<PAGE>
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES ACT OF 1934
For Quarter Ended March 31, 1997 Commission File Numbers 33-76642
RAY ELLISON MORTGAGE ACCEPTANCE CORP.
_____________________________________
Texas 74-2337351
______________________________ ____________________________
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
70 N.E. Loop 410, Suite 545, San Antonio, Texas 78216
______________________________________________________________________
(Address of Principal Executive Offices)
Registrant's telephone number, including area code:(210) 342-1085
N/A
______________________________________________________________________
(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 filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at May 5, 1997
_________________________________ _______________________________
Common Stock, $1.00 par value 10,000 shares
<PAGE>
RAY ELLISON MORTGAGE ACCEPTANCE CORP.
INDEX TO FORM 10-Q
Quarter Ended March 31, 1997
Part I. Financial Information
______________________
Item 1. Financial Statements
Balance Sheets (Unaudited)
March 31, 1997 and
December 31, 1996 4 of 17
Statements of Operations (Unaudited)
Three months ended
March 31, 1997 and 1996 5 of 17
Statements of Cash Flows (Unaudited)
Three months ended
March 31, 1997 and 1996 6 of 17
Notes to Unaudited Financial Statements 7 of 17
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operation 12 of 17
Part 11. Other Information
Item 6. Exhibits and Reports on Form 8-K 15 of 17
<PAGE>
Item 1. Financial Statements
See next page.
<PAGE>
<TABLE>
RAY ELLISON MORTGAGE ACCEPTANCE CORP.
BALANCE SHEETS
<CAPTION>
(UNAUDITED)
MARCH 31 DECEMBER 31,
1997 1996
---------------------------------------
<S> <C> <C>
ASSETS
Cash $ 67,318 $ 51,880
Accrued interest receivable 2,481,695 2,530,080
Underwriting fees and bond issuance
expenses 14,647,619 15,007,701
Requisite funds on deposit 134,010 133,797
Notes Receivable from affiliates 3,689,198 3,513,806
Investment in GNMA securities 414,413,604 422,240,456
Fair value adjustment (563,590) 7,404,177
Less: unamortized discount (16,481,512) (16,872,575)
---------------------------------------
397,368,502 412,772,058
Deferred tax asset 245,023 -
---------------------------------------
$418,633,365 $434,009,322
=======================================
LIABILITIES
Accounts payable $ 55,620 $ 30,000
Accrued interest 2,453,032 2,500,552
Bonds payable 410,678,000 418,427,000
Deferred tax liability - 2,265,287
---------------------------------------
413,186,652 423,222,839
STOCKHOLDER'S EQUITY (DEFICIT):
Common Stock, $1.00 par value,
10,000 shares authorized,
issued and outstanding 10,000 10,000
Contributed capital 2,153,215 2,122,681
Unrealized gains (losses) on
available-for-sale securities,
net of tax (563,590) 4,886,757
Retained earnings 3,847,088 3,767,045
---------------------------------------
5,446,713 10,786,483
---------------------------------------
$418,633,365 $434,009,322
=======================================
</TABLE>
<PAGE>
<TABLE>
RAY ELLISON MORTGAGE ACCEPTANCE CORP.
STATEMENT OF OPERATIONS (UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1997 1996
--------------------------------
<S> <C> <C>
INCOME
Interest income $7,597,442 $7,640,629
Amortization of discount 391,062 429,485
Gain on sales of GNMA Securities 45,625 904,243
--------------------------------
8,034,129 8,974,357
--------------------------------
EXPENSE
Interest expense 7,458,174 7,529,861
Amortization of underwriting fees
and bond issuance expenses 360,082 1,064,877
General and administrative 98,186 153,879
--------------------------------
7,916,442 8,748,617
--------------------------------
Income before taxes 117,687 225,740
Income tax expense (benefit) 37,644 76,752
--------------------------------
Net Income $80,043 $148,988
================================
</TABLE>
<PAGE>
<TABLE>
RAY ELLISON MORTGAGE ACCEPTANCE CORP.
STATEMENT OF CASH FLOWS (UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1997 1996
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 80,043 $ 148,988
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Income tax expense (benefit) 37,644 76,752
Amortization of discount (391,062) (429,485)
Amortization of underwriting fees and bond
issuance expense 360,082 1,064,877
(Gain)/Loss on sale of GNMA securities (45,625) (904,243)
Changes in operating assets and liabilities:
Accrued interest receivable 48,385 139,407
Accounts payable 25,620 (2,853)
Accrued interest payable (47,522) (135,740)
---------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 67,565 (42,297)
INVESTING ACTIVITIES
Advances and notes with affiliate (175,392) (962,222)
Principal payments received on GNMA securities 7,826,852 9,333,220
Proceeds from sale of GNMA securities 45,625 13,383,141
---------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 7,697,085 21,754,139
FINANCING ACTIVITIES
Decrease (increase) in requisite funds on deposit (212) 75,936
Redemption of bonds payable (7,749,000) (21,790,000)
---------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (7,749,212) (21,714,064)
---------------------------------
INCREASE (DECREASE) IN CASH 15,438 (2,222)
Cash at beginnning of year 51,880 3,956
---------------------------------
CASH AT MARCH 31, $ 67,318 $ 1,734
=================================
</TABLE>
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Unaudited Financial Statements
March 31, 1997 and 1996
1. Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, are 1997 not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1996.
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Unaudited Financial Statements
March 31, 1997 and 1996
2. Bonds Payable
The Company has filed six shelf registrations authorizing a total issuance of
$1,600,000,000 in long-term bonds. The long-term bonds payable of the Company
are issued in series as follows:
<TABLE>
<CAPTION>
Face Bonds Outstanding
of Bonds Interest Maturity December 31, March 31,
Series Issued at Issue Rate Date 1996 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1985A 02/27/85 $ 11,559,000 11.500% 03/28/2015 $ - $ -
1985B 03/28/85 10,337,000 12.000 04/28/2015 - -
1985C 04/24/85 10,343,000 11.850 12/28/2015 - -
1985D 05/20/85 13,714,000 11.450 07/28/2016 - -
1985E 06/26/85 12,784,000 10.750 08/28/2016 - -
1985F 07/25/85 10,004,000 10.625 09/28/2016 - -
1985G 08/28/85 9,223,000 10.750 10/28/2016 - -
1985H 09/26/85 9,106,000 10.500 11/28/2016 - -
1985I 10/24/85 11,753,000 10.875 12/28/2016 - -
1985J 11/26/85 8,720,000 10.400 01/28/2017 - -
1985K 12/26/85 8,923,000 10.250 02/28/2017 - -
1986A 01/28/86 9,380,000 9.750 03/28/2017 - -
1986B 02/27/86 19,512,000 9.750 04/28/2017 - -
1986C 03/26/86 9,204,000 9.375 05/28/2017 - -
1986D 04/23/86 9,989,000 8.500 06/28/2017 - -
1986E 06/26/86 10,650,000 9.250 08/28/2017 - -
1986F 07/24/86 20,600,000 9.000 09/28/2017 - -
1986G 08/28/86 20,990,000 9.000 10/28/2017 - -
1986H 09/25/86 14,153,000 8.625 11/28/2017 - -
1986I 11/25/86 10,002,000 8.625 01/28/2018 - -
1986J 12/30/86 9,390,000 8.250 02/28/2018 - -
1987A 07/30/87 17,500,000 9.000 09/28/2018 - -
1987B 08/27/87 18,000,000 9.000 10/28/2018 - -
1987C 09/30/87 10,000,000 9.500 11/28/2018 - -
1987D 10/29/87 15,000,000 9.750 12/31/2018 - -
1987E 11/25/87 16,000,000 10.000 01/31/2019 - -
1987F 11/25/87 16,655,000 9.500 01/31/2019 - -
1988A 01/27/88 15,000,000 9.500 03/31/2019 - -
1988B 02/25/88 13,925,000 9.000 04/30/2019 - -
1988C 02/25/88 10,000,000 8.500 04/30/2019 - -
1988D 03/30/88 14,950,000 8.750 05/31/2019 - -
1988E 05/26/88 18,000,000 9.125 07/31/2019 - -
1988F 06/23/88 33,000,000 9.375 08/31/2019 - -
1988G 06/23/88 14,000,000 9.450 08/31/2019 - -
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Financial Statements (continued)
March 31, 1997 and 1996
2. Bonds Payable (continued)
Face Bonds Outstanding
of Bonds Interest Maturity December 31, March 31,
Series Issued at Issue Rate Date 1996 1997
- ----------------------------------------------------------------------------------------------------------
1988H 07/28/88 15,000,000 9.125 09/30/2019 - -
1988I 08/25/88 25,000,000 9.375 10/31/2019 - -
1988J 08/25/88 22,000,000 9.200 10/31/2019 - -
1988K 09/29/88 17,000,000 9.150 11/30/2019 - -
1988L 10/27/88 20,000,000 9.100 12/31/2019 - -
1988M 11/23/88 30,000,000 9.000 01/31/2020 - -
1989A 01/25/89 22,000,000 9.500 03/31/2020 - -
1989B 01/25/89 17,000,000 9.600 03/31/2020 - -
1990A 05/24/90 5,000,000 9.500 05/31/2021 - -
1990B 08/30/90 15,150,000 9.000 08/31/2021 - -
1990C 09/27/90 10,000,000 9.100 09/30/2021 - -
1990D 09/27/90 10,000,000 9.000 09/30/2021 - -
1990E 10/25/90 10,000,000 9.150 10/31/2021 - -
1990F 10/25/90 14,500,000 9.050 10/31/2021 - -
1990G 11/21/90 15,000,000 9.000 11/30/2021 - -
1990H 12/27/90 8,000,000 8.500 12/31/2021 - -
1991A 02/21/91 9,000,000 8.100 02/28/2022 - -
1991B 03/28/91 5,000,000 8.100 03/31/2022 - -
1991C 04/25/91 6,000,000 8.150 04/30/2022 - -
1991D 05/30/91 12,650,000 8.150 05/31/2022 - -
1991E 06/27/91 28,500,000 8.500 06/30/2022 - -
1991F 07/25/91 18,000,000 8.450 07/31/2022 - -
1991G 08/29/91 18,000,000 8.000 08/31/2022 - -
1991H 09/26/91 14,000,000 7.875 09/30/2022 - -
1991I 11/27/91 13,000,000 7.500 11/30/2022 - -
1991J 12/23/91 7,000,000 7.500 12/31/2022 - -
1992A 03/26/92 21,000,000 7.250 03/31/2023 13,207,000 12,998,000
1992B 04/23/92 6,500,000 7.400 04/30/2023 4,325,000 4,181,000
1992C 05/28/92 17,500,000 7.600 05/31/2023 10,366,000 9,520,000
1992D 06/25/92 24,000,000 7.400 06/30/2023 16,129,000 15,801,000
1992E 07/30/92 19,000,000 7.150 07/31/2023 10,776,000 10,698,000
1992F 08/27/92 8,000,000 6.600 08/31/2023 4,775,000 4,693,000
1992G 11/25/92 47,250,000 7.000 11/30/2023 37,796,000 37,408,000
1992H 12/23/92 23,600,000 7.100 12/31/2023 18,632,000 18,394,000
1992I 12/23/92 14,300,000 7.050 12/31/2023 11,345,000 11,250,000
1993A 01/28/93 24,000,000 7.000 01/31/2024 18,730,000 18,658,000
1993B 12/22/93 21,000,000 6.000 12/31/2024 19,815,000 19,598,000
1994A 01/27/94 15,000,000 6.000 01/31/2025 13,399,000 13,237,000
1994B 02/24/94 13,000,000 6.000 02/28/2025 11,927,000 11,875,000
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Financial Statements (continued)
March 31, 1997 and 1996
4. Bonds Payable (continued)
Face Bonds Outstanding
of Bonds Interest Maturity December 31, March 31,
Series Issued at Issue Rate Date 1996 1997
- ----------------------------------------------------------------------------------------------------------
1994C 03/24/94 10,000,000 6.500 03/31/2025 $ 9,453,000 $ 9,248,000
1994D 05/26/94 19,500,000 7.400 05/31/2025 16,895,000 16,398,000
1994E 05/26/94 13,950,000 7.500 05/31/2025 12,169,000 11,917,000
1994F 06/23/94 16,000,000 7.300 06/30/2025 13,842,000 13,698,000
1994G 07/28/94 16,500,000 7.125 07/31/2025 14,236,000 13,872,000
1994H 07/28/94 24,150,000 7.500 07/31/2025 21,904,000 21,477,000
1994I 08/25/94 16,050,000 7.500 08/31/2025 13,986,000 13,692,000
1994J 09/29/94 18,600,000 7.500 09/30/2025 16,330,000 15,845,000
1994K 11/23/94 15,000,000 8.000 11/30/2025 12,467,000 12,220,000
1994L 12/28/94 15,000,000 8.100 12/31/2025 12,260,000 11,941,000
1994M 12/28/94 16,500,000 8.000 12/31/2025 13,156,000 12,704,000
1995A 02/23/95 8,000,000 8.000 02/28/2026 6,823,000 6,589,000
1995B 03/30/95 21,000,000 7.500 03/31/2026 18,225,000 17,775,000
1995C 05/25/95 9,225,000 7.100 05/31/2026 8,741,000 8,438,000
1996A 04/25/96 12,500,000 7.000 04/30/2027 12,371,000 12,316,000
1996B 05/30/96 15,500,000 7.000 05/31/2027 15,372,000 15,304,000
1996C 09/26/96 9,000,000 7.100 09/30/2027 8,975,000 8,933,000
---------------------- --------------------------------------
$ 1,359,791,000 $ 418,427,000 $ 410,678,000
====================== ======================================
</TABLE>
The remaining bonds may be redeemed at the option of the Company, in whole or in
part, at any time after the fourth anniversary of their issuance. To ensure
sufficient funds to meet debt service requirements, the Indenture provides for
redemption if the payments to be made on the GNMA securities will be less than
the debt service requirements. The amounts of bonds to be redeemed are dependent
on a number of factors such as: 1) prepayments on the GNMA securities, 2)
interest earned on requisite funds, 3) deposit or substitution of collateral in
lieu of bond redemption, and 4) requests for redemption by bondholders. In all
redemptions described above, the redemption price will be 100% of the principal
amount of the bonds to be redeemed plus interest accrued to the date of
redemption.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Quarter ended March 31, 1997
As of March 31, 1997, the Company has completed the issuance of ninety-one
Series of its GNMA-Collateralized Bonds (Bonds). Each Series of Bonds has been
assigned a bond rating of AAA by Standard & Poors Ratings Groups. Proceeds from
the sale of each Series of Bonds have been used by the Company to purchase GNMA
(Government National Mortgage Association) securities from affiliated companies.
The GNMA securities purchased are pledged as collateral for one or more Series
of the Company's Bonds.
From time to time, the Company has substituted or deposited additional GNMA
securities to below-market Bond Series in accordance with the Indentures under
which the Bonds are issued. Management anticipates that such substitution or
deposit of additional GNMA securities in these Bond Series will defer
redemptions in the Bond series affected.
Additionally, from time to time the Company has substituted or withdrawn
GNMA securities securing above-market Bond Series to the extent permitted by the
Indentures. Management anticipates that such substitutions or withdrawals of
GNMA securities will accelerate redemptions in the Bond Series affected.
As of March 31, 1997 the Company has exercised its option to redeem 60
Series of Its GNMA-Collateralized Bonds (Series 1985A through 1991J). These
calls produced significant gains for the Company. The Company has exercised its
option to redeem GNMA-Collateralized Bonds Series whenever the Series were
callable and the interest rate on the series was above the current market
interest rate. Management anticipates calling any above-market interest rate
Bond Series at the earliest date permitted under the respective prospectus
supplement for such Bonds Series.
The Company anticipates that receipts from the GNMA securities securing
each outstanding series of Bonds together with reinvestment income thereon and
funds available in any reserve funds which may be established for such series,
will be adequate to meet the Company's cash flow requirements to pay
administrative expenses and the principal of and interest on each series of
Bonds as they become due. The Company does not have, nor does management expect
that the Company will have, any significant source of cash flow other that
capital contributions from its parent and/or advances from its affiliates and
receipts on collateral securing Bonds which have been or may be issued by the
Company.
Because each series of outstanding Bonds is secured by GNMA securities
paying interest and principal at specified rates backed by existing pools of
mortgage loans, and because payment on outstanding Bonds issued by the Company
are at fixed interest rates, management does not expect that changes in economic
factors will significantly affect the Company's ability to meet its obligations
as they come due.
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities, "effective for fiscal years beginning after December
15, 1993. The Company adopted the provisions of the new standard for investments
held as of or acquired after January 1, 1994. Under the new rules, debt
securities that the Company does not have the positive intent and ability to
hold to maturity are carried at fair value. Unrealized holding gains and losses
on securities classified as available-for-sale are carried as a separate
component of shareholders' equity.
The Company wishes to emphasize that due to the nature of its business, the
GNMA securities carried as available-for-sale collateralize GNMA-collateralized
bonds, and the securities are not salable before the bonds are callable, at some
future date. In addition, the market value of GNMA securities fluctuates
significantly as interest rates change; therefore, the market values of the GNMA
securities as of the future redemption dates may vary significantly from the
current date, and the realization of any unrealized gains is not assured. When
market is such that the value of GNMA securities is less than amortized cost,
the Company has the expectation that they would be held to maturity as
collateral for the related GNMA- collateralized Bonds, or until the market value
increases, whichever is sooner, and the Company would not realize any
unrealized losses. Thus, no tax benefit is recognized for unrealized losses for
the Company's investment in GNMA's.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
NONE
Item 2. Change in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8K
(a) Report on Form 8K for item 2 - See Report dated April 24, 1997 for
purchase of securities and issuance of Series 1997A
<PAGE>
Signatures:
Pursuant to the requirements of the Securities and Exchange act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAY ELLISON MORTGAGE ACCEPTANCE CORP.
(Registrant)
/s/ Locksley Simmons
____________________________________
Locksley Simmons
Vice President and Chief Financial Officer
DATE: May 6, 1997
<PAGE>
Exhibit Index
EX-3.1 Articles of Incorporation of the Registrant as originally filed. (1)
EX-3.2 Bylaws of the Registrant as currently in effect. (5)
EX-4.1 Form of Indenture between the Registrant and Trustee (containing
Form of Bond). (4)
EX-4.2 Form of Series Supplement(2)
EX-4.3 Form of Guaranty Agreement for GNMA I Program ("Summary of Guaranty
Agreement". (3) EX-4.4 Form of Guaranty Agreement for GNMA II Program
("Schedule of Subscribers and GNMA II Contractual Agreement"). (4)
*EX-27 Financial Data Schedule
(1) Previously filed with the Commission as an exhibit to the Registrant's
Form S-11 Registration Statement (File No. 2-93624)on October 4,
1984, and incorporated by reference herein.
(2) Previously filed with the Commission as an exhibit to the
Post-Effective Amendment No. 1 to the Registrant's Form S-11
Registration Statement (File No. 2-93624) on February 14, 1985,
and incorporated by reference herein.
(3) Previously filed with the Commission as an exhibit to Amendment
No. 1 to the Registrant's Form S-11 Registration Statemnt (File
No. 2-93624) on January 11, 1985, and incorporated by reference
herein.
(4) Previously filed with the Commission as an exhibit to the
Registrant's Form S-11 Registration Statement (File
No. 33-48368)on June 4, 1992, and incorporated by reference herein.
(5) Previously filed with the Commission as an exhibit to the
Registrant's Form 10-Q for the quarter ended June 30, 1995, and
incorporated by reference herein.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Ray Ellison Mortgage Acceptance Corp. at March 31,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 754591
<NAME> Ray Ellison Mortgage Acceptance Corp.
<MULTIPLIER> 1
<CURRENCY> Dollar
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 67,318
<SECURITIES> 397,368,502
<RECEIVABLES> 2,481,695
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,549,013
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 418,633,365
<CURRENT-LIABILITIES> 2,508,652
<BONDS> 410,678,000
0
0
<COMMON> 10,000
<OTHER-SE> 5,436,713
<TOTAL-LIABILITY-AND-EQUITY> 418,633,365
<SALES> 0
<TOTAL-REVENUES> 8,034,129
<CGS> 0
<TOTAL-COSTS> 7,916,442
<OTHER-EXPENSES> 98,186
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,458,174
<INCOME-PRETAX> 117,687
<INCOME-TAX> 37,644
<INCOME-CONTINUING> 80,043
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,043
<EPS-PRIMARY> 8.00
<EPS-DILUTED> 8.00
</TABLE>
