE 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 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 AND USE OF PROCEEDS
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
National Bank, 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). Third Supplemental Indenture, dated as of December
31, 1997 between Metropolitan and First Trust
(Exhibit 4(d)) to Form 10-K filed January 8, 1998).
4(e). Amended Statement of Rights, Designations and
Preferences of Variable Rate Preferred Stock, Series
C (Exhibit 4(g) to Registration No. 33-2699).
4(f). Statement of Rights, Designations and Preferences of
Variable Rate Preferred Stock, Series D (Exhibit
4(a) to Registration No. 33-25702).
4(g). Statement of Rights, Designations and Preferences of
Variable Rate Preferred Stock, Series E-1 (Exhibit
4(a) to Registration No. 33-19238).
4(h). Amended Statement of Rights, Designations and
Preferences of Variable Rate Preferred Stock, Series
E-2 (Exhibit 4(a) to Registration No. 33-25702).
4(i). Statement of Rights, Designations and Preferences of
Variable Rate Preferred Stock, Series E-3 (Exhibit
4(a) to Registration No. 33-32586).
4(j). Statement of Rights, Designations and Preferences of
Variable Rate Cumulative Preferred Stock, Series E-4
(Exhibit 4(h) to Registration No. 33-40221).
4(k). 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(l). Statement of Rights, Designations and Preferences of
Variable Rate Cumulative Preferred Stock, Series E-6
(Exhibit 4(1) to Registration No. 333-19755).
4(m). Statement of Rights, Designations and Preferences of
Variable Rate Cumulative Preferred Stock, Series E-7
(Exhibit 4(d) to Amendment 1 to Registration No. 333-
19755).
10(a). Employment Agreement between Metropolitan Mortgage
and Securities Co., Inc. and Bruce Blohowiak
(Exhibit 10(a) to Form 10-K filed January 8, 1998).
10(b). Employment Agreement between Metropolitan Mortgage
and Securities Co., Inc. and Michael Kirk (Exhibit
10(b) to Form 10-K filed January 8, 1998).
10(c). Employment Agreement between Metropolitan Mortgage
and Securities Co., Inc. and Jon McCreary (Exhibit
10(c) to Form 10-K filed January 8, 1998).
10(d). Reinsurance Agreement between Western United Life
Assurance Company and Old Standard Life Insurance
Company (Exhibit 10(d) to Form 10-K filed January 8,
1998).
11. Statement indicating Computation of Per-Share
Earnings (see Condensed Consolidated Financial
Statements).
*27. Financial Data Schedule
*Filed herewith.
(b) Reports on Form 8-K
On October 30, 1997 a Report on Form 8-K was filed reporting that
on September 26, 1997 Metropolitan and WULA sold through a
securitization approximately $143.75 Million in first lien
mortgages.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on this 23rd day of
February, 1998 on its behalf by the undersigned, thereunto duly authorized.
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
/s/ C. PAUL SANDIFUR, JR.
______________________________________________
C. Paul Sandifur, Jr.
Chairman, President, Chief Executive Officer
/s/ BRUCE J. BLOHOWIAK
______________________________________________
Bruce J. Blohowiak
Executive Vice President, Chief Operating Officer and
Director
/s/ STEVEN CROOKS
______________________________________________
Steven Crooks
Vice President, Principal Accounting Officer
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<ARTICLE> 5
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 33,350
<SECURITIES> 189,234
<RECEIVABLES> 739,145
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20,859
<OTHER-SE> 34,250
<TOTAL-LIABILITY-AND-EQUITY> 1,159,336
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