FORM 10-K
Securities and Exchange Commission
Washington, D. C. 20549
Annual Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Year Ended Commission File Numbers:
December 31, 1999 2-97573; 33-12626;
and 33-19023
NATIONAL MORTGAGE ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1294217
(State or other Jurisdiction (I.R.S. Employer
of incorporation) Identification number)
909 East Main Street
P. O. Box 1575
Richmond, Virginia 23218
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(804) 775-7904
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by checkmark 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 period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past ninety (90) days.
Yes X No
Aggregate market value of voting stock held by
non-affiliates of the registrant as of March 1, 1999:
NONE
Number of shares of common stock outstanding as of March 1,
1999:
Class A: 730 shares
Class B: 1,665 shares
PART I
Item 1. Business
National Mortgage Acceptance Corporation ("NMAC"), was
incorporated under the laws of the Commonwealth of Virginia on
October 19, 1984, as a limited purpose finance corporation under
the name "Thrift Financing Corporation". NMAC adopted its present
name in 1989. NMAC maintains its principal executive offices at
909 East Main Street, Richmond, Virginia 23218, and its telephone
number is (804) 775-7904.
Under its Restated and Amended Articles of Incorporation,
NMAC's business is limited to issuing bonds ("Bonds") principally
secured by, or with interests in, "Mortgage Collateral." Mortgage
Collateral may include mortgage loans and deed of trust loans
secured by real estate and certificates evidencing interests in
pools of such mortgage and/or deed of trust loans, which
certificates may be issued or guaranteed by the Government
National Mortgage Association, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, and/or
private issuers. NMAC may lend the proceeds from the sale of its
Bonds to participating borrowers pursuant to loan or funding
agreements through which NMAC will obtain pledges of Mortgage
Collateral to secure a related series of Bonds. NMAC also may use
the proceeds from the sale of its Bonds to acquire Mortgage
Collateral pledged to secure a series of its Bonds. NMAC's
activities in connection with such transactions may include
holding, transferring, assigning, pledging, financing,
refinancing and otherwise dealing with mortgage loans and
mortgage certificates and any activities incident to or necessary
or convenient to accomplish the foregoing purposes.
Each series of NMAC's Bonds is secured by collateral
consisting primarily of (1) Mortgage Collateral owned by NMAC and
pledged to secure that series of Bonds, (2) funding agreements
with participating borrowers, which funding agreements are
secured by Mortgage Collateral, (3) a combination of such
Mortgage Collateral and funding agreements, and/or (4) amounts
deposited in the various funds and accounts created for such
series of NMAC's Bonds and investments made with such funds.
Collateral for each series of NMAC's bonds is pledged and
assigned by NMAC to a trustee on behalf of the holders of the
Bonds of such series and, except for certain insurance policies
(or deposits partially or entirely in lieu of such insurance
policies), collateral for a particular series of Bonds will not
be available for payment of Bonds of any other series or for
payment of any other liabilities of NMAC. Funds held by the
trustee with respect to each series of Bonds are restricted so as
to assure the payment of principal and interest on the Bonds of
such series to the extent of such funds.
With respect to any one or more series of its Bonds, NMAC
may cause an election to be filed under the Internal Revenue Code
of 1986, as amended (the "Code"), to have the segregated asset
pool comprising the trust estate for such series of Bonds treated
as a real estate mortgage investment conduit ("REMIC") as defined
in the Code (each such series, a "REMIC Series"). If a REMIC
election is to be made with respect to the trust estate for a
series of NMAC's Bonds, the Bonds of such REMIC Series will be
treated as "regular interests" in a REMIC, as such term is
defined in the Code. In connection with one or more REMIC Series,
NMAC expects that it will sell all or substantially all of the
"residual interest," as such term is defined in the Code, in such
REMIC Series to entities engaged, directly or through their
owners or affiliates, in mortgage funding, financing or
origination activities.
Each series of NMAC's Bonds is to be secured by separate
collateral that does not serve as security for any other series
of NMAC's Bonds. The collateral pledged to the trustee securing a
series of NMAC's Bonds is projected to produce cash flow
sufficient, together with reinvestment income thereon at an
assumed annual rate and assuming timely payment to the trustee of
distributions on the Mortgage Collateral for such series, to make
principal and interest payments required to be made on the
outstanding Bonds of that series. With respect to any REMIC
Series of NMAC's Bonds, the sale by NMAC of the "residual
interest" in the trust estate for such REMIC Series will
constitute a sale by NMAC of the economic benefit of the amounts
remaining in the trust estate for such REMIC Series after
payments of the Bonds of the related REMIC Series. Such amounts
will be paid to the purchasers of the residual interest of such
REMIC Series, and will not be available to creditors of NMAC or
available to pay other liabilities or obligations of NMAC.
On September 17, 1999, NMAC offered to subscribe to 1,000
shares of the Common Stock ("Stock") of National Mortgage
Securities Corporation ("NMSC") and agreed, in consideration
therefor, to transfer cash in the amount of $10,000 to NMSC.
NMAC also represented that the Stock would be held for investment
and not for the purpose of distribution or resale. NMAC
transferred cash in December 1999 and recorded an investment in
subsidiary on its books. This investment is included in "Other
Assets" on the Balance Sheet for December 31, 1999. NMSC is a
wholly owned subsidiary of NMAC.
NMSC was formed to purchase or otherwise acquire, own, hold,
pledge, finance, transfer, assign and otherwise deal in or with
mortgage assets (including mortgage loans), mortgage-backed
securities, asset-backed securities, mortgage collateralized
obligations, other interests in real estate, and any combination
of the foregoing, including, but not limited to, (1) mortgage
assets secured by senior or subordinate liens on residential
property, (2) participation interests in mortgage assets, (3)
pass-through, mortgage-backed certificates as to which Federal
National Mortgage Association guarantees the timely payment of
interest at the pass-through rate and the timely payment of
principal, and other securities as dictated in NMSC's Articles of
Incorporation. NMSC has no salaried employees and its officers
and directors also hold offices in NMAC. There was no business
activity in NMSC in 1999.
NMAC has no salaried employees and has entered into
management and administrative services agreements with Scott &
Stringfellow, Inc. ("S&S", formally Craigie Incorporated, an
affiliated company), pursuant to which S&S provides NMAC with
administrative, accounting and clerical services, office space
and the use of the registered service mark "TIMCO" for NMAC's
Bonds. NMAC also enters into management agreements with
non-affiliates with respect to certain services to be provided by
NMAC with respect to REMIC Series of its Bonds.
Information as of December 31, 1999 with respect to NMAC's
outstanding Bonds is included in Notes 5 and 6 of NMAC's
Financial Statements included herein.
Item 2. Properties
NMAC has no material physical properties.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
On March 29, 2000, a meeting of the Shareholders was held
and the following persons were elected to NMAC's Board of
Directors: John Thomas West, IV, Steve C. DeLaney, John B. Jung,
Merlin T. Grim and William E. Hardy.
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
There is no market for NMAC common stock. All outstanding
common stock of NMAC is owned by S&S and by the service
corporation subsidiaries of what were originally nine savings and
loan associations and savings banks. As of December 31, 1999,
four of the nine savings and loan associations and savings banks
are believed to be under the management of federal banking
regulators. There has been no transfer of common stock ownership
and no dividends were paid with respect to NMAC common stock in
1998 or 1999.
Item 6. Selected Financial Data
The following data are for the years ended December 31,
1999, 1998, 1997, 1996, and 1995.
Year Ended December 31,
1999 1998 1997 1996 1995
Statement of
Operations Data
Revenues $1,107,885 $1,411,916 $1,742,471 $2,164,745 $3,339,636
Net Income (Loss)(1,502) 3,641 6,473 (3,210) 12,404
Earnings (Loss) (0.63) 1.52 2.70 (1.34) 5.18
Per Share
Balance Sheet
Total Assets $9,236,904 $12,057,732 $14,998,274 $18,617,696 $23,533,660
Receivables 8,484,012 11,104,810 13,894,203 17,328,606 21,242,798
Pursuant to
Funding Agreements
Bonds Payable*8,484,012 11,104,810 13,894,203 17,328,606 21,242,798
*Does not include Series B and Series D Bonds which are REMIC
Series of NMAC's Bonds. As of December 31, 1999, the outstanding
Series D aggregated $16,382,737. Series B was retired during
1996. See part II, Item 7, of this Report on Form 10-K.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
NMAC was organized to facilitate the financing of long-term
mortgage loans through issuance of its mortgage collateralized
obligations. Such financing is facilitated by NMAC entering into
funding agreements secured by Mortgage Collateral with
participating borrowers and/or by NMAC acquiring Mortgage
Collateral and pledging the mortgage collateralized funding
agreements, directly owned Mortgage Collateral and/or a
combination thereof to secure its Bonds. NMAC does not have, and
is not expected to have, any significant assets other than assets
pledged to secure a specific series of its Bonds. Furthermore, to
the extent NMAC sells the "residual interest" in a REMIC Series
of its Bonds, NMAC will have sold, and will have no further
interest in, the economic benefit of the difference between the
payments received on the collateral (i.e., trust estate) for such
REMIC Series of its Bonds, including reinvestment earnings
thereon, and the debt service on such REMIC Series of its Bonds.
Revenues for 1999, 1998, 1997, 1996, and 1995 consist
primarily of (i) interest on loans receivable under funding
agreements between NMAC and participating borrowers for the
registrant's Series 1985-A Bonds, and Series C Bonds, and (ii)
administrative fees paid to NMAC with respect to its outstanding
Series 1985-A, B, C, and D Bonds. The Series B Bonds and the
Series C Bonds were retired in 1996 and 1995, respectively.
Future revenues are expected to be provided from interest
payments on funding agreements for the Series 1985-A Bonds, and
from administrative fees relating to REMIC Series of NMAC's Bonds
(Series D).
Costs and expenses incurred by NMAC during each period result
primarily from interest payable on its Bonds, expenses with
respect to developing financing programs, and expenses incurred
in connection with administering outstanding Series of its Bonds.
Such costs and expenses incurred in any period, including those
for any future period, depend primarily upon the amount of NMAC's
Bonds issued and outstanding during any such period and the
interest rate payable on such Bonds. NMAC receives, from the
participating borrowers in its Series 1985-A Bonds and the
residual interest holders with respect to its Series D Bonds,
administration payments and fees which have been equal to, less
than or in excess of the costs incurred by NMAC in administering
such outstanding series of Bonds. Such fees and payments received
by NMAC are expected to continue to adequately provide for the
costs incurred by NMAC in administering such Bonds on a current
basis, thereby not impacting upon NMAC's need for liquidity in
the short or long term.
With respect to NMAC's Series B and Series D Bonds, NMAC
caused an election to be made under the Code to have the trust
estate for such Bonds taxed as a REMIC, in which the Series B
Bonds and Series D Bonds, as the case may be, are (or were in the
case of the Series B Bonds) "regular interests", as defined in
the Code. Other than its ongoing fees for administration of the
Series D Bond REMICs, NMAC has no future economic benefit in the
segregated asset pools comprising the Series D REMICs. The
"residual interest" in each of these series was sold by NMAC for
cash. Accordingly, neither the collateral for these REMIC Series
nor the related Bonds are recorded as assets or liabilities,
respectively, of NMAC. The interest income on the collateral for,
and the related interest expense on, the Series D Bonds will be
recorded only within the related REMIC and will have no impact on
NMAC's financial statements. As previously noted, the Series B
Bonds were retired in 1996.
Interest on NMAC's outstanding Series 1985-A and Series C
Bonds was the major source of cost and expenses for the years
ending December 31, 1999, 1998, 1997, and 1996. The Series C
Bonds were retired in 1995. Cash flow from payments of the loans
receivable securing the Series 1985-A Bonds is anticipated to
continue to provide cash sufficient to make all required payments
on the Series 1985-A Bonds. Similarly, cash flow from the
Mortgage Collateral for NMAC's Series D Bonds is anticipated to
continue to provide cash sufficient to make required payments
thereon. Consequently, NMAC anticipates that it will have no
additional cash requirements with respect to any of its
outstanding Bonds. Future net income of NMAC is expected to vary
in direct relation to the issuance of one or more series of its
Bonds in a given year.
With respect to future series of NMAC's Bonds secured by
funding agreements, the participating borrowers will be obligated
to pay costs of issuance with respect to the related series of
Bonds and to pay ongoing Bond administration expenses with
respect to the related series of NMAC's Bonds, including ongoing
fees to NMAC for services rendered by NMAC in connection with the
related series of Bonds. With respect to future REMIC Series of
Bonds issued by NMAC, purchasers of the "residual interest" in
each such REMIC Series will be obligated to pay administration
expenses rendered under the related residual interest agreements.
The purchase price of such residual interests is expected to be
sufficient to pay costs of issuance of such REMIC Series with
respect to outstanding and future series of NMAC's Bonds not paid
from Bond proceeds. NMAC believes that payments on the collateral
securing each series of its Bonds, whether now outstanding or to
be issued in the future, will be sufficient to meet all required
payments of principal and interest on each such series of Bonds.
Furthermore, fees paid to NMAC by participating borrowers and by
purchasers of the "residual interest" in a REMIC Series of NMAC's
Bonds, together with NMAC's interest in any Mortgage Collateral
owned by it and pledged to secure a series of Bonds are expected
to be sufficient to provide for all ongoing costs and expenses.
NMAC therefore anticipates that it will have no additional cash
or liquidity requirements with respect to its obligations under
any outstanding series of its Bonds in either the short or long
term. NMAC also anticipates that the debt service requirements
for any additional series of its Bonds will be satisfied by the
collateral securing such series of Bonds.
To provide for administration and other management support,
NMAC has entered into agreements with S&S and others. Payments
under these agreements are not expected to exceed the amounts
received by NMAC as ongoing fees paid to it by participating
borrowers under their funding agreements and/or purchasers of the
residual interest in any REMIC Series of NMAC's Bonds.
NMAC has established a Series 1985-A Working Capital Reserve,
which reserve is funded by Series 1985-A participating borrowers
from amounts otherwise distributable to them under the terms of
their funding agreements. The Series 1985-A Working Capital
Reserve is available solely to pay any fees, charges, taxes,
assessments, impositions or other expenses of NMAC, other than
Bond administration expenses of NMAC, in connection with the
Series 1985-A Bonds or related funding agreements. NMAC is
empowered, in its sole discretion, to expend amounts on behalf
of, and release amounts to, the Series 1985-A participating
borrowers from this working capital reserve. The Series 1985-A
Working Capital Reserve is not available to pay expenses of NMAC
or claims other than with respect to the Series 1985-A Bonds, is
not pledged to secure the Series 1985-A Bonds and will not be
pledged to secure any other series of NMAC's Bonds. NMAC does not
anticipate establishing working capital reserves with respect to
future series of its Bonds. The remaining amounts in the working
capital reserve were paid to its respective Series 1985-A
participating borrowers in the 4th quarter 1999.
On November 12, 1996 S&S purchased from the Federal Deposit
Insurance Corporation ("FDIC") the stock of three of the
affiliates who participated in the Series 1985-A Bonds. The
affiliates were Atlantic Financing Corporation, Security Federal
Financing Corporation and Mountain Financial Corporation.
Effective June 30, 1998, Atlantic Financing and Security Federal
were merged into Mountain Financial Corporation. In addition, the
parent company of S&S, BB&T Corporation, purchased Life Savings
Bank on March 1, 1998, which owned a fourth affiliate of NMAC
named Life Capital Corporation. Life Capital was purchased by S&S
and subsequently merged into Mountain Financial Corporation
effective September 30, 1998.
As of December 31, 1999, NMAC's consolidated assets were
$9,236,904, including $170,953 in unrestricted cash and
marketable securities. This balance, plus interest earnings from
the investment thereof, is available to pay NMAC's annual
operating expenses, and, if and to the extent necessary, amounts
in connection with the outstanding Bonds of NMAC.
Year 2000 Issue
NMAC did not encounter computer or system problems from the
transition into the Year 2000. The anticipated Year 2000 problem
was publicized as the possible failure or malfunction of systems
or computer chips that improperly recognized date sensitive
information when the year changes to 2000. NMAC is not aware of
Year 2000 problems encountered by major customers, suppliers, or
hardware and software vendors.
Market Risk Disclosure
Interest rate fluctuations tend to have the greatest effect
on the prepayment of loans receivable from affiliates (Series
1985-A Bonds). As interest rates decline there is more likelihood
of prepayment of these loan agreements with affiliates due to
increased principal payments on the mortgage-backed securities
collateralizing the funding agreements. When interest rates
increase there is less likelihood of prepayments of the
underlying collateral. Due to the maturity of the mortgages and
history of prepayments since 1985, interest rate fluctuations
should have a less than significant impact on NMAC's ability to
fund the outstanding Bonds Payable.
Principal value of the collateral plus cash and investments
in the various debt service funds for the Series 1985-A aggregate
approximately $9,310,253 and $13,656,128 compared the bonds
payable of $8,484,012 and $11,104,810.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted in Appendix A.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The persons set forth below are the directors and executive
officers of NMAC as of December 31, 1998:
Current
Name Age Title
John Thomas West, IV 53 President, Chairman of the
Board and Director
William E. Hardy 42 Vice President
Merlin T. Grim 44 Director
Randall B. Saufley 38 Secretary and Treasurer
John W. Wright 50 Director and Vice President
John Thomas West, IV, 53, Executive Vice President, Head of
Fixed-Income BB&T Capital Markets, a division of S&S.
William E. Hardy, 42, Senior Vice President and managing
Director in the Structured Finance Group of S&S.
Merlin T. Grim, 44, Senior Vice President, Treasurer and Risk
Management Officer of S&S.
Randall B. Saufley, 38, Senior Vice President & Controller of
S&S.
Steven C. DeLaney, 45, Executive Vice President and Director
of Capital Markets of S&S.
John W. Wright, 50, Senior Vice President, Head of the
Structured Finance Group of S&S.
All of the foregoing directors, except for John W. Wright, of
NMAC, were reelected at the annual meeting of the shareholders
and officers at the Board of Directors meeting, held as of March
29, 2000 to serve until their successors are elected and shall
qualify. John W. Wright resigned in 2000.
Item 11. Executive Compensation
NMAC has no salaried employees and does not compensate its
directors.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
NMAC has two Classes of its Common Stock. NMAC's Class A and
Class B Common Stock are identical except that Class A Common
Stock is voting but not entitled to dividends and Class B Common
Stock is non-voting but has the right to receive dividends.
The following table sets forth certain information regarding
the beneficial ownership of each class of NMAC's Common Stock by
each entity that owns 5% or more of such Common Stock:
Class of Stock,
Amount of Name and Address
Name and Address Beneficial Ownership of Affiliated
of Beneficial Owner and Percent of Class(1) Financial Institutio
n(1)
Class A % Class B %
Craigie Incorporated 370 50.5 333 20.0 --
Richmond, Virginia
Colonial Service Corp. 40 5.5 148 8.9 Atlantic Permanent
Norfolk, Virginia Federal Savings
Bank,
F.S.B.
Norfolk, Virginia
(See Note (2))
Jefferson Funding 40 5.5 148 8.9 Jefferson Savings
and
Corporation Loan Association
Warrenton, Virginia Warrenton,
Virginia
(See Note (4))
Investors Service Corporation 40 5.5 148 8.9
Investors Savings Bank
Richmond, Virginia Richmond, Virginia
(See Note (2))
Pioneer Financial Services, Inc. 40 5.5 148 8.9
Pioneer Federal
Richmond, Virginia Savings and Loan
Association
Hopewell, Virginia
Roanoke Valley Service 40 5.5 148 8.9 CorEast Federal
Corporation Savings Bank,
F.S.B.
Roanoke, Virginia Roanoke, Virginia
(See Note (2))
Security Financial Service 40 5.5 148 8.9 Security
Federal
Corporation Savings and Loan
Richmond, Virginia Association
Richmond,Virginia
(See Note (2))
Southern Service Corporation 40 5.5 148 8.9 Virginia
Federal
Richmond, Virginia Savings and Loan
Association
Richmond, Virginia
(See Note (3))
Class of Stock,
Amount of Name and Address
Name and Address Beneficial Ownership of Affiliated
of Beneficial Owner and Percent of Class(1) Financial Institutio
n(1)
Class A % Class B %
Southside Service Corporation
40 5.5 148 8.9 Virginia First
Petersburg, Virginia Savings Bank,
F.S.B.
Petersburg,
Virginia
Branch Bank & Trust 40 5.5 148 8.9 Branch Bank &
Trust
Company of Virginia Company of
Virginia
Norfolk, Virginia Norfolk, Virginia
_______________
NOTES:
(1) None of the financial institutions are affiliates of each
other, and none insures or guarantees payment of principal
or interest on NMAC's Bonds, any funding agreement or any
Mortgage Collateral.
(2) The financial institutions are under the Management of the
Federal Deposit Insurance Corporation (FDIC).
(3) In December, 1988 the Virginia Federal Savings and Loan
Association was purchased by MNC Financial Corporation of
Baltimore, Maryland, subsequently purchased by SunTrust
Bank, Richmond, Virginia.
(4) In January, 1995, Jefferson Savings & Loan Association was
purchased by SunTrust Bank, Richmond, Virginia.
Item 13. Certain Relationships and Related Transactions
During the year ended December 31, 1999, NMAC incurred
general and administrative expenses in connection with the
management agreements described in Item 1 with Craigie
Incorporated amounting to approximately $10,700. Directors John
Thomas West, IV, Steven C. DeLaney, William E. Harley, John B.
Jung, Jr. and Merlin T. Grim of NMAC are officers of S&S.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) (1)(2)The response to this portion of Item 14
is submitted in Appendix A.
(3) See Exhibit Index immediately preceding
Exhibits.
(b) No reports on Form 8-K were filed during the last
quarter of the fiscal year ended December 31, 1998.
(c) See Exhibits and Exhibit Index.
Supplemental information furnished with reports filed
pursuant to Section 15(d) of the Act by registrants which have
not registered securities pursuant to Section 12 of the Act.
NMAC has not sent an annual report or proxy material to its
security holders and does not intend to distribute such
information.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, NMAC has duly caused this report
to be signed on its behalf by the undersigned there and to duly
authorize.
NATIONAL MORTGAGE ACCEPTANCE
CORPORATION
By:
_____________________________
John Thomas West, IV,
Chairman of the Board of
Directors
Pursuant to the requirements of the Securities and Exchange
Act of 1934, this report is cosigned below by the following
persons on behalf of NMAC and in the capacities and on the dates
indicated.
Date:
March 29, 2000 By:
_____________________________
John Thomas West, IV
President, Chairman of the
Board and Director
March 29, 2000 By:
_____________________________
William E. Hardy
Vice President and Director
March 29, 2000 By:
_____________________________
Merlin T. Grim, Director
March 29, 2000 By:
_____________________________
Randall B. Saufley
Secretary and Treasurer
March 29, 2000 By:
_____________________________
Steven C. DeLaney, Director
APPENDIX A
Item 15(a) (1) and (2)
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Report of Arthur Andersen LLP, Independent Auditors
Balance Sheets at December 31, 1999 and 1998
Statements of Operations and Retained Earnings for
the years ended December 31, 1999, 1998 and 1997
Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
Notes to Financial Statements
All schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
the notes thereto.
National Mortgage Acceptance Corporation and Subsidiary
Consolidated Financial Statements as of December 31,
1999, 1998 and 1997
Together with Report of Independent Public Accountants
Report of Independent Public Accountants
To National Mortgage Acceptance Corporation:
We have audited the accompanying consolidated balance sheets of
National Mortgage Acceptance Corporation and Subsidiary (the
Company) as of December 31, 1999 and 1998, and the related
statements of operations and retained earnings and cash flows for
each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of National Mortgage Acceptance Corporation
and Subsidiary as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.
Charlotte, North Carolina,
March 24, 2000.
National Mortgage Acceptance Corporation and Subsidiary
Consolidated Balance Sheets as of December 31, 1999 and 1998
Assets 1999 1998
Cash $ $
19,308 11,289
Trading securities, at fair value 151,645 240,885
Restricted cash and investments - Series 1985-A
working capital reserve, at fair value (Note 0 59,046
4)
Loans receivable from affiliates, estimated fair
value of $8,840,659 in 1999 and $12,243,053
in 8,484,012 11,104,810
1998 (Note 3Accrued interest receivable from affiliates
477,226 624,646
Other assets 104,713 17,056
$9,236,904 $12,057,732
Liabilities and Shareholders' Equity Liabilities:
Bonds payable, estimated fair value of
$8,840,659 in 1999 and $12,243,053 in 1998 $8,484,012 $11,104,810
(Note 5)
Accrued interest payable (Note 5) 477,226 624,646
Other liabilities, principally to affiliates 38,714 89,603
(Note 3)
Total liabilities 8,999,952 11,819,278
Shareholders' equity:
Common stock; $1 par value-
Class A (without right to dividend) - Authorized
7,500 shares, issued and outstanding 730 730 730
shares
Class B (nonvoting) - Authorized 7,500 shares,
issued and outstanding 1,665 shares 1,665 1,665
Paid-in capital 182,565 182,565
Retained earnings 51,992 53,494
Total shareholders' equity 236,952 238,454
$9,236,904 $12,057,732
National Mortgage Acceptance Corporation and Subsidiary
Consolidated Statements of Operations and Retained Earnings
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
Revenues:
Interest income on loans to affiliates
$1,032,062 $1,328,456 $1,656,833
Other interest income 11,472 17,987 12,172
Management fees from affiliates 60,913 62,840 66,185
Net trading securities gains 3,438 2,633 7,281
Total revenues 1,107,885 1,411,985 1,742,471
Expenses:
Interest on bonds 1,032,062 1 ,328,462 1,656,833
Management fees 60,913 62,840 66,185
Other 16,782 16,069 12,575
Total expenses 1,109,757 1,407,357 1,735,593
(Loss) income before income taxes (1,872) 4,551 6,878
Income tax expense (benefit) (370) 910 405
Net (loss) income (1,502) 3,641 6,473
Retained earnings, beginning of year 53,494 49,853 43,380
Retained earnings, end of year $ $ $
51,992 53,494 49,853
(Loss) income per share - Basic and $ $ $
diluted (0.63) 1.52 2.70
National Mortgage Acceptance Corporation and Subsidiary
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
Cash flows for operating activities:
Net (loss) income $ $ $
(1,502) 3,641 6,473
Adjustments to reconcile net (loss)
income to net cash provided by (used
in) operating activities-
Decrease (increase) in trading 89,240 4,679 (8,853)
securities
Decrease (increase) in restricted cash
and investments - Working capital 59,046 (2,589) (2,792)
reserve
Decrease in accrued interest receivable
from affiliates 147,420 156,903 193,185
(Increase) decrease in other assets (87,657) 2,190 1,505
Decrease in accrued interest payable
(147,420) (156,903) (193,185)
Increase (decrease) in other
liabilities, principally to affiliates
(51,108) 2,299 1,288
Net cash provided by (used in) operating
activities 8,019 10,034 (1,974)
Cash flows provided by investing
activities - Payments received on
2,620,798 2,789,393 3,434,403
loans to affiliates
Cash flows used in financing activities
- - Payments on bonds payable (2,620,798)(2,789,393)(3,434,403)
Net increase (decrease) in cash 8,019 10,034 (1,974)
Cash, beginning of year 11,289 1,255 3,229
Cash, end of year $19,308 $11,289 $ 1,255
Supplemental disclosures of cash flow
information:
Cash paid during the year for interest
$1,179,482 $1,485,359 $1,850,018
Cash paid for income taxes 0 1,096 0
National Mortgage Acceptance Corporation
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
1. Organization:
National Mortgage Acceptance Corporation (NMAC or the Company),
formerly Thrift Financing Corporation, is a limited purpose
finance subsidiary of Scott & Stringfellow, Inc. (Scott &
Stringfellow) which owns 51% of the Class A common stock and 20%
of the Class B common stock. The remaining Class A and Class B
common stock is owned primarily by subsidiaries of institutions
involved in the financial services industry. NMAC was organized
on October 19, 1984, for the purpose of providing access to
certain capital markets for qualified financial institutions and
their affiliates. NMAC acts as a conduit for such institutions
by the issuance of its Thrift Industry Mortgage Collateralized
Obligation Bonds and other series of bonds (Bonds). The issues
are structured so that collection of principal and interest from
loans receivable from affiliates, including the effects of
prepayments thereon, equal the amount of principal and interest
due on the related bonds. NMAC generally obtains bond offering
fees at the bond issuance date and administrative fees, as
defined, for each offering over the period the Bonds remain
outstanding. In 1999, National Mortgage Securities Corporation
(NMSC), a wholly owned subsidiary of NMAC, was formed by NMAC for
the purpose of dealing with mortgage assets (including but not
limited to mortgage loans), mortgage backed securities, asset-
backed securities, mortgage collateralized obligations and other
interests in real estate. NMSC had no business activity in 1999.
Collateralized Mortgage Obligation (CMO) Issuances
When issued as a CMO, each series of Bonds is secured by the
mortgage collateral and related funding agreements or promissory
notes entered into by the participating thrift institutions or
their finance subsidiaries. Each series of Bonds is specifically
collateralized by mortgage-backed securities. Such collateral
was initially pledged to NMAC, which in turn pledged the
collateral to an independent trustee. As principal and interest
are received by the trustee, the bonds payable and the funding
agreements/notes receivable are concurrently reduced, as defined
within each individual series supplement to the bond indenture
and funding agreement, respectively. Principal and interest are
payable semiannually or quarterly.
As of December 31, 1999 and 1998, NMAC had issued collateralized
mortgage obligations (Series 1985-A and Series C), lending the
proceeds therefrom to finance subsidiaries of entities that are
affiliated with certain shareholders of NMAC and Scott &
Stringfellow. Only Series 1985-A was outstanding at December 31,
1999 and 1998.
Real Estate Mortgage Investment Conduit (REMIC) Issuance
For Bonds issued after January 1, 1987, and for which an election
was made for "real estate mortgage investment conduit" status
under the Internal Revenue Code of 1986, as amended, NMAC
simultaneously issued a series of its Bonds and purchased
mortgage collateral. The Collateral is segregated into an asset
pool comprising the trust estate for that series of Bonds. The
Bonds of such series are considered "regular interests" in such a
REMIC. The trust assets serve as the sole collateral for the
repayment of such series of Bonds. The REMIC also issues
residual interest certificates, whereby the holder's cash
investment entitles it to receive excess cash flow from the trust
estate for such series of Bonds, defined as the excess of the
payments of principal and interest on the collateral for that
series of Bonds, and reinvestment earnings thereon, over bond
principal and interest costs and related expenses.
As of December 31, 1999 and 1998, NMAC had issued one series of
Bonds (Series D) under the REMIC structure.
2. Summary of Significant Accounting Policies:
New Accounting Pronouncements
During 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement
replaces existing pronouncements and practices with a single,
integrated accounting framework for derivatives and hedging
activities requiring companies to formally document, designate,
and assess the effectiveness of transactions that receive hedge
accounting. During 1999, the FASB issued SFAS No. 137, which
deferred the effective date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. Management believes there will be
no material effect on the financial statements from the adoption
of the pronouncement.
Investment Securities
The Company classifies all of its investment securities and
restricted cash and investments in the Series 1985-A working
capital reserve (working capital reserve securities) as trading
securities. Trading securities are bought and held principally
for the purpose of selling them in the near term.
Trading securities and working capital reserve securities are
recorded at fair value based on quoted market prices. Gains and
losses on trading securities are included in earnings. Realized
and unrealized gains and losses on working capital reserve
securities are recorded as an adjustment to interest rebates
payable (see Notes 3 and 4).
Realized gains and losses are determined using the
specific-identification method.
Loans Receivable and Bonds Payable
The issuance of Bonds is treated as a financing unless the
transaction qualifies as a sale of assets under generally
accepted accounting principles. To date, the Bonds issued under
the CMO structure have been accounted for as financings, while
the Bonds issued as a REMIC structure have qualified for sale
treatment. No gain or loss, exclusive of bond offering fees in
excess of related expenses, resulted from the sales. Due to the
reduction of the loans receivable and bonds payable as a function
of payments of the underlying collateral, the ultimate timing of
the maturities of the respective loans and Bonds is not readily
determinable. The estimated fair value of loans receivable is
determined based on quoted market prices for the underlying
collateral. The estimated fair value of bonds payable is
determined based on quoted market prices for the Bonds.
Interest Income and Expense
Interest income, net of rebates (see Note 3) and interest expense
are recorded as accrued.
Bond Issuance Costs
Costs related to the issuance of specific series of Bonds are
charged to the entities participating in the offering. Ongoing
costs related to registration statements and related prospectus
material, prepared in anticipation of future offerings, are
expensed as incurred. No such costs were incurred from 1997
through 1999.
Earnings Per Share
During 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128. Basic and diluted
earnings per share are computed by dividing net income or loss by
the weighted average number of shares of Class A and Class B
common stock (2,395 for 1999, 1998 and 1997) outstanding during
the period. There were no common stock equivalents for any of
the periods presented.
Income Taxes
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under the asset and liability method of Statement No.
109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards.
Reclassifications
Certain amounts in 1998 financial statements have been
reclassified to conform with 1999 presentation.
3. Loans Receivable:
Loans receivable on the Series 1985-A Bonds are expected to
mature in varying amounts prior to the year 2016. The loan
agreements, as amended, generally provide for interest to be paid
at a rate equal to the lesser of the highest bond interest rate
or the weighted bond interest rate plus 20 basis points per
annum. The resulting effective rates of interest on the loans
(equal to the lesser of 11.25% or the weighted average rate on
the debt plus 20 basis points) were 11.25% in 1999, 1998
and 1997. Interest rebates payable and accumulated earnings from
restricted cash and investments are included in other liabilities
and aggregated $0 and $59,046 as of December 31, 1999 and 1998,
respectively. The timing of payment of such rebates is at the
discretion of the management of NMAC.
The funding agreements for Series 1985-A Bonds are collateralized
by mortgage-backed securities and by certain debt service funds
owned by the participating financial institution subsidiaries.
Those funds and the collections on the mortgage-backed securities
are held by the bond trustee until the respective semiannual
payment dates, at which time they are distributed as payments on
the Bonds. Excess funds (rebates) on the Series 1985-A Bonds, if
any, are available for return to the participating thrift
institution subsidiaries.
Loans receivable of $7,410,044 at December 31, 1999, are from
Mountain Financial Corporation, a wholly owned, limited-purpose
finance subsidiary of Scott & Stringfellow (the Finance
Subsidiary). The Finance Subsidiary and four other entities were
formed by certain depository institutions to facilitate the
issuance of the Series 1985-A Bond through the Company.
Subsequently, Scott & Stringfellow acquired 100% ownership of
these entities through a purchase. During 1998, Scott &
Stringfellow merged three other wholly owned finance subsidiaries
into the Finance Subsidiary (two mergers effective June 30, 1998,
and the third effective September 30, 1998.)
4. Restricted Cash and Investments:
Restricted cash and investments represent interest rebates which
have been invested in U.S. Government agency obligations,
corporate obligations, cash and cash equivalents and are
restricted to repaying the interest rebates payable and the
income earned on these funds.
5. Bonds Payable:
Series 1985-A Bonds payable had aggregate effective rates of
interest of approximately 11.25% during 1999, 1998 and 1997. The
Series 1985-A Bonds are collateralized by the respective loans
receivable (together with collateral thereon) and consist of the
following as of December 31, 1999 and 1998:
Principal
Inter Stated Balance,
est December 31
Class Rate Maturity 1999 1998
Date
Series 1985-A - A-411.25%
January 1,2016 $8,484,012 $11,104,810
The Series 1985-A Bonds require the payment of interest
semiannually.
The stated principal value of the collateral (FHLMC participation
certificates) plus the cash and investments in the various debt
service funds for the Series 1985-A aggregate approximately
$9,310,253 and $13,656,128 as of December 31, 1999 and 1998,
respectively. These assets are held by the trustee and, although
not assets of NMAC, are pledged, together with interest income
thereon, as collateral for the Bonds.
6. REMIC Issuances:
NMAC has issued two REMIC series, aggregating $333,067,000
(Series B Bonds) and $300,500,000 (Series D Bonds) at issuance.
Concurrent with the issuance of these bonds, NMAC sold the entire
residual interest in the respective segregated asset pool
comprising the trust estate. A portion of the Series B residual
interest was purchased by affiliates of certain shareholders.
The Series B Bonds were retired during 1996.
As of December 31, 1999 and 1998, the following REMIC Series
Bonds, which are not recorded as liabilities of NMAC, were
outstanding:
Principal
Interest Stated Balance,
December 31
Class Rate Maturity Date 1999 1998
Series D-
D-2 6.712 May 1, 2016 $ $
5% 0 0
D-4 7.125 May 1, 2016 0 0
D-5 6.962 May 1, 2016 0 0
5
D-6 9.75 November 1,2017 16,382,737 24,461,901
$16,382,737 $24,641,901
The offering consisted of Class D-4, which were retired during
1996, D-6 Bonds (Standard Bonds) and Class D-2 and D-5 Bonds (the
Floating Rate Bonds), which were also retired during 1996. The
floating interest rates were based on the London interbank
offered quotations for three-month Eurodollar deposits.
The stated principal value of the collateral for Series D (GNMA
certificates), aggregates approximately $17,363,487 and
$24,860,376 as of December 31, 1999 and 1998, respectively. Such
collateral, together with interest income thereon, is only
available to repay the specific bond series.
7. Income Taxes:
The components of income tax expense for 1999, 1998 and 1997 were
as follows:
December 31
1999 1998 1997
Current-
Federal $(260) $640 $285
State (110) 270 120
Income tax expense (benefit) $(370) $910 $405
The actual income tax expense for 1999, 1998 and 1997 differs
from the "expected" income tax expense (benefit) (computed by
applying the statutory U.S. federal corporate income tax rate of
35% to income (loss) before income taxes) as follows:
Years Ended
December 31
1999 1998 1997
Income tax expense (benefit)
at statutory rate $(655) $1,593 $2,407
Effect of graduated income 374 (910) (1,376)
tax rates
State tax expense (benefit),
net of federal expense (89) 227 349
(benefit)
Change in valuation allowance 0 0 (975)
Actual income tax expense $(370) $910 $ 405
(benefit)
There were no deferred taxes for the years ended December 31,
1999 and 1998. As of December 31, 1998, there were income taxes
payable of $219 which is included in other liabilities.
8. Related-party Transactions:
Under the terms of its management contract, Scott & Stringfellow
provides office space and equipment and certain managerial,
administrative, financial and other services to NMAC. Management
fees are charged to NMAC and ultimately to the borrowers as an
ongoing cost determined at the date of the bond offering.
Management fees are computed as a percentage of the outstanding
bonds. Management fees paid to Scott & Stringfellow were
approximately $10,709, $12,600 and $24,600 during 1999, 1998 and
1997, respectively.
Scott & Stringfellow acts as co-managing underwriter for all of
the bond offerings and is the counterparty to all securities
transactions entered into by the Company.
EXHIBIT INDEX
3.1 Restated Articles of Incorporation of Thrift Financing
Corporation ("TFC") (since June 2, 1989 National Mortgage
Acceptance Corporation and hereinafter referred to as
"NMAC"), previously filed as Exhibit 3.1 to NMAC's,
Registration Statement on Form S-11, Registration No.
2-97573, and incorporated by reference.
3.2 Articles of Amendment to NMAC's Restated Articles of
Incorporation, previously filed as Exhibit 3.2 to NMAC's
Registration Statement on Form S-11, Registration No.
2-97573, and incorporated by reference.
3.3 Bylaws of NMAC, previously filed as Exhibit 3.4 to NMAC's
Registration Statement on Form S-11, Registration No. 2-
97573, and incorporated by reference.
3.4 Articles of Amendment dated June 1, 1989 to Restated
Articles of Incorporation previously filed as Exhibit 3.5 to
NMAC's Post-Effective Amendment No. 1 on Form S-3 to S-11
Registration No. 33-19023 and incorporated by reference.
4.1 Indenture dated as of May 1, 1985 ("Indenture") between NMAC
and Texas Commerce Bank National Association as trustee
("Trustee"), previously filed as Exhibit 4.1 to Amendment
No. 1 to NMAC's Registration Statement on Form S-11,
Registration No. 2-97573 and incorporated by reference.
4.2 General Supplement relating to Subsequent Series dated as of
January 1, 1987, previously filed as Exhibit to NMAC's Form
8-K filed on February 10, 1985, and incorporated by
reference.
4.3 Series Supplement to the Indenture, dated as of July 1,
1985, relating to Series 1985-A Bonds, previously filed as
Exhibit 4 to NMAC's Form 8-K filed on July 23, 1985, and
incorporated by reference.
4.4 Series Supplement to the Indenture, dated as of January 20,
1987, relating to Series B Bonds, previously filed as
Exhibit 4.3 to NMAC's Form 8-K filed on February 10, 1987,
and incorporated by reference.
4.5 Series Supplement to the Indenture, dated as of March 20,
1987, relating to Series C Bonds, previously filed as
Exhibit 4.3 to NMAC's Form 8-K filed on April 8, 1987, and
incorporated by reference.
4.6 Series Supplement to the Indenture, dated as of October 30,
1987, relating to Series D Bonds, previously filed as
Exhibit 4.3 to NMAC's form 8-K filed on November 12, 1987,
and incorporated by reference.
4.7 Form of Second General Supplement to Indenture relating to
Subsequent Series previously filed as Exhibit 4.4 to NMAC's
Post-Effective Amendment No. 1 on Form S-3 to S-11
Registration No. 33-19023 and incorporated by reference.
11.1 See Appendix A.
12.1 Statement re computation of ratios.
NATIONAL MORTGAGE ACCEPTANCE CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31,
1999 1998 1997 1996 1995
Earnings:
Income(Loss) before
Income taxes (1,872) 4,551 6,878 (3,210) 12,404
Fixed charges 1,032,062 1,328,456 1,656,833 2,071,214 3,217,819
charges
1,030,190 1,333,007 1,663,711 2,068,004 3,230,223
Fixed charges:
Interest expense
1,032,062 1,328,456 1,656,833 2,071,214 3,217,819
Ration of earnings to fixed
charges 0.998 1.003 1.004 0.998 1.004
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<PERIOD-END> DEC-31-1999
<CASH> 19,308
<SECURITIES> 151,645
<RECEIVABLES> 8,484,012
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<TOTAL-ASSETS> 9,236,904
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<COMMON> 184,960
<OTHER-SE> 51,992
<TOTAL-LIABILITY-AND-EQUITY> 9,236,904
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<TOTAL-REVENUES> 1,107,885
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