<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 September 30, 1999 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 November 10, 1999
- --------------------------------- -------------------------------
Common Stock, $1.00 par value 10,000 shares
<PAGE>
RAY ELLISON MORTGAGE ACCEPTANCE CORP.
INDEX TO FORM 10-Q
Quarter Ended September 30, 1999
Part I. Financial Information
----------------------
Item 1. Financial Statements
Balance Sheets (Unaudited)
September 30, 1999 and
December 31, 1998 4 of 17
Statements of Income and Comprehensive
Income (Unaudited)
Three and nine months ended
September 30, 1999 and 1998 5 of 17
Statements of Cash Flows (Unaudited)
Nine months ended
September 30, 1999 and 1998 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)
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- --------------
<S> <C> <C>
ASSETS
Cash $ 9,257 $ 20,679
Accrued interest receivable 372,876 575,004
Underwriting fees and bond issuance
expenses 2,337,462 3,574,777
Requisite funds on deposit 67,021 128,276
Notes Receivable from affiliates 3,001,107 7,479,550
Investment in GNMA securities 68,870,152 102,678,159
Fair value adjustment (912,799) 4,422,045
Less: unamortized discount (2,546,036) (3,968,055)
------------- --------------
65,411,317 103,132,149
------------- --------------
Deferred tax asset 310,352 -
------------- --------------
$71,509,392 $114,910,435
============= ==============
LIABILITIES
Accounts payable $ 30,000 $ 30,000
Accrued interest 370,955 571,956
Bonds payable 68,437,000 101,907,000
Deferred tax liability - 1,481,858
------------- --------------
68,837,955 103,990,814
STOCKHOLDER'S EQUITY (DEFICIT):
Common Stock, $1.00 par value,
10,000 shares authorized,
issued and outstanding 10,000 10,000
Contributed capital 3,263,884 4,256,119
Unrealized gains (losses) on
available-for-sale securities,
net of tax (602,447) 2,918,550
Retained earnings 0 3,734,952
------------- --------------
2,671,437 10,919,621
------------- --------------
$71,509,392 $114,910,435
============= ==============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
RAY ELLISON MORTGAGE ACCEPTANCE CORP.
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDING
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME
Interest Income $1,273,366 $ 4,028,306 $ 4,553,916 $15,279,085
Amortization of discount 117,035 424,396 558,552 1,524,722
Gain on sales of GNMA securities 241,513 6,876,224 1,160,134 11,858,633
------------------------------------------------------------
1,631,914 11,328,926 6,272,602 28,662,440
EXPENSE
Interest expense 1,216,094 4,059,078 4,236,182 15,262,123
Amortization of underwriting fees
and bond issuance expenses 337,218 4,054,334 1,237,315 7,750,468
General and administrative 43,143 63,885 504,655 193,395
------------------------------------------------------------
1,596,455 8,177,297 5,978,152 23,205,986
------------------------------------------------------------
Income before taxes 35,459 3,151,629 294,450 5,456,454
Income tax expense (benefit):
Current taxes (18,921) 1,013,738 25,889 1,362,364
Deferred taxes 0 1,329 21,637 153,117
------------------------------------------------------------
(18,921) 1,015,067 47,526 1,515,481
------------------------------------------------------------
Net Income 54,380 2,136,562 246,924 3,940,973
------------------------------------------------------------
Other Comprehensive Income
Unrealized gains (losses) on
available-for-sale securities
(net of income tax) (473,342) (1,881,739) (2,817,720) 2,010,171
Less: reclassification adjustment
(net of income tax) (154,662) (4,940,206) (703,278) (7,505,466)
------------------------------------------------------------
(628,004) (6,821,945) (3,520,998) (5,495,295)
------------------------------------------------------------
Comprehensive Income $ (573,624) $(4,685,383) $(3,274,074) $(1,554,322)
============================================================
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
RAY ELLISON MORTGAGE ACCEPTANCE CORP.
STATEMENT OF CASH FLOWS (UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
1999 1998
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 246,924 $ 3,940,973
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Income tax expense (benefit) 47,526 1,515,481
Amortization of discount (558,552) (1,524,722)
Amortization of underwriting fees and bond
issuance expense 1,237,315 7,750,468
(Gain)/Loss on sale of GNMA securities (1,160,134) (11,858,633)
Changes in operating assets and liabilities:
Accrued interest receivable 202,128 1,387,044
Accounts payable 0 (1,713)
Accrued interest payable (201,001) (1,359,515)
-------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (185,794) (150,617)
-------------------------------
INVESTING ACTIVITIES
Dividends paid to parent (5,000,000) (5,000,000)
Advances and notes with affiliate 4,478,443 (1,313,773)
Principal payments received on GNMA securities 13,093,584 36,971,763
Proceeds from sale of GNMA securities 21,011,090 194,727,543
-------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 33,583,117 225,385,533
-------------------------------
FINANCING ACTIVITIES
Decrease (increase) in requisite funds on deposit 61,255 31,639
Redemption of bonds payable (33,470,000) (225,315,000)
-------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (33,408,745) (225,283,361)
-------------------------------
INCREASE (DECREASE) IN CASH (11,422) (48,445)
Cash at beginnning of year 20,679 91,465
-------------------------------
CASH AT SEPTEMBER 30, $ 9,257 $ 43,020
===============================
See notes to financial statements
</TABLE>
<PAGE>
Ray Ellison Mortgage Acceptance Corp.
Notes to Unaudited Financial Statements
September 30, 1999 and 1998
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 and nine month periods ended September
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999. 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, 1998.
2. Bonds Payable
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, September 30,
Series Issued at Issue Rate Date 1998 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1993B 12/22/93 21,000,000 6.000 12/31/2024 $ 16,914,000 $ 15,491,000
1994A 01/27/94 15,000,000 6.000 01/31/2025 11,522,000 10,052,000
1994B 02/24/94 13,000,000 6.000 02/28/2025 9,624,000 8,993,000
1995A 02/23/95 8,000,000 8.000 02/28/2026 3,508,000 -
1995B 03/30/95 21,000,000 7.500 03/31/2026 12,194,000 -
1995C 05/25/95 9,225,000 7.100 05/31/2026 6,971,000 -
1996A 04/25/96 12,500,000 7.000 04/30/2027 10,344,000 8,256,000
1996B 05/30/96 15,500,000 7.000 05/31/2027 12,697,000 10,676,000
1996C 09/26/96 9,000,000 7.100 09/30/2027 7,556,000 6,233,000
1997A 04/24/97 12,500,000 7.000 04/30/2027 10,577,000 8,736,000
---------------------- --------------------------------------
$ 136,725,000 $ 101,907,000 $ 68,437,000
====================== ======================================
</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 September 30, 1999
As of September 30, 1999, the Company has completed the issuance of
ninety-two 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 October 31, 1999, the Company has exercised its option to redeem all
Series issued previous to 1993 as well as Series 1993A, 1994C through 1994M,
1995A, 1995B and 1995C. These calls produced significant gains for the Company.
The Company has exercised its option to redeem GMNA-Collateralized Bond 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 Bond 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 expense 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 than
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.
All GNMA securities are classified as available-for-sale as of January 1,
1994. Accordingly, GNMA securities are reflected on the accompanying balance
sheet at fair value, with the unrealized gains and losses, net of tax reported
in a separate category 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 rose, whichever is sooner,
and the Company would not realize any unrealized losses.
As has been widely reported, many computer systems process dates based on
two digits for the year of a transaction and are unable to process dates in the
year 2000 and beyond. In connection with its ongoing information system
management efforts, REMAC has previously replaced or modified its key financial
information and operational systems that were not year 2000 compliant. Remaining
financial and operational systems have been assessed, and detailed plans have
been developed and are being implemented to make the necessary modifications to
ensure year 2000 compliance. The financial impact of making the required system
changes for year 2000 compliance are not expected to have a material effect on
REMAC's financial statements.
REMAC paid a dividend of $5,000,000 to it's stockholder, Ray Ellison
Mortgage Investment Corp. on May 31, 1999.
The Company may from time to time make forward-looking statements (within
the meaning of the Private Securities Litigation Reform Act of 1995) with
respect to expected Year 2000 compliance program, Company objectives and other
financial and business matters. The Company cautions the reader that these
forward- looking statements are subject to numerous assumptions, risks and
uncertainties, including economic conditions; regulatory actions and reforms;
competition; as well as other reasons, all of which change over time. Actual
results may differ materially from forward-looking statements.
<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
NONE
<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: November 10, 1999
<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 Statement (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.
*Filed 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 September 30,
1999 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 9,257
<SECURITIES> 65,411,317
<RECEIVABLES> 372,876
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 382,133
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,509,392
<CURRENT-LIABILITIES> 400,955
<BONDS> 68,437,000
0
0
<COMMON> 10,000
<OTHER-SE> 2,661,437
<TOTAL-LIABILITY-AND-EQUITY> 71,509,392
<SALES> 0
<TOTAL-REVENUES> 6,272,602
<CGS> 0
<TOTAL-COSTS> 5,978,152
<OTHER-EXPENSES> 504,655
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,236,182
<INCOME-PRETAX> 294,450
<INCOME-TAX> 47,526
<INCOME-CONTINUING> 246,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 246,924
<EPS-BASIC> 24.69
<EPS-DILUTED> 24.69
</TABLE>
