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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
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/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994 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 2-94289
PRESIDENTIAL MORTGAGE COMPANY
(Exact name of Registrant as specified in its charter)
California 95-3611304
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
21031 Ventura Boulevard
Woodland Hills, California 91364
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (818) 992-8999
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 NO X .
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PRESIDENTIAL MORTGAGE COMPANY
(A California Limited Partnership)
AND SUBSIDIARIES
Consolidated Balance Sheets
Unaudited
December 31, 1993 and September 30, 1994
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
<S> <C> <C>
Assets
Cash & cash equivalents $ 16,159,469 $ 13,219,565
Accounts receivable, net 10,206,139 4,133,661
Interest receivable 1,533,272 2,091,425
Loans receivable, net (note 2) 70,171,466 84,754,592
Excess yield receivable 653,538 895,220
Real estate acquired in settlement of loans 6,350,052 6,003,295
Property and equipment, net 1,467,908 1,215,496
Goodwill 1,727,642 1,621,781
Other assets 986,064 388,555
------------- ------------
$ 109,255,550 $ 114,323,590
============= ============
Liabilities and Partners' Capital
Liabilities:
Thrift certificates payable $ 69,429,707 $ 62,420,561
Accounts payable, accrued expenses and interest payable 4,117,353 5,266,440
Partnership withdrawals payable 1,120,379 1,120,379
Notes payable 18,314,768 23,800,000
Mortgages payable - secured by real estate acquired in 1,984,748 1,777,278
settlement of loans
------------- ------------
$ 94,966,955 $ 94,384,658
------------- ------------
Partners' Capital 14,288,595 19,938,932
------------- ------------
$ 109,255,550 $ 114,323,590
============= ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
discussion and Analysis of Financial Condition and Results of Operations
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PRESIDENTIAL MORTGAGE COMPANY
(A California Limited Partnership)
AND SUBSIDIARIES
Consolidated Statements of Income
Unaudited
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30, September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans receivable 3,262,742 3,623,386 9,559,235 11,578,800
Interest on deposits with banks 151,078 505 283,600 1,956
------------ ----------- ------------ -------------
Total interest income 3,413,820 3,623,891 9,842,835 11,580,756
Interest Expense:
Interest on thrift certificates greater than $100,000 4,867 75,274 23,711 229,912
Interest on other thrift certificates 746,474 714,076 2,070,733 2,143,157
Interest on notes payable 430,068 609,204 1,472,233 1,935,726
------------ ----------- ------------ -------------
Total interest expense 1,181,409 1,398,554 3,566,677 4,308,795
------------ ----------- ------------ -------------
Net interest income 2,232,411 2,225,337 6,276,158 7,271,961
Provision for loan losses 2,063,759 574,538 2,748,737 1,423,021
------------ ----------- ------------ -------------
Net interest income afer provision for loan losses 168,652 1,650,799 3,527,421 5,848,940
Noninterest income:
Trustee and reconveyance fees 814,352 972,427 2,504,744 2,920,352
Other income 334,369 485,449 878,761 1,049,150
Gain on sale of Title I loans 0 0 0 15,177
------------ ----------- ------------ -------------
1,148,721 1,457,876 3,383,505 3,984,679
Noninterest expense:
General and administrative 1,668,716 1,744,570 4,986,143 4,355,228
Salaries, employee benefits and personnel services 1,917,934 1,360,989 5,659,758 4,172,018
Amortization of organization costs 111,072 5,000 149,964 7,581
Depreciation and amortization 114,736 42,633 386,099 122,238
Expenses on real estate acquired in settlement of loans 449,736 278,449 1,385,400 687,923
Net loss (gain) on sales of real estate acquired
in settlement of loans (122,915) 260,689 (6,101) 476,500
------------ ----------- ------------ -------------
4,139,279 3,692,330 12,561,263 9,821,488
------------ ----------- ------------ -------------
Net income before management fee (2,821,906) (583,655) (5,650,337) 12,131
------------ ----------- ------------ -------------
Management fee (Note 3) 0 0 0 1,213
------------ ------------ ------------ -------------
Net income (2,821,906) (583,655) (5,650,337) 10,918
============ =========== ============ =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
discussion and Analysis of Financial Condition and Results of Operations
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PRESIDENTIAL MORTGAGE COMPANY
(A California Limited Partnership)
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1994 and 1993
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
9-30-94 9-30-93
<S> <C> <C>
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Net income (5,650,337) 10,918
Depreciation & Amortization 536,063 725,086
Provision for loan losses 2,748,737 1,423,021
Net (gain) loss on sales of real estate
acquired in settlement of loans (6,101) 476,500
(Increase) decrease in asset accounts:
Accounts Receivable (6,072,478) (508,412)
Interest receivable 558,153 (64,286)
Excess yield receivable 241,682 (22,693)
Goodwill (105,861) (220,000)
Other assets (747,473) (1,182,182)
Increase (decrease) in liability accounts:
Accounts payable and accrued expenses
and Interest Payable (1,149,087) (1,007,705)
Net cash provided by (used in) operating ---------- ----------
activities (9,646,702) (369,753)
---------- ----------
Cash flows from investing activities:
(Increase) Decrease in Loans Receivable 11,834,389 4,759,760
Increase in Property & Equipment (638,511) (109,634)
Decrease in Mortgages Payable on Other
Real Estate 207,470 (2,299,489)
Decrease in Other Real Estate (340,656) 5,985,087
Proceeds from repayment of receivable
from related party 0 0
---------- ----------
Net cash provided by (used in) investing 11,062,692 8,335,724
activities ---------- ----------
Cash flow from financing activities:
Distribution to Partners 0 (1,753,395)
Withdrawal of Partnership Shares 0 (1,405,500)
Increase in Thrift Certificates 7,009,146 5,400,788
Decrease in Line of Credit (5,485,232) (7,100,000)
Proceeds from issuance of partnership
shares 0 34,097
---------- ----------
Net cash provided by (used in) financing 1,523,914 (4,824,010)
activities ---------- ----------
Net decrease in Cash and Cash Equivalents 2,939,904 3,141,961
Cash and Cash Equivalents at Year End 13,219,565 453,278
---------- ----------
Cash and Cash Equivalents at Sept 30, 16,159,469 3,595,239
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
discussion and Analysis of Financial Condition and Results of Operations
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PRESIDENTIAL MORTGAGE COMPANY
(A California Limited Partnership)
AND SUBSIDIARIES
Notes to Combined Financial Statements
1) The unaudited financial information furnished herein, in the opinion
of management, reflects all adjustments (all of which are of a normal
recurring nature) which are necessary to fairly state the Partnership's
financial position, its cash flows and the results of its operations. The
Partnership presumes that users of the interim financial information herein
have read or have access to the audited financial statements and Manage-
ment's Discussion and Analysis of Financial Condition and Results of
Operations for the preceding fiscal year and that the adequacy of additional
disclosure needed for a fair presentation, except in regard to material
contingencies, may be determined in that context. Accordingly, footnote and
other disclosures which would substantially duplicate the disclosure
contained in the Partnership's most recent annual report has been omitted.
The interim financial information herein is not necessarily representative
of operations for a full year for various reasons including changes in
interest rates, volume of loans originated and loans paid off.
2) Loans Receivable
The following is a summmary of Loans Receivable:
<TABLE>
<CAPTION>
@ 9-30-94 @ 12-31-93
<S> <C> <C>
Interest bearing loans $ 74,533,988 $ 89,482,481
Deferred loan fees, net (1,195,230) (1,605,488)
Allowance for loan losses (3,167,292) (3,122,401)
----------- ------------
Total $ 70,171,466 $ 84,754,592
=========== ============
</TABLE>
The following is a summmary of Allowance for Loan Losses:
<TABLE>
<S> <C>
Balance at 12-31-93 $ 3,122,400
Additions to reserve 2,748,737
Charge offs/recoveries (2,703,845)
-----------
Balance at 9-30-94 $ 3,167,292
===========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total consolidated assets of Presidential Mortgage Company (referred
to herein as the "Company" with respect to consolidated information, and as
"Presidential" with respect to the unconsolidated operations of Presidential
Mortgage Company) decreased $5.0 million (4%) to $109.3 million at September 30,
1994 from $114.3 million at December 31, 1993. The decline was due primarily to
reductions in loans receivable, which decreased by $14.6 million (17%), to $70.2
million at September 30, 1994 from $84.8 million at December 31, 1993. Interest
receivable decreased by $.6 million (27%), to $1.5 million at September 30, 1994
from $2.1 million at December 31, 1993. Partially offsetting these declines
were increases of $6.1 million (149%) in accounts receivable, primarily owed in
connection with a loan sale completed at the end of September, and $3.0 million
(23%) in cash and cash equivalents.
Total liabilities increased $.6 million (1%) to $95.0 at September 30,
1994 from $94.4 at December 31, 1993. The increase was primarily due to a $7.0
million (11%) increase in thrift certificates issued by the Company's wholly
owned subsidiary, Pacific Thrift and Loan Company ("Pacific Thrift"). Thrift
certificates increased to $69.4 million at September 30, 1994 from $62.4 million
at December 31, 1993. Offsetting this increase was a decrease of $5.5 million
(23%) in notes payable, to $18.3 million at September 30, 1994 from $23.8
million at December 31, 1993, as Presidential continued to pay down the bank
debt. In addition, accounts and interest payable decreased $1.2 million (23%),
to $4.1 million at September 30, 1994 from $5.3 million at December 31, 1993.
Total partnership capital decreased by $5.6 million (28%) to $14.3
million at September 30, 1994 from $19.9 at December 31, 1993, primarily due to
net operating losses during the first three quarters of 1994.
RESULTS OF OPERATIONS
The Company incurred a net operating loss of $2.8 million for the
quarter ended September 30, 1994, compared with a net operating loss of $.6
million for the quarter ended September 30, 1993. For the nine months ended
September 30, 1994, the Company incurred a net operating loss of $5.6 million,
compared with a net operating profit of $.01 million for the first nine months
of 1993. The net operating losses in the first three quarters of 1994 were due
primarily to declines in net interest income after provision for loan losses
and increases in noninterest expense.
Total interest income declined by $.2 million (6%) for the quarter and
by $1.8 million (15%) for the nine months ended September 30, 1994 compared with
the same periods of 1993. Net interest income after provision for loan losses
declined by $1.4 million (90%) for the quarter and by $2.3 million (40%) for the
nine months ended September 30, 1994, due to a substantial increase in the
provision for loan losses in the third quarter of 1994.
Noninterest income declined by $.4 million (27%) for the quarter and
by $.6 million (15%) for the nine months ended September 30, 1994 compared with
the same periods of 1993, primarily due to declines in fees for foreclosure
services earned by the Company's two trust deed service company subsidiaries.
Noninterest expense increased by $.4 million (12%) for the quarter and
by $2.8 million (28%) for the nine months ended September 30, 1994 compared
with the same periods of 1993. The primary increases were for salaries,
employee benefits and personnel services, general and administrative expenses
and expenses on OREO. Salaries, employee benefits and personnel services
increased by $.5 million (41%) for the quarter and by $1.5 million (36%) for the
nine months ended September 30, 1994 compared with the same periods of 1993,
primarily due to increased staffing at Pacific Thrift and reduced deferral of
loan origination costs pursuant to FASB 91. General and administrative expenses
remained materially unchanged for the third quarter but increased by $.6 million
(14%) for the nine months ended September 30, 1994 compared with same periods of
1993, primarily due to increased professional fees. Expenses on OREO increased
$.1 million (62%) for the quarter and $.7 million (101%) for the nine months
ended September 30, 1994 compared with the same period of 1993, due to
management's decision to upgrade certain OREO for sale.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $2.0 million for the third quarter
of 1994, compared with $.6 million for the third quarter of 1993. For the nine
months ended September 30, 1994, the total provision for loan losses was $2.7
million, 93% higher than the $1.4 million provision for loan losses for the
first nine months of 1993. Approximately half of the increase was due to
management's decision to reserve a higher percentage of the balance of Title I
loans since these loans have no further insurance reserves. The remainder of
the increased reserve was due to an increase for two classified loans at
Pacific Thrift and a management policy decision at Pacific Thrift to
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increase the general reserves on current and adequately secured loans. After
the increase in the provision in the third quarter of 1994, the total allowance
for loan losses was $3.2 million at September 30, 1994, compared with $3.1
million at September 30, 1993. Total delinquencies at September 30, 1994
remained lower than total delinquencies at September 30, 1993 and December 31,
1993.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of the Company's liquidity is the cash and cash
equivalents maintained by Pacific Thrift in connection with its deposit-taking
and lending activities. At September 30, 1994, cash and cash equivalent assets
totalled $16.2 million, compared with $13.2 million at December 31, 1993. The
increase in cash was due to cash payments received on loan sales during the
quarter. Presidential does not maintain significant cash and cash equivalent
assets on its own behalf, and uses substantially all of its cash flow to pay
down the bank debt on a monthly basis.
Pacific Thrift is subject to certain leverage and risk-based capital
adequacy standards applicable to FDIC-insured institutions. At September 30,
1994, as a result of the adjustments made to Pacific Thrift's provision for
loan losses and differences in accounting treatment for sales of senior loan
participation interests between regulatory and generally accepted accounting
principles, Pacific Thrift was classified as "significantly undercapitalized"
under the FDIC's capital adequacy guidelines. See the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, Item 1. "Business --
Supervision and Regulation -- Governmental Policies and Recent Legislation --
Capital Adequacy Guidelines," and see the Company's Report on Form 8-K dated
December 19, 1994.
At September 30, 1994, the Company had no material outstanding
commitments to fund loans. Certificates of deposit which are scheduled to
mature in one year or less from September 30, 1994 totalled $46.5 million.
Based upon historical experience, management believes that a significant
portion of such deposits will be renewed and will remain with Pacific Thrift.
As indicated in the Statements of Cash Flows, the Company utilized
$9.6 million in cash from operating activities from December 31, 1993 through
September 30, 1994, reflecting primarily the $5.6 million net loss for the
first three quarters of 1994 and a $6.0 million increase in accounts receivable
due to a sale of loans completed by Pacific Thrift in September.
The Company realized cash flow from investing activities of $11.0
million from December 31, 1993 through September 30, 1994, primarily from a net
decrease of $11.8 million in loans receivable.
The Company realized $1.5 million from financing activities from
December 31, 1993 through September 30, 1994, reflecting a $7.0 million
increase in thrift certificates issued by Pacific Thrift, used to fund lending
activity by Pacific Thrift. Presidential used $5.5 million in cash from
proceeds of loan payments and sales of loans to pay down the bank debt.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There have been no material developments in legal proceedings since
the date of filing of the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the vote of security holders during the
quarter ended September 30, 1994.
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ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
The Company filed a Report on Form 8-K dated December 19, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRESIDENTIAL MORTGAGE COMPANY
(Registrant)
May 1, 1995 JOEL R. SCHULTZ
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Date Joel R. Schultz,
Chief Managing Officer of Registrant;
President of Presidential Services
Corporation ("PSC"), general partner
of Presidential Management Company,
a California limited partnership,
general partner of the Registrant
May 1, 1995 CHARLES J. SIEGEL
- - ------------------ -------------------------------------
Date Charles J. Siegel,
Chief Financial and Accounting
Officer of the Registrant
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