<PAGE>
FORM 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended December 31, 1995
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 33-02105
NEWMAN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 84-1007510
(State or other (IRS Employer
Jurisdiction of Identification
Incorporation) Number)
1801 CALIFORNIA STREET, SUITE 3700; DENVER, COLORADO
(Address of principal executive offices)
80202-2637
(Zip Code)
(303) 293-8500
(Registrant's telephone number, including area code)
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 shorter
period of time that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
(1) Yes XX No
---- ----
(2) Yes XX No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock: 1,000 shares
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Attached as Exhibit A.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto.
BACKGROUND AND LIQUIDITY
The registrant has issued two series of its Collateralized
Multifamily Housing Bonds ("Bonds") pursuant to an Indenture ("Indenture")
dated as of July 1, 1986 between the registrant and First Interstate Bank of
Denver, National Association, as trustee ("Trustee"). On July 25, 1986, the
registrant issued $6,128,400 principal amount of its Bonds, Series 1986-A
(GNMA security) (the "Series 1986-A Bonds") pursuant to the Indenture and a
Series 1986-A Supplement. On August 26, 1986, the registrant issued
$7,380,000 principal amount of its Collateralized Multifamily Housing Bonds,
Series 1986-B (GNMA Security) (the "Series 1986-B Bonds") pursuant to the
Indenture and a Series 1986-B Supplement. The proceeds of the offerings were
used to acquire certificates ("GNMA Certificates") in the principal amount of
$6,128,400 and $7,365,000 guaranteed by the Government National Mortgage
Association. The Series 1986-A Bonds were redeemed in full on August 3, 1990.
Cash flow from payments on the GNMA Certificates, together with
reinvestment earnings thereon, is anticipated to provide cash sufficient to
make all required payments on the Bonds. Consequently, the registrant
anticipates that it will have no additional cash requirements with respect to
its outstanding Bonds.
BUSINESS ENVIRONMENT AND EVENTS
The registrant competes with the GNMA whole loan market to provide
funding for FHA insured multifamily housing project loans. During periods
when interest rate yield curves are relatively steep, the registrant has a
competitive advantage over the GNMA whole loan market because it can
structure debt as a combination of serial bonds, term bonds, and deferred
interest bonds, thereby taking advantage of lower interest rates on the "low
end" of the yield curve. Conversely, during periods when interest rate yield
curves are relatively flat, the registrant has no advantage over the GNMA
whole loan market and is actually at a disadvantage because of legal and
underwriting costs associated with issuing a series of bonds under the
Indenture.
For the past several years, the interest rate yield curve has been
relatively flat and the registrant has been unable to complete efficiently
with the GNMA whole loan market. As a consequence, the registrant has not
issued Bonds since the initial two series of Bonds in 1986.
RESULTS OF OPERATIONS AND TRENDS
<PAGE>
Generally, revenues and expenses are relatively constant as a result of
fixed rate GNMA securities producing revenue to pay fixed rate bond interest.
Revenue for GNMA securities represents virtually 100 percent (100%) of all
revenues. Bond interest and the amortization of organization costs represent
97 percent (97%) of all expenses.
During the three months ended December 31, 1995 and 1994, the revenues
for the registrant were $163,092 and $164,433, respectively, which consisted
primarily of interest received from the GNMA Certificates, amortization of
discounts on the GNMA Certificates, and interest earned on temporary cash
investments. Payment of interest on the outstanding Bonds and the
amortization of organization costs were the major sources of costs and
expenses. Costs and expenses decreased two percent (2%) during the three
months ended December 31, 1995 and 1994.
The registrant's ongoing costs and expenses will be paid from interest
income from the remaining GNMA Certificate and interest earnings thereon
after payment of amounts required to be deposited into the Collection Account
for the Series 1986-B Bonds. The registrant anticipates that amounts not
required to be deposited into the Collection Account will be sufficient to
pay costs and expenses of the Trustee and other related expenses of the Bonds
if the interest income from the GNMA Certificate can be invested at a rate of
not less than three percent (3%) per year during the term of the Bonds. In
addition, amounts released to the registrant from the lien of the Indenture
and not distributed to its shareholder will be available to pay unanticipated
expenses in connection with the administration of the Bonds and other
expenses incurred by the registrant and taxes, as needed or required.
<PAGE>
PART II OTHER INFORMATION
Item 5. OTHER INFORMATION
The Company has initiated a plan to defease the Series 1986B Bonds to
the first optional redemption date, August 20, 1996. If the defeasance
occurs, all bonds will be secured by an escrow of U.S. Government
obligations and all bonds will be redeemed on August 20, 1996, at a
price of 100% of par value (accreted value in the case of compound
interest bonds) plus accrued interest. While the Company is actively
pursuing the plan, there can be no assurance that the defeasance will
occur.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Indenture dated as of July 1, 1986 (the "Indenture") between the
Company and First Interstate Bank of Denver National Association, as
Trustee (the "Trustee"), previously filed as Exhibit 4.1 to the
Company's Post-Effective Amendment No. 1 to Form S-11, Registration No.
33-02105 and incorporated by reference.
Series Supplement to the Indenture, dated as of July 1, 1986, relating
to Series 1986-A Bonds, previously field as Exhibit 4 to the Company's
Form 8-K filed on August 6, 1986 and incorporated by reference.
Series Supplement to the Indenture, dated as of August 1, 1986,
relating to Series 1986-B Bonds, previously filed as Exhibit 4 to the
Company's Form 8-K filed on September 3, 1986 and incorporated by
reference.
27 Financial Data Schedule
b. Reports on Form 8-K. The registrant has not filed any Form 8-K
during the quarter ended December 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Newman Financial Corporation
(Registrant)
Dated: February 12, 1996
By: /s/ DAVID W. CURTISS
---------------------------------
David W. Curtiss, Treasurer
and Principal Financial Officer
<PAGE>
Exhibit A to Form 10-Q
for Quarter Ended December 31, 1995
NEWMAN FINANCIAL CORPORATION
INTERIM FINANCIAL STATEMENTS
DECEMBER 31, 1995
(UNAUDITED)
<PAGE>
NEWMAN FINANCIAL CORPORATION
BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1995
<TABLE>
<CAPTION>
DECEMBER 1995 JUNE 1995
------------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash $ 3,561 $ 4,240
Restricted assets
Cash and temporary cash investments 241,700 244,409
Investment in government securities,
net of discount of $121,523 and
$123,890 at December 31, and June 30
respectively 6,857,180 6,885,247
Accrued interest receivable 53,891 53,734
---------- ----------
7,152,771 7,183,390
Organization costs, net of accumulated
amortization 3,237 3,300
---------- ----------
$7,159,569 $7,190,930
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities
Accounts payable $ 1,639 $ 4,144
Payable to parent company 21,236 16,936
Accrued interest payable 14,000 23,000
Bonds payable, including accrued
interest of $3,681,521 and $3,392,846
at December 31 and June 30, net of
discount of $86,547 and $88,238 at
December 31 and June 30 respectively 6,856,763 6,881,397
---------- ----------
Total liabilities 6,893,638 6,925,477
Stockholder's equity
Common stock-authorized, 5,000 shares
of $.10 par value, issued and
outstanding, 1,000 shares 100 100
Capital in excess of par value 254,343 254,343
Retained earnings 28,043 27,565
---------- ----------
282,486 282,008
Less note receivable-parent company (16,555) (16,555)
---------- ----------
265,931 265,453
---------- ----------
$7,159,569 $7,190,930
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these interim statements.
<PAGE>
NEWMAN FINANCIAL CORPORATION
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues
Interest income $163,092 $164,443 $333,050 $333,460
Costs and Expenses
Interest expense 161,505 161,290 322,859 322,493
Amortization of organization
costs (Note A4) 31 31 63 63
General and Administrative expenses (664) 2,382 9,349 7,380
-------- -------- -------- --------
160,872 163,703 332,271 329,936
-------- -------- -------- --------
Earnings before income taxes 2,220 740 779 3,524
Income tax (expense) benefit (800) (300) (300) (1,400)
-------- -------- -------- --------
Net earnings $ 1,420 $ 440 $ 479 $ 2,124
-------- -------- -------- --------
-------- -------- -------- --------
Net earnings per common $ 1.42 $ 0.44 $ 0.48 $ 2.12
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of common
shares outstanding 1,000 1,000 1,000 1,000
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NEWMAN FINANCIAL CORPORATION
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
--------- -------
<S> <C> <C>
Cash flows from operating activities:
New income (loss) $ 479 $ 2,124
Adjustments required to reconcile net earnings
(loss) to net cash provided by operating
activities:
Amortization of GNMA discounts (2,367) (2,367)
Amortization of organization costs 63 63
Amortization of bond discount 1,691 5,074
Decrease (increase) in accrued interest
receivable (157) (117)
Increase (decrease) in accounts payable (2,506) (2,503)
Increase (decrease) in accrued interest
payable (including interest on
Compound Interest Bonds) 279,675 251,290
--------- ---------
Net cash provided by operating activities 276,878 253,564
--------- ---------
Cash flows from investing activities:
Net decrease in restricted cash 2,709 1,087
Principal payments on GNMA securities 30,434 27,686
Net advances from parent 4,300 7,650
--------- ---------
Net cash provided by investing activities 37,443 36,423
--------- ---------
Cash flows from financing activities:
Payment of bond principal (315,000) (290,000)
--------- ---------
Net cash used in financing activities (315,000) (290,000)
NET INCREASE (DECREASE) IN CASH
AND TEMPORARY CASH
INVESTMENTS
(679) (13)
Unrestricted cash at beginning of period 4,240 710
--------- ---------
Unrestricted cash at end of period $ 3,561 $ 697
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
NEWMAN FINANCIAL CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTES A--GENERAL
1. Organization
Newman Financial Corporation (the Company) was incorporated in the State
of Delaware on August 30, 1985 and is a wholly owned subsidiary of Newman
Financial Services, Inc. (NFSI). The Company was organized for the sole
purpose of issuing and selling bonds, notes, and other obligations which
would be collateralized by certain mortgage collateral guaranteed by the
Government National Mortgage Association (GNMA) or mortgage notes that are
insured by the United States Department of Housing and Urban Development
acting through the Federal Housing Administration pursuant to the National
Housing Act, as amended, together with certain funds and other collateral.
In June 1986, a shelf registration statement filed with the Securities and
Exchange Commission became effective authorizing the Company to issue up to
$250,000,000 in Collateralized Multifamily Housing Bonds.
2. INTERIM FINANCIAL INFORMATION
The financial information contained herein is unaudited but includes all
normal and recurring adjustments which, in the opinion of management, are
necessary to present fairly the information set forth. The financial
statements should be read in conjunction with the Notes to Financial
Statements which are included in the Company's Form 10-K dated
September 9, 1995.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF DECEMBER 31, 1995 AND STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,561
<SECURITIES> 6,857,180
<RECEIVABLES> 53,891
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,159,569
<CURRENT-LIABILITIES> 0
<BONDS> 6,856,763
0
0
<COMMON> 100
<OTHER-SE> 265,831
<TOTAL-LIABILITY-AND-EQUITY> 7,159,569
<SALES> 0
<TOTAL-REVENUES> 333,050
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,412
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 322,859
<INCOME-PRETAX> 779
<INCOME-TAX> 300
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 479
<EPS-PRIMARY> .48
<EPS-DILUTED> 0
</TABLE>
