<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1994.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission file number 33-36775.
SUMMIT SECURITIES, INC.
(Exact name of registrant as specified in its charter)
IDAHO 82-0438135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
WEST 929 SPRAGUE AVENUE, SPOKANE, WASHINGTON 99204
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (509)838-3111
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 X
No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [x]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant: Not Applicable
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of September 30, 1994
Single Class: 10,000
Documents incorporated by reference: None.
<PAGE>
PART I
Item 1. Business
GENERAL
Summit Securities, Inc. (Summit) is engaged in the business of
investing in Receivables through funds provided by Receivable
investment proceeds, certificate sales, and preferred stock sales.
Summit's goal is to achieve a positive spread between the return on its
Receivable investments and its cost of funds. Summit may also engage
in other businesses or activities without restriction in accordance
with the provisions of its Articles of Incorporation.
Summit was originally organized as a wholly-owned subsidiary of
Metropolitan Mortgage & Securities Co., Inc., a Washington corporation
(Metropolitan). On September 9, 1994, Summit, Metropolitan and C. Paul
Sandifur, Jr. completed a sale of the common stock of Summit to
National Summit Corporation. National Summit Corporation is a holding
company wholly owned by C. Paul Sandifur Jr. Mr. Sandifur holds
effective control over Metropolitan. Prior to the sale, Mr. Sandifur
held effective control of Summit, through Metropolitan. Following the
sale, Mr. Sandifur holds effective control of Summit through National
Summit Corporation. Prior to the sale, the officers and directors of
Summit were also officers or directors of Metropolitan and/or its
affiliates. Contemporaneously with the sale, the officers and
directors resigned and new officers and directors were elected. The
newly elected officers and directors are employees of Metropolitan, but
not officers or directors of Metropolitan or any of its subsidiaries.
There are no plans to make any material changes in the business,
operations or administration of Summit as a result of the sale. See
"CERTAIN TRANSACTIONS".
Summit has reached an agreement with Metropolitan whereby effective
January 31, 1995, Summit will acquire Metropolitan Investment
Securities, Inc. (MIS) from Metropolitan. MIS is the broker/dealer for
this offering and the offering of Metropolitan's securities. MIS had
total assets and stockholder's equity of $380,000 and $283,000
respectively, at September 30, 1994. Also, effective January 31, 1995,
Summit Property Development, Inc. (a subsidiary of Summit) will
commence real estate development activities previously performed by
Metropolitan. Additionally, Summit is currently negotiating the
purchase of Old Standard Life Insurance Company (Old Standard) from
Metropolitan. Old Standard is a wholly-owned subsidiary of
Metropolitan. Old Standard had total assets and stockholder's equity
of $47 million and $2.5 million, respectively at September 30, 1994.
See "CERTAIN TRANSACTIONS".
MANAGEMENT
As of September 30, 1994, Summit's personnel consisted of its officers
and directors, See "MANAGEMENT", an accountant and an attorney. Each
of those individuals is also employed by Metropolitan. It is
anticipated that they will continue to devote substantially all of
their time to their duties related to their respective positions with
Metropolitan and its other affiliates subject to the necessary
commitment of time to ensure that Summit fulfills its obligations to
Preferred shareholders and its duties under the Indenture pursuant to
which it issues Investment Certificates and such other duties and
responsibilities as Summit may undertake in the conduct of its business
or as may be required by law. No additional employees are expected to
be necessary or hired during the foreseeable future.
Metropolitan provides management, Receivable acquisition and Receivable
collection services for a fee to Summit pursuant to the terms of a
Management Acquisition and Servicing Agreement. The Receivable
acquisition fees are based upon a yield requirement established by
Summit. Summit pays as its Receivable acquisition service fee the
difference between the yield requirement and the yield which
Metropolitan actually negotiates when the Receivable is acquired. In
1994, Summit paid total service fees to Metropolitan of $497,132.
Management believes that the terms and conditions of the agreements
with Metropolitan are at least as favorable to Summit as those that
could have been obtained by a non-affiliated third party. The
agreements are non-exclusive and may be terminated in whole or part by
either party upon notice to the other party.
RECEIVABLE INVESTMENTS
The Receivables consist primarily of notes secured by real estate
mortgages, deeds of trust and conditional real estate sales contracts.
To a lesser extent, Summit also acquires other types of Receivables,
including but not limited to annuities and lottery prizes. All such
Receivables are purchased at prices calculated to provide a desired
yield. Often, in order to obtain the desired yield, the Receivables
will be purchased at a discount from their face amount. See "BUSINESS
- -Yield and Discount Considerations".
Summit's investments in Receivables are financed primarily by the
cash flow from Receivables, the sale of Certificates, and the sale of
Preferred Stock.
Sources of Receivables
Summit acquires its Receivables through the services of
Metropolitan. See "BUSINESS-Management". Metropolitan acquires
approximately 80% of the Receivables through independent brokers
located throughout the country. These brokers typically deal directly
with private individuals or organizations who own and wish to sell a
Receivable. These independent brokers contact one of Metropolitan's
branch offices to submit the Receivable for evaluation by Metropolitan.
It is the opinion of management that its responsiveness to the
independent Receivable brokers, and to Receivable sellers has been a
key to Metropolitan's ability to attract and purchase quality
Receivables at acceptable yields.
Metropolitan is also approached directly by prospective
Receivable sellers. These direct contacts are generally the result of
a referral or a previous business contact. Metropolitan also
negotiates the acquisition of portfolios of Receivables from banks,
savings and loan associations, the Resolution Trust Corporation and the
Federal Deposit Insurance Corporation. Summit has acquired Receivables
from such sources through Metropolitan.
Yield and Discount Considerations
Summit's management establishes Summit's yield requirements based
upon its cost of funds, and market conditions. Summit's yield
requirements are provided to Metropolitan, which negotiates Receivable
purchases at prices calculated to provide a desired yield. Often this
results in a purchase price less than the Receivable's unpaid balance.
The difference between the unpaid balance and the purchase price is the
"discount." The amount of the discount will vary in any given
transaction depending upon Summit's yield requirements at the time of
the purchase and the terms and nature of the Receivable. Yield
requirements are established in light of capital costs, market
conditions, the characteristics of particular classes or types of
Receivables and the risk of default by the Receivable payor. See Also
"BUSINESS-RECEIVABLE INVESTMENTS-Underwriting"
For Receivables of all types, the discounts originating at the
time of purchase, net of capitalized acquisition costs, are amortized
using the level yield (interest) method over the remaining contractual
term of the contract. For Receivables which were acquired after
September 30, 1992, these net purchase discounts are amortized on an
individual contract basis using the level yield method over the
contractual remaining life of the contract. For those Receivables
acquired before October 1, 1992, these net purchase discounts were
pooled by the fiscal year of purchase and by similar contract types,
and amortized on a pool basis using the level yield method over the
expected remaining life of the pool. For these older Receivables, the
amortization period, which is approximately 78 months, estimates a
constant prepayment rate of 10-12 percent per year on scheduled
balances, which is consistent with Summit's prior experience with
similar loans and Summit's expectations.
Summit's management establishes the yield requirements for
Receivable investments by assuming that all payments on the Receivables
will be made and that a certain percentage of unpaid balances will be
prepaid on an annual basis (9% for fiscal 1994). During fiscal 1994,
Summit's average initial yield requirement was 11%-14%. However, to the
extent that Receivables are purchased at a discount and payments are
received earlier than anticipated, the discount is earned more quickly
resulting in an increase in the yield. Conversely, to the extent that
payments are received later than anticipated, the discount is earned
less quickly resulting in a lower yield.
A greater effective yield can also be achieved through negotiating
amendments to the Receivable agreements. These amendments may involve
adjusting the interest rate and/or monthly payments, extension of
financing in lieu of a required balloon payment or other adjustments in
cases of delinquencies where the payor appears able to resolve the
delinquency. As a result of these amendments, the cash flow may be
maintained or accelerated, the latter of which increases the yield
realized on a Receivable purchased at a discount.
Underwriting
The review of the Receivables (underwriting) is performed for
Summit by Metropolitan. When Metropolitan is offered a Receivable, an
initial study of the terms of the Receivable, including any associated
documents, is performed by Metropolitan's underwriting and closing
staff. If the Receivable appears acceptable, the purchase price for
the Receivable is calculated based on Summit's yield requirements at
that time. If the broker and/or seller accepts the proposed purchase
price, a written agreement to purchase is executed, subject to
Metropolitan's full underwriting review. Metropolitan also negotiates
the purchases of "partial" interests in Receivables. Partial purchases
are purchases of the right to receive a portion of the Receivable's
balance, and where the seller's right to the unsold portion of the
Receivable is subordinated to the interest of Summit. These "partials"
generally result in a reduced level of investment risk to the purchaser
than if the entire Receivable cash flow is purchased.
The underwriting guidelines adopted by Summit for Receivables
secured by real estate include a requirement that the ratio of
Summit's investment in a Receivable compared to the appraised value of
the property which secures the Receivable may not exceed 75% on
Receivables secured by single family residences; and that the ratio of
the investment to the property's appraised value may not exceed 70% on
Receivables secured by other types of improved property; and 55% on
unimproved raw land. These more stringent than conventional
investment to collateral ratios provide higher than conventional levels
of collateral to protect Summit's investment in the event of a default
on a Receivable.
For each Receivable secured by real estate, a current market value
appraisal of the real estate providing security is obtained. These
appraisals are obtained through licensed independent appraisers or
through one of Metropolitan's licensed staff appraisers. These
appraisals are based on drive-by and comparative sales analysis. Each
independent appraisal is also subject to review by a staff appraiser.
Additionally, every proposed investment in a Receivable secured by
real estate is evaluated by Metropolitan's demography department
utilizing computerized data which identifies local trends in property
values, personal income, population and other social and economic
indicators. Other underwriting functions related to Receivables
secured by real estate may include obtaining and evaluating credit
reports on the Receivable payors; evaluation of the potential for
environmental risks; verifying payment histories and current payment
status; and obtaining title reports to verify the record status of the
Receivable and other matters of record.
Summit also acquires Receivables from Metropolitan which are not
secured by real estate, such as annuities and lottery prizes. The
annuities often arise out of the settlement of legal disputes where the
prevailing party is awarded a sum of money payable over a period of
time. In the case of such settlement annuity purchases, the
underwriting guidelines of Summit generally require that Metropolitan
review the settlement agreement. In the case of all annuity purchases,
Summit's underwriting guidelines generally require that Metropolitan
review the annuity policy, related documents, the credit rating of the
payor (generally an insurance company), determination of the existence
of any state insurance fund designed to protect annuity holders, and
the review of other factors relevant to the risk of purchasing a
particular annuity as deemed appropriate by the underwriting committee
in each circumstance. In the case of lottery prizes, the underwriting
guidelines generally include a review of the documents providing proof
of the prize, and a review of the credit rating of the insurance
company, or other entity, making the lottery prize payments. Where
the lottery prize is from a state run lottery, the underwriting
guidelines generally include a determination of whether the prize is
backed by the general credit of the state, and confirmation with the
respective lottery commission of the prize winners right to sell the
prize, and acknowledgment from the lottery commission of their notice
of the sale. In many states, in order to sell a state lottery prize,
the winner must obtain a court order permitting the sale. In those
states, Summit requires a certified copy of the court order.
Receivable investments which are identified for legal review are
referred to Metropolitan's in-house legal department which currently
includes a staff of five attorneys. All Receivable purchases which
involve investments greater than $150,000 ($100,000 if the real
property collateral is not an owner-occupied single family residence)
are submitted to an additional special risk evaluation committee, and
are subject to legal department review. In addition, transactions
involving investments of more than $500,000 are subject to approval by
Summit's Board of Directors.
Upon completion of the underwriting process and the approval of
the investment, appropriate closing and transfer documents are executed
by the seller and/or broker, and the transaction is funded.
Management believes that the underwriting functions that are
employed in its Receivable investment activity are as thorough as
reasonably possible considering the nature of this business. Summit's
acquisition of Receivables secured by real estate should be
distinguished from the conventional mortgage lending business which
involves substantial first-hand contact by lenders with each borrower
and the ability to obtain an interior inspection appraisal prior to
granting a loan.
Current Mix of Receivable Investment Holdings
Summit's investments in Receivables are secured by first or second
liens primarily on single family residential property. Summit believes
that these Receivables present lower credit risks than a portfolio of
mortgages secured by commercial property or raw land, and that much of
the risk in the portfolio is dissipated by the large numbers of
relatively small individual Receivables and their geographic
dispersion.
The following table presents information about Summit's
investments in Receivables as of September 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Face value of discounted
receivables $21,931,395 $14,416,037
Face value of originated
and non-discounted
receivables 6,473,183 6,285,706
Unrealized discounts,
net of amortized
acquisition costs (1,337,365) (1,076,488)
Allowance for losses (250,572) (96,654)
Performance Holdback on
Receivable Purchase -- (600,000)
Accrued interest
receivable 466,350 598,624
----------- -----------
Carrying value $27,282,991 $19,527,225
=========== ===========
</TABLE>
As of September 30, 1994, approximately 77% of Summit's
investments in Receivables are in first lien position Receivables with
the balance in second lien positions. The Receivables are secured by
residential, business and commercial properties with residential
properties securing approximately 84% of such investments as of
September 30, 1994. The Receivables acquired by Summit are primarily
generated by private individuals or businesses and are therefore not
government insured loans.
During fiscal 1993, Summit purchased, from an affiliate of
Metropolitan, approximately $6.0 million of timeshare Receivables, of
which approximately $5.5 million were outstanding at September 30,
1993. These Receivables were originated by an affiliate of Metropolitan
in connection with sales of its timeshare resort condominiums in
Hawaii. These Receivables had an approximate contractual interest rate
of 13% and were purchased at par (eg. at the amount of their
outstanding principal balance). In conjunction with the purchase,
Summit withheld a 10% performance holdback of $600,000 to cover any
realized losses from these Receivables. The holdback was maintained at
a balance of approximately 10% of the outstanding timeshare Receivables
and was released as principal was paid down. At September 30, 1993,
Summit held approximately $680,000 of delinquent timeshare contracts
purchased from the affiliate. Summit believes that the performance
holdback of $600,000 was adequate to cover any losses related to these
certain timeshare Receivables. At September 30, 1993, timeshare
Receivables represented approximately 27% of the total outstanding
principal for Receivables owned by Summit. These timeshare receivables
were sold to Metropolitan at par on February 18, 1994.
Summit's receivable investments at September 30, 1994 were secured
by properties located throughout the United States with not more than
3% (by dollar amount) in any single state except as follows:
Arizona . . . . . . 6%
California . . . . 11%
Oregon . . . . . . 5%
Texas . . . . . . . 20%
Washington . . . . 10%
Florida . . . . . . 3%
Georgia . . . . . . 4%
North Carolina. . . 3%
South Carolina. . . 3%
<PAGE>
SUMMIT SECURITIES, INC.
RECEIVABLES SECURED BY REAL ESTATE
September 30, 1994
<TABLE>
<CAPTION>
Less than 1% of the contracts are subject to variable interest rates. Interest rates range from
0% to 20% with rates principally (87% of face value) within the range of 7% to 12%. The
following table breaks down Summit's Receivable portfolio by type, size and lien position.
Number Carrying Delinquent Number of
of Interest Maturity Amount of Principal Delinquent
Description Receivables Rates Dates Receivables Amount Receivables
---------- -------- -------- ----------- ---------- -----------
RESIDENTIAL Principally
<S> <C> <C> <C> <C> <C> <C>
First Mortgage > $75,000 46 7%-12% 1994-2024 $5,069,495 $331,928 3
First Mortgage > $40,000 122 7%-12% 1994-2024 6,554,375 303,003 5
First Mortgage < $40,000 338 9%-14% 1994-2023 7,190,121 250,572 33
Second or Lower> $75,000 4 8%-12% 1996-2014 405,950 -- --
Second or Lower> $40,000 23 7%-11% 1994-2020 1,240,937 155,577 3
Second or Lower< $40,000 155 9%-12% 1994-2024 3,387,961 43,920 2
COMMERCIAL
First Mortgage > $75,000 6 9%-11% 1998-2009 544,561 -- --
First Mortgage > $40,000 19 9%-10% 1995-2003 1,078,666 -- --
First Mortgage < $40,000 21 8%-10% 1995-2004 427,103 -- --
Second or Lower> $75,000 2 8%-10% 1999-2005 192,254 -- --
Second or Lower> $40,000 6 9%-11% 1997-2009 341,703 -- --
Second or Lower< $40,000 12 9%-11% 1996-2015 296,589 -- --
FARM, LAND AND OTHER
First Mortgage > $75,000 1 12% 1995 495,405 -- --
First Mortgage > $40,000 2 7%-10% 2004-2014 101,366 -- --
First Mortgage < $40,000 26 9%-12% 1995-2010 475,705 -- --
Second or Lower> $75,000 1 0% 1994 245,279 -- --
Second or Lower> $40,000 4 5%-12% 1998-2007 239,751 -- --
Second or Lower< $40,000 7 10%-12% 1996-2014 117,357 -- --
Unrealized discounts, net
of unamortized acquisition
costs, on receivables
purchased at a discount (1,337,365)
Accrued Interest Receivable 466,350
Allowance for Losses (250,572)
----------- ------------
TOTAL $ 27,282,991 $ 1,085,000
=========== ============
<FN>
The principal amount of Receivables subject to delinquent principal or interest is defined as
being in arrears for more than three months.
</TABLE>
<TABLE>
<CAPTION>
The contractual maturities of the aggregate amounts of Receivables (face amount) are as follows:
Residential Commercial Farm, Land, Other Total
Principal Principal Principal Principal
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
October 1994 - September 1997 $ 2,324,000 $ 721,000 $ 777,000 $ 3,822,000
October 1997 - September 1999 2,425,000 816,000 92,000 3,333,000
October 1999 - September 2001 1,470,000 374,000 220,000 2,064,000
October 2001 - September 2004 2,220,000 362,000 109,000 2,691,000
October 2004 - September 2009 3,290,000 580,000 300,000 4,170,000
October 2009 - September 2014 2,744,000 -- 176,863 2,920,863
October 2014 - Thereafter 9,375,839 27,876 -- 9,403,715
---------- ---------- ---------- ----------
$23,848,839 $2,880,876 $1,674,863 $28,404,578
========== ========== ========== ==========
</TABLE>
<PAGE>
Summit held 795 Receivables as of September 30, 1994. The average
stated interest rate (weighted by principal balances) on Receivables
held by Summit on that date was approximately 10%. See Note 2, to
Consolidated Financial Statements.
Delinquency Experience & Collection Procedures
The principal amount of Receivables held by Summit (as a
percentage of the total outstanding principal amount of Receivables)
which was in arrears for more than ninety days at September 30, 1994
was 3.8% compared to 8.0% and 4.2% at September 30, 1993 and 1992,
respectively. The decrease in 1994 is attributable to the sale of the
timeshare receivables to Metropolitan and improved collection efforts.
The increase in the amount for September 30, 1993 includes
approximately $680,000 of timeshare contracts purchased from an
affiliate. Without the effect of the delinquent timeshare receivables,
the 1993 delinquency rate would have been 6.5%. Because Receivables
purchased by Summit are typically not of the same quality as mortgages
that are subsequently securitized and sold in the secondary market with
government guarantees, higher delinquency rates are expected. However,
because these Receivables are purchased at a discount, losses on sales
after repossession are generally lower than might otherwise be expected
given these higher delinquency rates.
Receivable collection services are performed for Summit by
Metropolitan, pursuant to the following guidelines. When a Receivable
becomes delinquent, the payor is initially contacted by telephone
(generally on the 17th day following the payment due date). If the
default is not promptly cured (generally within three to six days after
the initial call), then additional collection activity, including
written correspondence and further telephone contact, is pursued. If
these collection procedures are unsuccessful, then the account is
referred to a committee who analyzes the basis for default, the
economics of the situation and the potential for environmental risks.
When appropriate, a phase I environmental study is obtained prior to
foreclosure. Based upon this analysis, the Receivable is considered
for a workout arrangement, further collection activity, or foreclosure
of any property providing security for the Receivable. Collection
activity may also involve the initiation of legal proceedings against
the payor of the Receivable payments. Such legal proceedings, when
necessary are generally initiated within approximately ninety days
after the initial default. If accounts are reinstated prior to
completion of the legal action, then attorney fees, costs, expenses and
late charges are generally collected from the payor, or added to the
receivable balance, as a condition of reinstatement.
Allowance for Losses on Real Estate Assets
Summit establishes an allowance for losses on Receivables and
repossessed real estate based on an evaluation of delinquent
Receivables and appraisals for real estate held. During 1992, Summit
adopted an appraisal policy to require annual appraisals on properties
securing delinquent receivables when the Receivable balances exceed a
threshold equal to 1/2% of total assets of Summit. Biannual appraisals
are required on all other delinquent Receivables with balances in
excess of $50,000. The allowance for losses was .9%, .5% and .5% of
the face value of Receivables at September 30, 1994, 1993 and 1992,
respectively.
Properties
Summit owns various repossessed properties held for sale. At
September 30, 1994, eight properties, acquired in satisfaction of debt,
with a combined carrying amount of approximately $453,000 were held.
Method of Financing
Summit's continued growth is expected to depend on its ability to
market its securities to the public and to invest the proceeds in
higher-yielding investments. Financing needs are intended to be met
primarily by the sale of its Investment Certificates and Preferred
Stock. Such funds may be supplemented by short term bank financing and
borrowing from affiliates. As of the date of this document, Summit had
not established any formal lines of credit with banks or other lending
institutions.
The availability of Receivables offered for investment in the
national market is believed by management to be adequate to meet the
needs of Summit which are in addition to the needs of Metropolitan.
Competition
Summit's ability to compete for Receivable investments is
currently dependent upon Metropolitan. Metropolitan competes with
various real estate financing firms, real estate brokers, banks and
individual investors for the Receivables it acquires. The largest
single competitors are subsidiaries of much larger companies such as
Associates First Capital Corporation, a subsidiary of Ford Motor
Company, while the largest number of competitors are a multitude of
individual investors. The primary competitive factors are the amounts
offered and paid to Receivable sellers and the speed with which the
processing and funding of the transaction can be completed.
Competitive advantages enjoyed by Summit include access to
Metropolitan's branch office system which allows it access to markets
throughout the country; its ability to purchase long-term Receivables;
availability of funds; and its in-house capabilities for processing and
funding transactions. Competitive disadvantages include the length of
time required to process and fund approved transactions (up to thirty
days); an investment policy which excludes purchases of Receivables
which involve discounts of less than $2,500; and relatively high yield
requirements.
<PAGE>
MANAGEMENT
Directors and Executive Officers
(As of December 31, 1994)
Name Age Position
John Trimble 64 President/Director
J. Evelyn Sandifur 81 Vice President/Director
Philip Sandifur 23 Vice President/Director
Tom Turner 44 Secretary/Treasurer/Director
Ernest Jurdana 50 Chief Financial Officer
John Trimble was elected President on September 28, 1994. He has
been an employee of Metropolitan since 1980. From 1980-1985 he served
as a loan officer for Metropolitan. From 1985-1994, he was an officer
of Metropolitan. From 1985, to the present, he has been a member of
the Receivable Evaluation Committee.
J. Evelyn Sandifur is the wife of C. Paul Sandifur Sr., founder
of Metropolitan Mortgage & Securities Co., Inc, and mother of C. Paul
Sandifur Jr., who is the controlling shareholder of Metropolitan, and
also the controlling shareholder of the parent company of Summit,
National Summit Corp. She is not active in the day to day operations
of Summit except to the extent necessary to carry out duties as Vice
President and Director.
Philip Sandifur is the son of C. Paul Sandifur Jr., who is the
sole controlling shareholder of National Summit Corp., the parent
company of Summit Securities and also the controlling shareholder of
Metropolitan Mortgage & Securities Co., Inc. Philip graduated in 1993
from Santa Clara University receiving a BA in Business. He is not
active in the day to day operations of Summit except to the extent
necessary to carry out his duties as Vice President and Director.
Tom Turner was elected Secretary/Treasurer of Summit on
September 28, 1994. He has been an employee of Metropolitan since
1985, as a financial analyst. From 1983-1985, Mr. Turner was employed
by Olsten Temporary Services. Prior to 1983, Mr. Turner was self-
employed, principally doing business in the real estate industry.
Ernest Jurdana joined Metropolitan as Chief Financial Officer in
June of 1994. Since that date he has also been the Chief Financial
Officer for Summit. From 1990 to June 1994 he was Senior Vice
President and Chief Financial Officer for Continental Savings of
America. Prior to that time, he was Senior Vice President for
Financial Management with Washington Mutual Savings Bank where he
served in various accounting and financial positions from 1966. He
received a MBA designation from City University, and was licensed as a
Certified Public Accountant in 1986.
The directors of Summit are elected for one-year terms at annual
shareholder meetings. The officers of Summit serve at the direction of
the Board of Directors.
Summit's officers and directors will continue to hold their
respective positions with Metropolitan and do not anticipate that their
responsibilities with Summit will involve a significant amount of time.
They will, however, devote such time to the business and affairs of
Summit as may be necessary for the proper discharge of their duties.
EXECUTIVE COMPENSATION
The officers and directors do not receive any compensation for
services rendered on behalf of Summit but they are entitled to
reimbursement for any expenses incurred in the performance of such
services. Such expenses include only items such as travel expense
incurred for attendance at corporate meetings or other business. No
such expenses have been incurred to date.
INDEMNIFICATION
Summit's Articles of Incorporation provide for indemnification of
Summit's directors, officers and employees for expenses and other
amounts reasonably required to be paid in connection with any civil or
criminal proceedings brought against such persons by reason of their
service of or position with Summit unless it is adjudged in such
proceedings that the person or persons are liable due to willful
malfeasance, bad faith, gross negligence or reckless disregard of his
duties in the conduct of his office. Such right of indemnification is
not exclusive of any other rights that may be provided by contract of
other agreement or provision of law.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Summit's officers, directors
or controlling persons pursuant to the foregoing provisions, Summit has
been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the
beneficial owners of more than five percent of Summit's voting stock as
of September 30, 1994.
<TABLE>
<CAPTION>
SHARES OF
NAME AND ADDRESS COMMON STOCK % OF CLASS
<S> <C> <C>
National Summit Corp. 10,000 100%
W. 929 Sprague Ave.,
Spokane, Washington
</TABLE>
National Summit Corp. is wholly-owned by C. Paul Sandifur, Jr.
CERTAIN TRANSACTIONS
Summit was originally organized as a wholly-owned subsidiary of
Metropolitan. On September 9, 1994, the controlling interest in Summit
was acquired by National Summit Corp., a Delaware corporation which is
wholly owned by C. Paul Sandifur, Jr. The change in control was made
pursuant to a reorganization wherein Summit redeemed all the common
shares held by its former parent company, Metropolitan which consisted
of 100% of the outstanding common stock of Summit. Contemporaneously
with this redemption, Summit issued 10,000 shares of common stock to
National Summit Corp., a Delaware Corporation, for $100,000. In
addition, various investors in Metropolitan's common and preferred
stock, including members of Mr. Sandifur's immediate family acquired
30,224 shares of Summit's Preferred Stock Series S-1 for $100 per share
in exchange for preferred and common shares of Metropolitan with a
value of approximately $3 million dollars. Following this sale,
Metropolitan will continue to provide, for a fee, principally all the
management services to Summit. See "BUSINESS-RECEIVABLE INVESTMENTS."
Mr. Sandifur holds effective control of Metropolitan. Prior to
the sale, Mr. Sandifur held effective control of Summit through
Metropolitan. Following the sale, Mr. Sandifur holds effective control
of Summit through National Summit.
Prior to the sale, the officers and directors of Summit, were also
officers or directors of Metropolitan and/or its affiliates.
Contemporaneously with the sale, the officers and directors resigned
and new officers and directors were elected. The newly elected officers
and directors are employees of Metropolitan but not officers or
directors of Metropolitan or any of its subsidiaries.
Summit considered the sale to be in its best interest due to
regulatory considerations and other business considerations. The
regulatory considerations include the impact of regulations imposed
upon Metropolitan by its state of domicile. In the opinion of
management, these regulations penalized Summit in its prior corporate
structure.
On December 15, 1994, Metropolitan and Summit entered into an
understanding that on January 31, 1995 Metropolitan Investment
Securities (MIS) will be sold to Summit. MIS is a limited-purpose
broker dealer and the exclusive broker/dealer for the securities sold
by Metropolitan and Summit. It is not anticipated that this sale will
materially affect the business of MIS or Summit. Also on December 15,
1994, Metropolitan and Summit entered into an understanding that on
January 31, 1995, Metropolitan will discontinue its property
development division, which consists of a group of employees
experienced in real estate development. On the same date, Summit will
commence the operation of a property development division employing
those same individuals who had previously been employed by
Metropolitan. Summit Property Development Corporation is negotiating
an agreement with Metropolitan to provide property development services
to Metropolitan. See "BUSINESS"
Metropolitan Investment Securities, Inc. (MIS) is a securities
broker-dealer which is wholly-owned by Metropolitan. MIS is currently
the exclusive selling agent for securities issued by Metropolitan and
Summit. Summit has entered into Selling Agreements with MIS to provide
for the sale of the Certificates and Preferred Stock pursuant to which
MIS will be paid commissions ranging from .25% to 6% of the investment
amount in each transaction. During the fiscal year ended September 30,
1994, Summit paid or accrued commissions to MIS in the amount of
$299,748 upon the sale of $10,539,684 of Certificates and commissions
of $7,552 upon the sale of $149,512 of preferred stock. MIS also
maintains, on behalf of Summit, certain investor files and information
pertaining to investments in Summit's Certificates.
Transactions between Metropolitan and Summit take place in the
normal course of Summit's business. Such transactions include rental
of office space, provision of administrative and data processing
support, accounting and legal services and similar matters. Receivable
acquisition and servicing agreements have been entered into between
Summit and Metropolitan and are summarized under "Business". See also
Note 9, to Consolidated Financial Statements, for additional
information. Summit believes that such transactions are and will
continue to be made on terms at least as favorable as could be obtained
from non-affiliated parties.
Summit is currently negotiating the purchase of Old Standard Life
Insurance (Old Standard) from Metropolitan. Old Standard is engaged in
the sale of annuities and life insurance. It is currently anticipated
that this proposed purchase may occur during the first quarter of
calendar 1995.
<PAGE>
PART I (cont.)
Item 2. Properties
See Item 1.
Item 3. Legal Proceedings.
There are no material legal proceedings or actions pending or
threatened against Summit or to which its property is
subject.
Item 4. Submission of Matters to a vote of Security Holders.
None
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
(a) There is no market for the registrant's common stock
(b) There was one Common Stockholder at September 30, 1994
(c) See "Item 6. Selected Financial Data."
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
The financial data shown below as of September 30, 1994 and 1993 and for the years ended
September 30, 1994, 1993 and 1992 have been derived from, and should be read in conjunction with,
Summit's consolidated financial statements and related notes appearing elsewhere herein. The
financial data shown as of September 30, 1992 and 1991 and for the years ended September 30, 1991
and the period July 25, 1990 (date of incorporation) through September 30, 1990 have been
derived from audited financial statements which are not included herein. The financial
statements as of and for the years ended September 30, 1994 and 1993 have been audited by Coopers
& Lybrand L.L.P. The financial statements as of and for the years ended September 30, 1992, and
1991 and for the period July 25, 1990 (date of incorporation) through September 30, 1990, have
been audited by BDO Seidman.
July 25, 1990
(Date of
Year Ended Year Ended Year Ended Year Ended Incorporation)
September 30, September 30, September 30, September, 30 Through
September 30,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues $3,395,252 $ 2,815,624 $ 2,435,843 $1,026,405 $ 8,229
========== ========== ========== ========== ============
Income before
extraordinary item $ 264,879 $ 283,107 $ 611,595 $ 238,205 $ 5,345
Extraordinary item (1) -- -- 49,772 -- --
---------- ---------- ---------- ---------- ------------
Net Income 264,879 283,107 661,367 238,205 5,345
Preferred Stock Dividends (2,930) -- -- -- --
---------- ---------- ---------- ---------- ------------
Income Applicable to Common
Stockholders $ 261,949 $ 283,107 $ 661,367 $ 238,205 $ 5,345
========== ========== ========== ========== ============
Per Common Share Data:
Income before
extraordinary
item $ 13.47 $ 14.15 $ 30.58 $ 11.91 $ .27
Extraordinary item -- -- 2.49 -- --
---------- ---------- ---------- ---------- ------------
Net income $ 13.47 $ 14.15 $ 33.07 $ 11.91 $ .27
========== ========== ========== ========== ============
Weighted average number
of common shares
outstanding 19,445 20,000 20,000 20,000 20,000
========== ========== ========== ========== ============
BALANCE SHEET DATA:
Due from/(to) affiliated
companies, net -- $ 1,710,743 $ (400,365) $(5,528,617) $ (22,010)
Total Assets $35,101,988 $25,441,605 $17,696,628 $16,718,823 $2,027,355
Debt Securities
and Other
Debt Payable $31,212,718 $21,982,078 $14,289,648 $ 8,451,106 --
Stockholders' Equity $ 3,321,230 $ 3,188,024 $ 2,904,917 $ 2,243,550 $2,005,345
<FN>
(1) Benefit from utilization of net operating loss carryforwards.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Three Fiscal Years Ended
September 30, 1994
RESULTS OF OPERATIONS
Revenues of Summit increased to $3.4 million in 1994, from $2.8
million in 1993 and $2.4 million in 1992. The growth from 1993 to 1994
is attributable primarily to increased investment earnings on
additional outstanding Receivables along with gains realized on the
sale of a portion of the Receivable portfolio. These increases were
offset partially, in 1994 by a reduction in revenues associated with
the sale of repossessed property. The growth from 1992 to 1993 is
attributable primarily to increased investment earnings on additional
outstanding Receivables and increased revenues associated with the sale
of repossessed property. These increases were partially offset by a
reduction in dividends received on investments in an affiliated
company. Summit has increased its investment in Receivables from $11.6
million at September 30, 1992 to $19.5 million at September 30, 1993 to
$27.3 million at September 30, 1994.
Summit continued to realize income from operations during 1994.
Net income for the fiscal year ended September 30, 1994 was $262,000
compared to $283,000 in 1993 and $661,000 in 1992. The relatively
small decrease from 1993 to 1994 was the result of Summit being able to
realize gains on the sales of Receivables, improve other income sources
and reduce operating expenses, all of which were necessary as Summit
experienced a reduced margin between interest sensitive income and
interest sensitive expense along with increases in the provisions for
losses on real estate assets. The 1993 decrease in net income was
attributable to a reduced margin between interest sensitive income and
interest sensitive expense along with increased operating expenses
associated with the increased volume of Certificate sales, Receivable
investments and real estate held for sale. Additionally, during 1993,
Summit experienced a slight increase in the loss from the sale of real
estate repossessions and also increased its provision for losses on
real estate assets.
Since the date of its incorporation through approximately the end
of calendar year 1993, Summit generally benefitted from a declining
interest rate environment with lower money costs and relatively
consistent yields on Receivables. In addition, a declining rate
environment positively impacted earnings by increasing the value of the
portfolio of predominantly fixed rate Receivables. This was evident in
1994 as Summit was able to realize gains from the sale of Receivables.
Higher than normal prepayments in the Receivable portfolio were
experienced during 1994, 1993 and 1992, allowing Summit to recognize
unamortized discounts on Receivables at an accelerated rate. During
1994, Metropolitan, Summit's former parent through September 9, 1994
and the primary supplier of Summit's Receivable investments, began
charging underwriting fees associated with Receivable acquisitions.
The charging Summit of the underwriting fee has resulted in a slightly
lower yield over the life of the new Receivables, however, management
believes this yield to be superior to other investment opportunities.
See "BUSINESS-RECEIVABLE INVESTMENTS."
Maintaining efficient collection efforts and minimizing
delinquencies in Summit's Receivable portfolio are ongoing management
goals. During 1994,Summit realized a gain on the sale of repossessed
real estate of $12,300 compared to losses of $18,400 and $5,300 in 1993
and 1992, respectively. In relation to the increasing size of Summit's
Receivable and real estate portfolios, Summit has increased its
provision for losses on real estate assets. Provisions for losses have
been $155,000, $51,000 and $18,800 for 1994, 1993 and 1992,
respectively. At September 30, 1994, Summit had an allowance for
losses on real estate assets of $251,000 compared to $97,000 at
September 30, 1993.
In April 1992, the Accounting Standards Division of the American
Institute of Certified Public Accountants issued Statement of Position
(SOP) No. 92-3, "Accounting for Foreclosed Assets," which provides
guidance on determining the accounting treatment for foreclosed assets.
SOP 92-3 requires that foreclosed assets be carried at the lower of (a)
fair value minus estimated costs to sell, or (b) cost. Summit applied
the provisions of SOP 92-3 effective October 1, 1992. The initial
charge for its application was approximately $10,000, before the
application of related income taxes, and is included in operations in
1993.
Interest Sensitive Income and Expense
Management continually monitors the interest sensitive income and
expense of Summit. Interest sensitive expense is predominantly the
interest costs of Certificates, while interest sensitive income
includes interest and earned discounts on Receivables, dividends and
other investment income.
The spread between interest sensitive income and interest
sensitive expense was $925,000 in 1992, $696,000 in 1993 and $543,000
in 1994. The decrease from 1993 to 1994 of approximately $153,000 was
attributable to several factors including: (1) charging of underwriting
fees by Metropolitan which reduced 1994 interest income by
approximately $60,000; (2) the sale of $4.5 million of high yielding,
timeshare Receivables to Metropolitan in February 1994; (3) lower
yields on acquired Receivables; and (4) the accumulation of cash, which
was invested in low yielding overnight investments, which was necessary
for the September 1994 payment of $3.6 million to Metropolitan to
redeem its outstanding common stock. The decrease in interest spread
from 1992 to 1993 of approximately $230,000 was the result of
management's decision to accumulate cash to fund a contract purchase
commitment in excess of $7 million from an affiliate in December 1992.
Included in the Receivables purchased were approximately $6.0 million
of timeshare Receivables, which were collateralized by timeshares
located at a single project in Hawaii. These Receivables were sold to
Metropolitan at carrying value on February 18, 1994. Also, Summit
recognized $366,935 of dividend income (13% dividend rate) from its
preferred stock investment in its affiliate in 1992 and paid interest
to Metropolitan at prime plus 1 1/2% on the borrowings used to finance
the purchase of the preferred stock. In March 1992, Summit transferred
the preferred stock to Metropolitan in full satisfaction of the $6
million payable. Therefore, there were no dividends received by Summit
in fiscal 1994 or 1993 on the preferred stock. See Note 9 to the
Consolidated Financial Statements.
Other Income
Other income increased from approximately $16,600 in 1992 to
$42,700 in 1993 and $60,700 in 1994. Other income is predominantly
miscellaneous fees and charges related to Receivables, thus its growth
is primarily due to the growth in Receivables.
Other Expenses
Operating expenses increased from approximately $178,300 in 1992
to $244,600 in 1993 and remained relatively stable at $231,400 in 1994.
In general, the increases have been the result of increased volume of
Certificate sales and Receivable investments. During 1994, Summit was
able to improve efficiency and reduce some operating expenses while
increasing the volume of Certificate sales and Receivable investments.
Provision for Losses on Real Estate Receivables and Repossessed Real
Estate
The provision for losses on Receivables and repossessed real
estate has increased as the size of the portfolio of Receivables and
repossessed real estate has grown. The following table summarizes
Summit's allowance for losses on Receivables and repossessed real
estate:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Beginning Balance $ 96,654 $59,244 $50,000
Provision 103,000 15,000 18,762
(Charge-offs)/
Recoveries, net 50,918 22,410 ( 9,518)
------- ------- -------
Ending Balance $250,572 $96,654 $59,244
======= ======= =======
<FN>
These allowances are in addition to unamortized discounts of $1.3
million at September 30, 1994, and $1.1 million at September 30, 1993
and 1992.
</TABLE>
Gain/Loss on Real Estate Sold
During 1994, Summit experienced a gain on the sale of real estate
of approximately $12,000. At the end of fiscal 1994, Summit had
$453,000 in real estate held for sale, less than 2% of total real
estate assets.
Effect of Inflation
During the three year period ended September 30, 1994, inflation
has had a generally positive impact on Summit's operations. This
impact has primarily been indirect in that the level of inflation tends
to influence inflation expectations, which tends to impact interest
rates on both Summit's assets and liabilities. Thus, with lower
inflation rates over the past three years, interest rates have been
generally declining during this period, which has reduced Summit's cost
of funds. Interest rates on Receivables acquired, due to their nature,
have not declined to the same extent as the cost of Summit's
borrowings. In addition, inflation has not had a material effect on
Summit's operating expenses. The main reason for the increase in
operating expenses has been an increase in the number of Receivables
acquired and serviced and increased sales of Certificates.
Revenues from real estate sold are influenced in part by
inflation, as historically, real estate values have fluctuated with the
rate of inflation. However, Summit is unable to quantify the effect of
inflation in this respect.
Asset/Liability Management
As most of Summit's assets and liabilities are financial in
nature, Summit is subject to interest rate risk. In fiscal 1995, more
of Summit's financial assets (primarily Receivables and fixed income
investments) will reprice or mature more quickly than its financial
liabilities (primarily Certificates). In a rising interest rate
environment, this factor will tend to increase earnings as cash flow
from assets is reinvested at higher rates of interest. However, for a
number of periods subsequent to fiscal 1995, financial liabilities are
scheduled to reprice or mature more quickly than financial assets.
During this period, earnings will tend to decline as funds available
for investing are obtained at a higher interest cost. Also, yields on
Receivables have not been as sensitive to rate fluctuations as have
Certificate rates. Therefore, the benefit of an increase in interest
rates during the initial period would be reduced to the extent that
required yields on Receivable investments were not increased in concert
with general market rates of interest. In a falling interest rate
environment, when financial assets reprice or mature more quickly than
financial liabilities, earnings will tend to decrease as cash flow from
assets is reinvested at lower rates of interest. This effect is
mitigated to the extent that yields on Receivables may be less
sensitive to rate fluctuations than are rates on Certificates.
During fiscal 1995, approximately $6.4 million of interest
sensitive assets (cash and Receivables) are expected to reprice or
mature. For liabilities, approximately $2.6 million of Certificates
will mature during fiscal 1995, along with about $10,500 of other debt
payable. These estimates result in repricing of interest sensitive
assets in excess of interest sensitive liabilities of approximately
$3.8 million, or a ratio of interest sensitive assets to interest
sensitive liabilities of approximately 245%.
New Accounting Rules
In the fourth quarter of fiscal 1993, Summit adopted the
provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109), retroactive to October 1,
1992 and resulted in no significant effect on Summit's financial
position. In 1992, Summit accounted for income taxes as required by
Accounting Principles Board Opinion No. 11. See Note 1 to the
Consolidated Financial Statements.
In May 1993, Statement of Financial Accounting Standards No. 114
(SFAS No. 114) "Accounting by Creditors for Impairment of a Loan" was
issued. SFAS No. 114 requires that certain impaired loans be measured
based on the present value of expected future cash flows discounted at
the loans' effective interest rate or the fair value of the collateral.
Summit is required to adopt this new standard by October 1, 1995.
Summit does not anticipate that the adoption of SFAS No. 114 will have
a material effect on the financial statements.
In December 1991, Statement of Financial Accounting Standards No.
107 (SFAS No. 107), "Disclosures about Fair Value of Financial
Instruments," was issued. SFAS No. 107 requires disclosures of fair
value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to
estimate that value. SFAS No. 107 is effective for financial statements
issued for fiscal years ending after December 31, 1995 (Summit's fiscal
year ending September 30, 1996) for entities with less than $150
million in total assets. This pronouncement does not change any
requirements for recognition, measurement or classification of
financial instruments in Summit's financial statements.
Liquidity and Capital Resources
As a financial institution, Summit's liquidity is largely tied to
its ability to renew, maintain or obtain additional sources of cash.
Summit has successfully performed this task during the past three years
and has continued to invest funds generated by operations and financing
activities.
Summit has continued to generate cash from operations with net
cash provided of $2.3 million in 1994, $1.4 million in 1993 and $1.4
million in 1992. Cash utilized by Summit in its investing activities
was $6.3 million in 1994, $9.2 million in 1993 and $2.6 million in
1992. Cash provided by Summit's financing activities was $4.1 million
in 1994, $5.8 million in 1993 and $5.0 million in 1992. These cash
flows have resulted in year end cash and cash equivalent balances of
$3.6 million in 1994, $3.6 million in 1993 and $5.6 million in 1992.
During 1994, the cash provided by operating activities of $2.3
million plus cash provided by financing activities of $4.1 million was
used entirely to support the net investing activities of $6.3 million.
Cash from operating activities of $2.3 million resulted primarily from
net income of $.3 million, increases in compound and accrued interest
on Certificates of $1.2 million and other accrual adjustments of $.6
million. Cash used in investing activities of $6.3 million primarily
included acquisition of Receivables, net of payments and sales, of $8.0
million being offset by the collection of advances from related parties
of $1.7 million. Cash from financing activities of $4.1 million
resulted primarily from: (1) issuance of Certificates, net of repayment
and related debt issue costs, of $7.5 million; (2) issuance of common
and preferred stock of $.2 million; less (3) redemption of common
stock, owned by its former parent, of $3.6 million.
During 1993, the $2.1 million decrease in cash and cash
equivalents resulted from cash provided by operating activities of $1.4
million less cash used in investing activities of $9.2 million plus
cash provided by financing activities of $5.7 million. Cash from
operating activities resulted primarily from net income of $.3 million
and the increase in compound and accrued interest on Certificates of
$1.0 million. Cash used in investing activities primarily included:
(1) acquisition of real estate Receivables, net of payments and sales,
of $7.6 million; and (2) an advance to its parent company of $1.7
million for the purchase of Receivables. Cash provided by financing
activities included: (1) issuance of Certificates, net of repayments
and related debt issue costs, of $7.0 million; less (2) repayment of
amounts due its parent of $.4 million; and (3) repayment to banks and
others of $.9 million.
Summit's investing activities during 1993 were supported by cash
from operations and external financing. Summit's increases in
Receivables were primarily funded by sales of Certificates. During
1992, the $3.9 million increase in cash and cash equivalents resulted
from cash provided by operating activities of $1.4 million less cash
used in investing activities of $2.5 million plus cash provided by
financing activities of $5.0 million. Cash from operating activities
resulted primarily from net income of $.7 million and the increase in
compound and accrued interest on Certificates of $.7 million. Cash
used in investing activities primarily included the acquisition of real
estate Receivables, net of payments and sales, of $3.0 million less $.5
million advance repaid by its parent. Cash provided by financing
activities included: (1) issuance of Certificates, net of repayments
and related debt issue costs, of $4.7 million; (2) borrowings from its
parent of $.4 million; less (3) repayment to banks and others of $.1
million.
During 1992, Summit's investing activities were supported by
internal cash from operations and external cash from financing.
Summit's increases in Receivables were primarily funded by sales of
Certificates.
Management believes that cash flow from operating activities and
financing activities and the liquidity provided from current
investments will be sufficient for Summit to conduct its business and
meet its anticipated obligations as they mature during fiscal 1995
including the planned acquisition of Old Standard, MIS and commencement
of operations of Summit Property Development, Inc. Summit has not
defaulted on any of its obligations since its founding in 1990.
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993, AND 1992
Reports of Independent Certified
Public Accountants...................................
Consolidated Balance Sheets..............................
Consolidated Statements of Income........................
Consolidated Statements of Stockholder's Equity..........
Consolidated Statements of Cash Flows....................
Notes to Consolidated Financial Statements...............
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Directors and Stockholders
Summit Securities, Inc.
We have audited the accompanying consolidated balance sheets of
Summit Securities, Inc. and subsidiary as of September 30, 1994 and
1993, and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Summit Securities, Inc. and subsidiary as of
September 30, 1994 and 1993 and the consolidated results of their
operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in Note 1, the Company changed its methods of
accounting for repossessed real property and income taxes in 1993.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Spokane, Washington
November 21, 1994, except for
Note 9 as to which the date is
December 15, 1994
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Summit Securities, Inc.
We have audited the accompanying statements of income, stockholders'
equity and cash flows of Summit Securities, Inc. (a wholly-owned
subsidiary of Metropolitan Mortgage & Securities Co., Inc.) for the
year ended September 30, 1992. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash
flows for the year ended September 30, 1992 of Summit Securities, Inc.
in conformity with generally accepted accounting principles.
/s/ BDO Seidman
BDO SEIDMAN
Spokane, Washington
December 7, 1992
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, 1994 and 1993
____________
<TABLE>
<CAPTION>
ASSETS 1994 1993
______ ______
<S> <C> <C>
Cash and cash equivalents $ 3,608,764 $ 3,594,472
Investments in affiliated company 3,022,425
(Note 3)
Real estate contracts and mortgage
notes receivable, net
(Notes 2, 4 and 9) 27,282,991 19,527,225
Real estate held for sale (Note 4) 452,700 60,816
Deferred costs (Note 6) 705,994 524,376
Advances to parent and affiliated
companies (Note 9) 1,710,743
Other assets 29,114 23,973
----------- -----------
Total assets $ 35,101,988 $ 25,441,605
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Investment certificates and accrued
interest (Note 5) $ 31,092,830 $ 21,959,425
Debt payable (Note 4) 119,888 22,653
Accounts payable and accrued expenses
(Note 9) 416,262 49,353
Deferred income taxes (Note 7) 151,778 222,150
----------- -----------
Total liabilities 31,780,758 22,253,581
----------- -----------
Stockholders' equity (Note 8):
Preferred stock, $10 par (liquidation
preference $3,171,940) 317,194
Common stock, $10 par 100,000 200,000
Additional paid-in capital 1,454,063 1,800,000
Retained earnings 1,449,973 1,188,024
----------- -----------
Total stockholders' equity 3,321,230 3,188,024
----------- -----------
Total liabilities and
stockholders' equity $ 35,101,988 $ 25,441,605
=========== ===========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended September 30, 1994, 1993 and 1992
____________
<TABLE>
<CAPTION>
1994 1993 1992
__________ __________ __________
<S> <C> <C> <C>
Revenues:
Interest on receivables $ 2,422,484 $ 1,938,206 $ 1,319,825
Dividends (Note 9) 366,935
Earned discount on receivables 373,003 428,482 542,047
Other investment interest 275,180 120,998 87,447
Real estate sales 88,000 280,500 103,000
Realized net gains on sales
of investment securities 4,252 4,724
Realized net gains on sales
of receivables 171,756
Other income 60,677 42,714 16,589
--------- --------- ---------
Total revenues 3,395,352 2,815,624 2,435,843
--------- --------- ---------
Expenses:
Interest expense 2,527,945 1,792,059 1,390,968
Cost of real estate sold 75,656 298,900 108,256
Provision for losses on
real estate assets 155,042 51,012 18,762
Operating expenses (Note 9) 231,423 244,595 178,273
--------- --------- ---------
Total expenses 2,990,066 2,386,566 1,696,259
--------- --------- ---------
Income before income taxes and
extraordinary item 405,286 429,058 739,584
Income tax provision (Note 7) (140,407) (145,951) (127,989)
--------- --------- ---------
Income before extraordinary item 264,879 283,107 611,595
Extraordinary item - utilization
of net operating loss
carryforwards (Note 7) 49,772
--------- --------- ---------
Net income 264,879 283,107 661,367
Preferred stock dividends (2,930)
--------- --------- ---------
Income applicable to common
stockholders $ 261,949 $ 283,107 $ 661,367
========= ========= =========
Net income per common share:
Before extraordinary item $ 13.47 $ 14.15 $ 30.58
Extraordinary item 2.49
--------- --------- ---------
Net income per common share $ 13.47 $ 14.15 $ 33.07
========= ========= =========
Weighted average number of
shares of common stock
outstanding 19,445 20,000 20,000
========= ========= =========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1994, 1993 and 1992
____________
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-In Retained
Stock Stock Capital Earnings Total
______ _______ __________ _________ _____
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1991 $200,000 $1,800,000 $ 243,550 $2,243,550
Net income 661,367 661,367
------ -------- ---------- ---------- ----------
Balance, September 30, 1992 200,000 1,800,000 904,917 2,904,917
Net income 283,107 283,107
------ -------- ---------- ---------- ----------
Balance, September 30, 1993 200,000 1,800,000 1,188,024 3,188,024
Net income 264,879 264,879
Cash dividends on preferred
stock (variable rate) (2,930) (2,930)
Common stock redeemed and
retired (20,000 shares)
(Note 1) (200,000) (3,400,000) (3,600,000)
Sale of common stock
(10,000 shares)
(Note 1) 100,000 100,000
Sale of variable rate
preferred stock, net
of offering costs
(1,495 shares) $14,952 127,008 141,960
Issuance of variable rate
preferred stock
(30,224 shares)
(Note 1) 302,242 2,720,183 3,022,425
Income tax benefit
associated with
disaffiliation
(note 1) 206,872 206,872
------ -------- ---------- ---------- ----------
Balance, September 30, 1994 $317,194 $100,000 $1,454,063 $1,449,973 $3,321,230
====== ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1994, 1993 and 1992
____________
<TABLE>
<CAPTION>
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Operating activities:
Net income $ 264,879 $ 283,107 $ 661,367
Adjustments to reconcile net
income to net cash provided
by operating activities:
Proceeds from sale of
trading securities 20,077,343 2,052,187
Purchase of trading
securities (20,073,050) (2,047,812)
Gain on sale of investment
securities (4,252) (4,724)
Gain on sale of receivables (171,756)
(Gain) loss on sale of
real estate (12,344) 18,400 5,256
Provision for losses on
real estate assets 155,042 51,012 18,762
Amortization of deferred
costs 262,484 151,763 144,647
Deferred income tax
provision 136,500 145,951 76,300
Changes in:
Compound and accrued
interest on investment
certificates
and debt payable 1,229,371 955,322 689,014
Accrued interest
receivable 107,423 (175,460) (153,709)
Other 312,110 7,383 (19,054)
---------- ---------- -----------
Net cash provided by
operating activities 2,283,750 1,437,129 1,422,583
---------- ---------- ----------
Investing activities:
Advances to parent and
affiliated companies (1,710,743)
Collection of advances to
parent and affiliated
companies 1,710,743 471,383
Principal payments on real
estate contracts and
and mortgage notes receivable 1,829,515 4,039,074 2,245,740
Purchases of real estate
contracts and mortgage
notes receivable (20,177,705) (15,667,120) (5,274,528)
Proceeds from real estate sales 6,200 75,008 6,283
Additions to real estate held (82,135) (24,155) (8,400)
Proceeds from sale of
receivables 10,393,131 4,044,423
---------- ---------- -----------
Net cash used in
investing activities (6,320,251) (9,243,513) (2,559,522)
__________ __________ ___________
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
CONSOLIDATED CASH FLOWS, Continued
For the Years Ended September 30, 1994, 1993 and 1992
____________
<TABLE>
<CAPTION>
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Financing activities:
Repayment of amounts due to
parent company $ (400,365)
Borrowings from parent company $ 400,365
Proceeds from investment
certificates $10,539,684 9,677,843 5,864,051
Repayments of investment
certificates (2,635,649) (2,300,088) (903,226)
Repayments to banks and others (48,170) (890,247) (99,182)
Debt issuance costs (444,102) (333,489) (240,490)
Issuance of preferred stock 141,960
Issuance of common stock 100,000
Redemption and retirement
of common stock (3,600,000)
Dividends paid on preferred
stock (2,930)
---------- ---------- ---------------
Net cash provided by
financing activities 4,050,793 5,753,654 5,021,518
---------- ------------- -----------
Net increase (decrease) in
cash and cash
equivalents 14,292 (2,052,730) 3,884,579
Cash and cash equivalents,
beginning of year 3,594,472 5,647,202 1,762,623
---------- ---------- ----------
Cash and cash equivalents,
end of year $ 3,608,764 $ 3,594,472 $ 5,647,202
========== ========== ==========
<FN>
See Note 10 for supplemental cash flow information.
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
____________
1. Summary of Accounting Policies
Business and Reorganization
Summit Securities, Inc., d/b/a National Summit Securities, Inc.
in the states of New York and Ohio ("Summit" or "the Company"),
was incorporated on July 25, 1990. Prior to September 9, 1994,
Summit was a wholly-owned subsidiary of Metropolitan Mortgage &
Securities Co., Inc. ("Metropolitan"). On September 9, 1994,
the controlling interest in Summit was acquired by National
Summit Corp., a Delaware corporation which is wholly-owned by C.
Paul Sandifur, Jr. The change in control was made pursuant to
a reorganization wherein Summit redeemed all the common shares
held by its former parent company, Metropolitan, which consisted
of 100% of the outstanding common stock of Summit for $3,600,000
cash, which approximated the net book value of Summit at the
transaction date. Contemporaneously with this redemption,
Summit issued 10,000 shares of common stock to National Summit
Corp. for $100,000 cash. In addition, various investors holding
Metropolitan's common and preferred stock, including members of
Mr. Sandifur's immediate family, acquired 30,224 shares of
Summit's preferred stock Series S-1 for $100 per share in
exchange for preferred and common shares of Metropolitan. The
preferred shares issued for the Metropolitan shares were
recorded at their face value which approximated recent issuances
to unrelated parties. The face value of the preferred shares
approximates fair value due to the variable dividend rate
associated with such shares (see Note 3).
Metropolitan is effectively controlled by C. Paul Sandifur, Jr.
through his common stock ownership and voting control. National
Summit Corp. is wholly-owned by C. Paul Sandifur, Jr. through
ownership of 100% of the voting stock. National Summit Corp.
did not have any operations or activities other than the
acquisition of Summit. The consolidated financial statements
include the accounts of Summit and its wholly-owned subsidiary,
Summit Property Development, Inc. All significant intercompany
transactions and balances have been eliminated in consolidation.
Summit purchases contracts and mortgage notes collateralized by
real estate, with funds generated from the public issuance of
debt securities in the form of investment certificates, cash
flow from receivables and sales of real estate.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
1. Summary of Accounting Policies, Continued
Cash and Cash Equivalents
For purposes of balance sheet classification and the statement
of cash flows, the Company considers all highly liquid debt
instruments purchased with a remaining maturity of three months
or less to be cash equivalents. Cash includes all balances on
hand and on deposit in banks and financial institutions. The
Company periodically evaluates the credit quality of its
financial institutions. Substantially all cash and cash
equivalents are on deposit with one financial institution and
balances periodically exceed the FDIC insurance limit.
Investments in Affiliated Companies
Investments in equity securities of Metropolitan are carried at
cost, which approximates market.
Real Estate Contracts and Mortgage Notes Receivable
Real estate contracts and mortgage notes held for investment
purposes are carried at amortized cost. Discounts originating
at the time of purchase net of capitalized acquisition costs are
amortized using the level yield (interest) method. For
contracts acquired after September 30, 1992, net purchase
discounts are amortized on an individual contract basis using
the level yield method over the remaining contractual term of
the contract. For contracts acquired before October 1, 1992,
the Company accounts for its portfolio of discounted loans using
anticipated prepayment patterns to apply the level yield
(interest) method of amortizing discounts. Discounted contracts
are pooled by the fiscal year of purchase and by similar
contract types. The amortization period, which is approximately
78 months, estimates a constant prepayment rate of 10-12 percent
per year and scheduled payments, which is consistent with the
Company's prior experience with similar loans and the Company's
expectations.
In May 1993, Statement of Financial Accounting Standards No. 114
(SFAS No. 114), "Accounting by Creditors for Impairment of a
Loan," was issued. SFAS No. 114 requires that certain impaired
loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or
the fair value of the collateral. The Company is required to
adopt this new standard by October 1, 1995. The Company does
not anticipate that the adoption of SFAS No. 114 will have a
material effect on the financial statements.
<PAGE>
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
1. Summary of Accounting Policies, Continued
Real Estate Held for Sale
Real estate is valued at the lower of cost or market. The
Company principally acquires real estate through foreclosure or
forfeiture. Cost is determined by the purchase price of the
real estate or, for real estate acquired by foreclosure, at the
lower of (a) the fair value of the property at the date of
foreclosure less estimated selling costs, or (b) cost (unpaid
contract carrying value). Periodically, the Company reviews its
carrying values of real estate held for sale by obtaining new or
updated appraisals, and adjusts its carrying values to the lower
of cost or net realizable value, as necessary.
Profit on sales of real estate is recognized when the buyers'
initial and continuing investment is adequate to demonstrate
that (1) a commitment to fulfill the terms of the transaction
exists, (2) collectibility of the remaining sales price due is
reasonably assured, and (3) the Company maintains no continuing
involvement or obligation in relation to the property sold and
transfers all the risks and rewards of ownership to the buyer.
In April 1992, the Accounting Standards Division of the American
Institute of Certified Public Accountants issued Statement of
Position (SOP) No. 92-3, "Accounting for Foreclosed Assets,"
which provides guidance on determining the accounting treatment
of foreclosed assets. SOP 92-3 requires that foreclosed assets
be carried at the lower of (a) fair value minus estimated costs
to sell, or (b) cost. The Company applied the provisions of SOP
92-3 effective October 1, 1992. The application of SOP 92-3,
estimated to be approximately $10,000 before the application of
related income taxes, is included in continuing operations for
the year ended September 30, 1993.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
1. Summary of Accounting Policies, Continued
Allowance for Losses on Real Estate Assets
The established allowances for losses on real estate assets
include amounts for estimated probable losses on both real
estate held for sale and real estate contracts and mortgage
notes receivable. Specific allowances are established for all
delinquent contract receivables with net carrying values in
excess of $100,000. Additionally, the Company establishes
general allowances, based on prior delinquency and loss
experience, for currently performing receivables and smaller
delinquent receivables. Allowances for losses are determined on
the net carrying values of the contracts, including accrued
interest. Accordingly, the Company continues interest accruals
on delinquent loans until foreclosure, unless the principal and
accrued interest on the loan exceed the fair value of the
collateral, net of estimated selling costs. The Company obtains
new or updated appraisals on appropriate delinquent receivables,
and adjusts the allowance for losses as necessary, such that the
net carrying value does not exceed net realizable value.
Deferred Costs
Commission and other expenses incurred in connection with the
registration and public offering of investment certificates are
capitalized and amortized using the interest method over the
estimated life of the related investment certificates, which
range from 6 months to 5 years.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
1. Summary of Accounting Policies, Continued
Income Taxes
The Company was included in the group of companies which file a
consolidated income tax return with Metropolitan, its former
parent through September 9, 1994. Subsequent to that date, the
Company is included in the group of companies which file a
consolidated income tax return with National Summit Corp. The
Company is allocated a current and deferred tax provision from
Metropolitan or National Summit Corp. as if the Company filed a
separate tax return. Effective October 1, 1992, Metropolitan
adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109).
Under this method, deferred tax liabilities and assets are
determined on temporary differences between the financial
statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in
which the temporary differences are expected to reverse. There
was no effect on the Company's financial statements of adopting
SFAS No. 109. In 1992, Metropolitan and the Company accounted
for income taxes as required by Accounting Principles Board
Opinion No. 11. In association with the disaffiliation with
Metropolitan in 1994, the Company received certain income tax
benefits, principally associated with the allocation of the
Metropolitan consolidated group's net operating loss
carryforwards, which resulted in a reduction of deferred taxes
of approximately $207,000. This benefit has been recorded as
additional paid-in capital due to the affiliation between
Metropolitan and the Company.
Financial Instruments
In December 1991, Statement of Financial Accounting Standards
No. 107 (SFAS No. 107), "Disclosures about Fair Value of
Financial Instruments," was issued. SFAS No. 107 requires
disclosures of fair value information about financial
instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. SFAS No. 107 is
effective for financial statements issued for fiscal years
ending after December 31, 1995 (Summit's fiscal year ending
September 30, 1996) for entities with less than $150 million in
total assets. This pronouncement does not change any
requirements for recognition, measurement or classification of
financial instruments in the Company's financial statements.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
1. Summary of Accounting Policies, Continued
Reclassifications
Certain amounts in the 1993 financial statements have been
reclassified to conform with the current year's presentation.
These reclassifications had no effect on net income or retained
earnings as previously reported.
2. Real Estate Contracts and Mortgage Notes Receivable
Real estate contracts and mortgage notes receivable include
mortgages collateralized by property located throughout the United
States. At September 30, 1994, the Company held first position
liens associated with contract and mortgage notes receivable with
a face value of approximately $21,900,000 and second position
liens of approximately $6,500,000. Approximately 22% of the face
value of the Company's real estate contracts and mortgage notes
receivable are collateralized by property located in the Southwest
(Texas and New Mexico), approximately 18% by property located in
the Pacific Southwest (California, Nevada and Arizona),
approximately 16% by property located in the Pacific Northwest
(Washington, Idaho, Montana and Oregon) and approximately 14% by
property located in the Southeast (Florida, Georgia, North
Carolina and South Carolina).
Contracts totaling approximately $6,000,000 which were
collateralized by property in Hawaii were purchased from a
Metropolitan affiliated company during fiscal 1993. At September
30, 1993, approximately $5,500,000 of these contracts were
outstanding. These contracts relate to the sale of timeshare
units in a condominium resort development which is owned by a
Metropolitan affiliated company. On February 18, 1994, the
Company sold its remaining timeshare contracts at their carrying
values to Metropolitan.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
2. Real Estate Contracts and Mortgage Notes Receivable, Continued
The face value of the Company's real estate contracts and mortgage
notes receivable as of September 30, 1994 and 1993 are grouped by
the following dollar ranges:
<TABLE>
<CAPTION>
1994 1993
______ ______
<S> <C> <C>
Under $15,001 $ 1,262,236 $ 5,210,788
$15,001 to $40,000 10,555,623 7,649,859
$40,001 to $80,000 9,970,820 4,609,278
$80,001 to $150,000 4,684,026 2,324,242
Greater than $150,000 1,931,873 907,576
------------ ------------
$ 28,404,578 $ 20,701,743
============ ============
</TABLE>
Contractual interest rates on the face value of the Company's real
estate contracts and mortgage notes receivable as of September 30,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
______ ______
<S> <C> <C>
Less than 8.00% $ 3,072,262 $ 1,433,022
8.00% to 8.99% 3,682,307 1,664,066
9.00% to 9.99% 6,489,889 3,232,543
10.00% to 10.99% 10,242,985 6,342,842
11.00% to 11.99% 2,868,603 1,799,826
12.00% to 12.99% 1,533,520 2,189,840
13% or higher 515,012 4,039,604
------------ ------------
$ 28,404,578 $ 20,701,743
============ ============
</TABLE>
The weighted average contractual interest rate on these
receivables at September 30, 1994 is approximately 10%. Maturity
dates range from 1994 to 2024. The constant effective yield on
contracts purchased in fiscal 1994 and 1993 was approximately
11.5% and 12%, respectively.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
2. Real Estate Contracts and Mortgage Notes Receivable, Continued
The following is a reconciliation of the face value of the real
estate contracts and mortgage notes receivable to the Company's
carrying value at September 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
______ ______
<S> <C> <C>
Face value of discounted
receivables $ 21,931,395 $ 14,416,037
Face value of originated and
non-discounted receivables 6,473,183 6,285,706
Unrealized discounts, net
of unamortized acquisition
costs (1,337,365) (1,076,488)
Allowance for losses (250,572) (96,654)
Performance holdback on
receivable purchase (600,000)
Accrued interest receivable 466,350 598,624
------------ ------------
Carrying value $ 27,282,991 $ 19,527,225
============ ============
</TABLE>
The principal amount of receivables with required principal or
interest payments being in arrears for more than three months was
approximately $1,085,000 and $1,662,000 at September 30, 1994 and
1993, respectively. Included in the amount for September 30, 1993
was approximately $680,000 of delinquent contracts purchased from
an affiliate during 1993. The Company had a performance holdback
of $600,000 to cover any losses related to certain timeshare unit
contracts, including these delinquent contracts. On February 18,
1994, the Company sold the remaining timeshare receivables,
related to the holdback provisions, at their carrying value to
Metropolitan. During the year ended September 30, 1994, the
Company sold approximately $10,400,000 of receivables without
recourse and recognized a gain of approximately $172,000.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
2. Real Estate Contracts and Mortgage Notes Receivable, Continued
Aggregate amounts of receivables (face amount) expected to be
received, based upon prepayment patterns, are as follows:
<TABLE>
<CAPTION>
Fiscal year ending
September 30,
_____________
<S> <C>
1995 $ 2,835,000
1996 2,708,000
1997 2,591,000
1998 2,483,000
1999 2,382,000
Thereafter 15,405,578
-----------
Total $ 28,404,578
===========
</TABLE>
3. Investments in Affiliated Companies
At September 30, 1994, the Company owns the following preferred
and common shares of Metropolitan:
Cost and
Type Number Carrying
of Shares of Shares Value
_________ _________ _______
Class A common 9 $ 420,205
Preferred:
Series C 116,094 1,160,942
Series D 24,328 243,278
Series E-1 105,800 1,058,000
Series E-4 1,400 140,000
---------
$ 3,022,425
==========
Class A common stock is the only voting class of Metropolitan's
stock. Class A common stock is junior to Class B common stock as
to liquidation preference. At September 30, 1994, Summit owned
7.12% of the outstanding Class A common stock.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
3. Investments in Affiliated Companies, Continued
The preferred stock have par value of $10 per share and have
liquidation preferences equal to their issue price. They are non-
voting and are senior to the common shares as to dividends.
Dividends are cumulative and at variable rates; however, dividends
shall be no less than 6% or greater than 14% per anum. At
September 30, 1994, the preferred Series C, D and E-1 had dividend
rates of 8.612%. The preferred Series E-4 had a dividend rate of
9.112%. Neither the common nor preferred shares are traded in a
public market; however, the preferred stock trades at face value
on a trading list maintained by Metropolitan.
4. Debt Payable
At September 30, 1994 and 1993, debt payable consists of:
<TABLE>
<CAPTION>
1994 1993
______ ______
<S> <C> <C>
Real estate contracts and
mortgage notes payable,
interest rates ranging
from 7% to 10%, due in
installments through 2018
collateralized by senior
liens on certain of the
Company's real estate
contracts, mortgage notes
and real estate held for sale $ 119,573 $ 22,653
Accrued interest payable 315
--------- ---------
$ 119,888 $ 22,653
========= =========
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
4. Debt Payable, Continued
<CAPTION>
Aggregate amounts of principal payments due on debt payable at
September 30, 1994 are as follows:
Fiscal year ending
September 30,
_____________
<S> <C>
1995 $ 10,522
1996 10,656
1997 11,574
1998 12,572
1999 11,799
Thereafter 62,765
---------
Total $ 119,888
=========
</TABLE>
5. Investment Certificates
At September 30, 1994 and 1993, investment certificates consist
of:
<TABLE>
<CAPTION>
Annual
Interest Principally
Rates Maturing In 1994 1993
________ ___________ ______ ______
<S> <C> <C> <C>
6% to 7% 1995, 1996
and 1997 $ 1,732,000 $ 1,265,000
7% to 8% 1995 and
1996 1,083,000 1,018,000
8% to 9% 1998 and
1999 15,808,000 7,947,000
9% to 10% 1995, 1996
and 1997 3,202,000 3,624,000
10% to 11% 1996 6,161,535 6,228,501
----------- -----------
27,986,535 20,082,501
Compound
and accrued
interest 3,106,295 1,876,924
----------- -----------
Total $ 31,092,830 $ 21,959,425
=========== ===========
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS, Continued
____________
5. Investment Certificates, Continued
<CAPTION>
The weighted average interest rate on outstanding investment
certificates at September 30, 1994 and 1993 was approximately 8.8%
and 9.1%, respectively.
Investment certificates and compound and accrued interest at
September 30, 1994 mature as follows:
Fiscal year ending
September 30,
_____________
<S> <C>
1995 $ 2,559,000
1996 8,466,000
1997 4,036,000
1998 8,241,000
1999 7,468,000
Thereafter 322,830
-------------
Total $ 31,092,830
=============
</TABLE>
6. Deferred Costs
An analysis of unamortized commissions and other capitalized
expenses incurred in connection with the sale of investment
certificates for the years ended September 30, 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
1994 1993
______ ______
<S> <C> <C>
Balance at the beginning of
the year $ 524,376 $ 342,650
Deferred during the year:
Commissions 299,748 276,060
Other expenses 144,354 57,429
--------- ---------
Total deferred costs 968,478 676,139
Amortized during the year (262,484) (151,763)
--------- ---------
Balance at the end of the year $ 705,994 524,376
========= =========
<PAGE>
<CAPTION>
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
7. Income Taxes
The tax effect of the primary temporary differences giving rise to
the Company's deferred tax assets and liabilities as of September
30, 1994 and 1993 is as follows:
1994 Asset Liability
_______ _________
<S> <C> <C>
Management fee payable $ 20,400
Allowance for losses on real
estate $ 17,102
Allowance for losses on
receivables 86,573
Deferred acquisition costs $ 619,716
Net operating loss carryforwards 343,863
-------- --------
Total deferred income taxes $ 467,938 $ 619,716
======== ========
1993 Asset Liability
_______ _________
<S> <C> <C>
Allowance for losses on real
estate $ 2,277
Allowance for losses on
receivables 32,862
Deferred acquisition costs $ 481,472
Net operating loss carryforwards 224,183
-------- --------
Total deferred income taxes $ 259,322 $ 481,472
======== ========
</TABLE>
No valuation allowance has been established to reduce the deferred
tax assets, as it is more likely than not that these assets will
be realized due to the future reversals of existing taxable
temporary differences. As of September 30, 1994, the Company's
net operating loss carryforwards of approximately $1,011,000
expire in 2006.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
7. Income Taxes, Continued
The provision for income taxes is computed by applying the
statutory federal income tax rate to income before income taxes as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Federal income tax at
statutory rate $ 137,797 $ 145,880 $ 251,458
Affiliate corporate
dividend received
deduction (124,758)
Other 2,610 71 1,289
-------- --------- --------
Income tax provision $ 140,407 $ 145,951 $ 127,989
======== ========= ========
<CAPTION>
The components of the provision for income taxes are as follows:
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Current $ 3,907 $ 1,917
Deferred 136,500 $ 145,951 126,072
-------- --------- ---------
$ 140,407 $ 145,951 $ 127,989
======== ========= ========
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
7. Income Taxes, Continued
<CAPTION>
The deferred provision for income taxes for each of the fiscal
years ended September 30, 1994, 1993 and 1992 results from the
following:
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Earned discounts $ 938 $ 69,081 $ 200,532
Contract acquisition
costs 130,225 15,400 52,342
Allowance for losses (68,536) (13,976) (3,127)
Accrued management fees (20,400)
Net operating losses used
to reduce deferred tax
credits (123,675)
Realization of net
operating loss
carryforward to
reduce current
taxes payable 94,273 75,446
-------- --------- --------
$ 136,500 $ 145,951 $ 126,072
======== ========= ========
</TABLE>
During the year ended September 30, 1992, the Company recognized
an extraordinary credit of $49,772 by the utilization of net
operating loss carryforwards of approximately $146,000.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
8. Stockholders' Equity
A summary of preferred and common shares at September 30, 1994 and
1993 is as follows:
Issued and Outstanding Shares
_________________________________
1994 1993
_________________________________
Authorized
Shares Amount Shares Amount Shares
__________ ________ ______ ________ ________
Registered
preferred
stock,
Series S-1 150,000 $ 317,194 31,719 $ -- --
========= ======== ====== ======== ======
Common stock 2,000,000 $ 100,000 10,000 $ 200,000 20,000
========= ======== ====== ======== ======
In addition to the shares above, the Company has authorized
10,000,000 total shares of Series S preferred stock, of which
150,000 shares were registered at September 30, 1994.
Series S-1 preferred stock is cumulative and the holders thereof
are entitled to receive monthly dividends at an annual rate equal
to the highest of the "Treasury Bill Rate," the "Ten Year Constant
Maturity Rate" or the "Twenty Year Constant Maturity Rate" as
defined in the Series S-1 offering prospectus determined
immediately prior to declaration date. The board of directors
may, at its sole option, declare a higher dividend rate; however,
dividends shall be no less than 6% or greater than 14% per annum.
Series S-1 preferred stock has a par value of $10 per share and
was sold to the public at $100 per share. Series S-1 shares are
callable at the sole option of the board of directors at $102 per
share prior to January 1, 1995 and $100 per share thereafter.
All preferred stock has liquidation preferences equal to their
issue price, are non-voting and are senior to the common shares as
to dividends. All preferred stock dividends are based upon the
original issue price.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
9. Related Party Transactions
Through September 9, 1994, the date of disaffiliation, Summit
received accounting, data processing, contract servicing and other
administrative services from Metropolitan. Charges for these
services were approximately $58,000 in fiscal 1994, $97,000 in
fiscal 1993 and $50,000 in fiscal 1992 and were assessed based on
the number of real estate contracts and mortgage notes receivable
serviced by Metropolitan on Summit's behalf. Other indirect
services provided by Metropolitan to Summit, such as management
and regulatory compliance, were not directly charged to Summit.
Management believes that this allocation is reasonable and results
in the reimbursement to Metropolitan of all significant direct
expenses incurred on behalf of Summit. Currently, management
anticipates that Metropolitan will continue to supply these
services in the future.
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS, Continued
____________
9. Related Party Transactions, Continued
Summit had the following related party transactions with
Metropolitan and affiliates during fiscal years 1994, 1993 and
1992:
<TABLE>
<CAPTION>
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Real estate contracts
and mortgage notes
receivable purchased
through Metropolitan
or affiliates $ 19,495,714 $ 15,423,706 $ 4,792,398
Contract acquisition
costs charged to
Summit on purchased
real estate contracts
and mortgage notes
receivable, including
management under-
writing fees 681,991 243,414 347,021
----------- ----------- ----------
Total cost of real
estate contracts
and mortgage notes
receivable
purchased from
Metropolitan $ 20,177,705 $ 15,667,120 $ 5,139,419
=========== =========== ==========
Real Estate Contracts
and Mortgage Notes
Receivable Sold to
Metropolitan or
Affiliates $ 10,122,544 $ 4,044,423
Interest expense
paid to parent and
affiliated companies $ 11,684 $ 6,000 $ 243,306
Commissions capitalized
as deferred costs,
paid to an affiliate
on sale of investment
certificates $ 299,748 $ 276,060 $ 168,089
Commissions deducted
from additional
paid-in capital,
paid to an affiliate
on sale of preferred
stock $ 7,552
Dividends received from
Western United Life
Assurance Company $ 366,935
</TABLE>
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
9. Related Party Transactions, Continued
Advances to parent of $1,710,743 at September 30, 1993 represent
advances to Metropolitan for the purchase of Summit's investments
in real estate contracts and mortgage notes receivable.
Advances due Metropolitan of $267,735 at September 30, 1994
represent real estate contracts and mortgage notes and related
costs advanced by Metropolitan on behalf of Summit and are
included in accounts payable.
In December 1994, the Company reached an agreement with
Metropolitan whereby it will acquire Metropolitan Investment
Securities, Inc. (MIS) effective January 31, 1995.
Additionally, the Company is negotiating the purchase of Old
Standard Life Insurance Company (Old Standard) from
Metropolitan. Both MIS and Old Standard are wholly-owned
subsidiaries of Metropolitan.
10. Supplemental Disclosures for Statements of Cash Flows
Supplemental information on interest and income taxes paid during
the years ended September 30, 1994, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Interest paid $ 1,298,248 $ 836,737 $ 701,955
Income taxes paid 3,907 101 1,917
<PAGE>
SUMMIT SECURITIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS, Continued
____________
10. Supplemental Disclosures for Statements of Cash Flows, Continued
<CAPTION>
Non-cash investing and financing activities of the Company during
the years ended September 30, 1994, 1993 and 1992 are as follows:
1994 1993 1992
______ ______ ______
<S> <C> <C> <C>
Assumption of other debt
payable in conjunction
with purchase of real
estate contracts and
mortgage notes
receivable $ 81,451 $ 235,374 $ 259,116
Assumption of other debt
payable in conjunction
with acquisition of
real estate held
for sale 63,650 14,225 28,769
Transfer of investment
affiliate as full
consideration for
amount due on
note payable to
parent company 6,000,000
Real estate held for sale
acquired through
foreclosure 437,448 276,573 194,856
Loans to facilitate
the sale of
real estate 81,800 205,492 96,717
Exchange of Summit
Securities, Inc.
preferred stock
as full consideration
for Metropolitan
preferred and
common stock 3,022,425
Additional paid-in
capital resulting
from income tax
benefits associated
with disaffiliation 206,872
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
N/A. The Company reported a change in accountants in its
Form 8-K dated June 25, 1993.
PART III
Item 10. Directors and Executive Officers of Registrant.
See "Executive Compensation" under Item 1.
Item 11. Executive Compensation.
See "Executive Compensation" under Item 1.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
See "Principal Shareholders" under Item 1.
Item 13. Certain Relationships and Related Transactions.
See "Certain Transactions" under Item 1.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.
(a) 1. Financial Statements
Included in Part II, Item 8 of this report:
Reports of Independent Certified Public Accountants
Consolidated Balance Sheets at September 30, 1994,
and 1993
Consolidated Statements of Income for the Years
Ended September 30, 1994, 1993 and 1992.
Consolidated Statements of Stockholder's Equity for
the years Ended September 30, 1994, 1993 and
1992
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
2. Financial Statements Schedules
Included in Part IV of this report:
Reports of Independent Certified Public Accountants
on Financial Statement Schedules.
Schedule VIII -- Valuation and Qualifying Accounts
Schedule XII -- Mortgage Loans on Real Estate
Other Schedules are omitted because of the absence
of conditions under which they are required or
because the required information is given in the
financial statements or notes thereto.
3. Exhibits
3(a)(i). Articles of Incorporation of the Company. (Exhibit 3(a)
to (Registration No. 33-36775).
*3(a)(ii). Amendment to Articles of Incorporation dated January 20,
1994.
3(b). Bylaws of the Company. (Exhibit 3(b) to Registration No.
33-36775).
4(a). Indenture dated as of November 15, 1990 between Summit
and West One Bank, Idaho, N.A., Trustee. (Exhibit 4(a) to
Registration No. 33-36775).
4(b). Amendment to Indenture dated as of November 15, 1990
between Summit and West One Bank, Idaho, N.A., Trustee.
(Exhibit 4(b) to Registration No. 33-36775).
4(c). Form of Statement of Rights, Designations and Preferences
of Variable Rate Cumulative Preferred Stock Series S-1.
4(d). Form of Variable Rate Cumulate Preferred Stock
Certificate.
4(e). Form of Investment Certificate.
*10(a). Management, Acquisition and Servicing Agreement between
Summit and Metropolitan Mortgage & Securities Co., Inc.
dated September 9, 1994.
11. Computation of Earnings Per Common Share. (See Financial
Statements.)
*27. Financial Data Schedules
*Filed herewith
(b) Reports on Form 8-K
On or about September 15, 1994 Summit filed a Form 8-K
reporting a change in control and including proforma
financial information dated June 30, 1994 and September
30, 1993.
(c) See Exhibit Volume hereinabove.
(d) Financial Statement Schedules hereinbelow
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
The Directors and Stockholder
Summit Securities, Inc.
Our report on the consolidated financial statements of Summit
Securities, Inc. and subsidiary as of September 30, 1994 and 1993 and
for the years then ended, is included in Item 8 herein. In connection
with our audits of such financial statements, we have also audited the
1994 and 1993 financial statement schedules listed in Item 14 of this
Form 10-K.
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic 1994 and 1993 financial
statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Spokane, Washington
November 21, 1994
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
The Directors and Stockholders
Summit Securities, Inc.
The audit referred to in our report dated December 7, 1992,
relating to the financial statements of Summit Securities, Inc., for
the year ended September 30, 1992, which is contained in Item 8 of this
Form 10-K, included the audit of the financial statement schedules
listed under Item 16(b) as of September 30, 1992 and for the year then
ended. These financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statement schedules based upon our audit.
In our opinion, such financial statement schedules present fairly,
in all material respects, the information set forth therein.
/s/ BDO SEIDMAN
BDO Seidman
Spokane, Washington
December 7, 1992
<PAGE>
<PAGE>
SCHEDULE VIII
SUMMIT SECURITIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
Additions
(Reductions) Deductions
Balance at Charged to and Balance
Beginning Costs and Accounts at end of
Description of Year Expenses Written Year
Off
(Recovery)
__________ __________ _________ _________
Allowance for Losses
Deducted from Real
Estate Contracts and
Mortgage Notes Receivable
on Balance Sheet
<S> <C> <C> <C> <C>
1994 $96,654 $103,000 $(50,918) $250,572
1993 59,244 15,000 (22,410) 96,654
1992 50,000 18,762 9,518 59,244
<CAPTION>
Allowances for Losses
Deducted from Real
Estate Held for Sale
on Balance Sheet
<S> <C> <C> <C> <C>
1994 $6,757 $52,042 $8,499 $50,300
1993 -- 36,012 29,255 6,757
1992 -- -- -- --
</TABLE>
<PAGE>
Schedule XII
SUMMIT SECURITIES, INC.
MORTGAGE LOANS ON REAL ESTATE
September 30, 1994
<TABLE>
<CAPTION>
Real estate contracts and mortgage notes ("Receivables) are located throughout the United States.
Approximately 16% of the face value of Summit's real estate contracts and mortgage notes
receivable are collateralized by property located in the Pacific Northwest (Washington, Idaho,
Montana and Oregon), approximately 18% by property located in the Pacific Southwest (California,
Nevada and Arizona), approximately 14% by property located in the Southeast (Florida, Georgia,
North Carolina and South Carolina) and approximately 22% by property located in the Southwest
(Texas and New Mexico). Less that 1% of the contracts are subject to variable interest rates.
Interest rates range from 0% to 20% with rates principally (87%) within the range of 7% to 12%.
Number Carrying Delinquent Number of
of Interest Maturity Amount of Principal Delinquent
Description Receivables Rates Dates Receivables Amount Receivables
---------- -------- -------- ----------- ---------- -----------
RESIDENTIAL Principally
<S> <C> <C> <C> <C> <C> <C>
First Mortgage > $75,000 46 7%-12% 1994-2024 $5,069,495 $331,928 3
First Mortgage > $40,000 122 7%-12% 1994-2024 6,554,375 303,003 5
First Mortgage < $40,000 338 9%-14% 1994-2023 7,190,121 250,572 33
Second or Lower> $75,000 4 8%-12% 1996-2014 405,950 -- --
Second or Lower> $40,000 23 7%-11% 1994-2020 1,240,937 155,577 3
Second or Lower< $40,000 155 9%-12% 1994-2024 3,387,961 43,920 2
COMMERCIAL
First Mortgage > $75,000 6 9%-11% 1998-2009 544,561 -- --
First Mortgage > $40,000 19 9%-10% 1995-2003 1,078,666 -- --
First Mortgage < $40,000 21 8%-10% 1995-2004 427,103 -- --
Second or Lower> $75,000 2 8%-10% 1999-2005 192,254 -- --
Second or Lower> $40,000 6 9%-11% 1997-2009 341,703 -- --
Second or Lower< $40,000 12 9%-11% 1996-2015 296,589 -- --
FARM, LAND AND OTHER
First Mortgage > $75,000 1 12% 1995 495,405 -- --
First Mortgage > $40,000 2 7%-10% 2004-2014 101,366 -- --
First Mortgage < $40,000 26 9%-12% 1995-2010 475,705 -- --
Second or Lower> $75,000 1 0% 1994 245,279 -- --
Second or Lower> $40,000 4 5%-12% 1998-2007 239,751 -- --
Second or Lower< $40,000 7 10%-12% 1996-2014 117,357 -- --
Unrealized discounts, net
of unamortized acquisition
costs, on receivables
purchased at a discount (1,337,365)
Accrued Interest Receivable 466,350
Allowance for Losses (250,572)
-----------
TOTAL $ 27,282,991 $ 1,085,000
=========== ==========
<FN>
The principal amount of Receivables subject to delinquent principal or interest is defined as
being in arrears for more than three months.
</TABLE>
<TABLE>
<CAPTION>
The contractual maturities of the aggregate amounts of Receivables (face amount) are as follows:
Residential Commercial Farm, Land, Other Total
Principal Principal Principal Principal
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
October 1994 - September 1997 $ 2,324,000 $ 721,000 $ 777,000 $ 3,822,000
October 1997 - September 1999 2,425,000 816,000 92,000 3,333,000
October 1999 - September 2001 1,470,000 374,000 220,000 2,064,000
October 2001 - September 2004 2,220,000 362,000 109,000 2,691,000
October 2004 - September 2009 3,290,000 580,000 300,000 4,170,000
October 2009 - September 2014 2,744,000 -- 176,863 2,920,863
October 2014 - Thereafter 9,375,839 27,876 -- 9,403,715
---------- ---------- ---------- ----------
$23,848,839 $2,880,876 $1,674,863 $28,404,578
========== ========== ========== ==========
</TABLE>
<PAGE>
Schedule XII Continued
SUMMIT SECURITIES, INC.
MORTGAGE LOANS ON REAL ESTATE
September 30, 1994
<TABLE>
<CAPTION>
For the Years Ended
September 30,
1994 1993 1992
<S> <C> <C> <C>
Balance at beginning
of period $19,527,225 $11,596,730 $ 8,233,732
----------- ---------- ----------
Additions during period
New receivables - cash 20,177,705 15,667,120 5,274,528
Loans to facilitate the
sale of real estate
held - non cash 81,800 205,492 96,717
Assumption of other debt
payable in conjunction with
acquisition of new
receivables - non cash 81,451 235,374 259,116
Increase in Accrued
Interest -- 175,460 153,709
---------- ---------- ----------
Total Additions 20,340,956 16,283,446 5,784,070
---------- ---------- ----------
Deductions During Period
Collections of Principal
- cash 1,829,515 4,039,074 2,245,741
Cost of Receivables Sold: 10,221,375 4,044,423 --
Foreclosures - non
cash 272,959 232,044 166,087
Decrease in Accrued Interest 107,423 -- --
Increase in Allowances
for Losses 153,918 37,410 9,244
---------- ---------- ----------
Total Deductions 12,585,190 8,352,951 2,421,072
---------- ---------- ----------
Balance at End of Period $27,282,991 $19,527,225 $11,596,730
=========== ========== ==========
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SUMMIT SECURITIES, INC.
/S/ John Trimble
By_______________________________________________
John Trimble, President/Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/S/ John Trimble
President/Director
_________________________ 1/12/95
John Trimble
/S/ Philip Sandifur Vice President/Director 1/12/95
_________________________
Philip Sandifur
/S/ Tom Turner
Secretary/Treasurer
_________________________ Director 1/12/95
Tom Turner
/S/ Ernest Jurdana Chief Financial Officer 1/12/95
________________________
Ernest Jurdana
<PAGE>
As filed with the Securities and Exchange Commission on January 12,
1995. SEC File No. 33-36775
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 10-K
Under
THE SECURITIES EXCHANGE ACT OF 1934
- ----------------------------------
(Exact name of registrant as specified in charter)
SUMMIT SECURITIES, INC.
Idaho 6799
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization Classification Code Number)
West 929 Sprague Avenue
Spokane, Washington 99204
82-0438135 (509) 838-3111
(I.R.S. Employer (Address, including zip code
Identification No.) and telephone number, including
area code, of registrant's
principal executive offices)
John Trimble
President
Summit Securities, Inc.
W. 929 Sprague Avenue
Spokane, WA 99204
Telephone No. (509) 838-3111
_____________________________________
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
_____________________________________
EXHIBIT VOLUME
<PAGE>
EXHIBIT INDEX
Page
Number
*3(a)(ii). Amendment to Articles of Incorporation
dated January 20, 1994.
*10(a). Management, Acquisition and Servicing
Agreement between Summit and
Metropolitan Mortgage & Securities
Co., Inc. dated September 9, 1994.
*27. Financial Data Schedules
*Filed herewith
<PAGE>
Exhibit 3(a)(ii)
ARTICLES OF AMENDMENT
OF
SUMMIT SECURITIES INC.
Articles of Amendment of the Articles of Incorporation of SUMMIT
SECURITIES INC. are herein executed by said corporation, pursuant to
the provisions of Title 30 Idaho Business Corporation Act, Section 30-
1-61.
1. The name of the corporation is SUMMIT SECURITIES INC.
2. Article 4 of the Articles of Incorporation is amended and restated
as follows effective January 20, 1994:
The authorized capital stock of the corporation shall consist
of two million shares of a single class of common stock and ten
million shares of a single class of preferred stock.
The shares of common stock shall be of the par value of
$10.00 each. The holders of shares of common stock shall be
entitled to receive dividends out of the funds of the corporation
legally available therefor at the rate, and at the time or times,
whether cumulative or non-cumulative, as may be authorized by the
Board of Directors. The holders of shares of common stock shall
have the right, on the basis of one vote per share, to vote for
the election of members of the Board of Directors of the
corporation and all other matters on which stockholders are
required by law, or requested by the Board of Directors, to vote.
The shares of preferred stock shall be of the par value of
$10.00 each. The holders of preferred stock shall be entitled to
receive cumulative dividends out of the funds of the corporation
legally available therefor at the rate, and at the time or times
as may be authorized by the Board of Directors before any dividend
shall be paid on or set apart for the common stock. The holders
of shares of preferred stock shall have no voting rights except as
may be required by law.
The Board of Directors is hereby expressly authorized to
divide the shares of preferred stock into series, to designate the
same and to fix and determine the rights and preferences of the
shares of each series so established including dividend rates;
redemption provisions; sinking fund provisions for redemption or
repurchase; and conversion or exchange privileges and liquidation
rights and priorities.
All or any part of the authorized common stock and preferred
stock may be issued by the corporation from time to time and for
such consideration as may be determined upon and fixed by the
Board of Directors.
3. Said Amendment was adopted at a meeting of the shareholders
of said Corporation on January 20, 1994.
4. The number of shares outstanding and entitled to vote thereon is
20,000.
5. The number of shares for or against the amendment is as follows:
For the amendment: 20,000
Against the amendment: 0
6. The Amendment does not provide for an exchange, reclassification
or cancellation of existing shares.
7. The Amendment does not effect a change in the amount of stated
capital.
DATED: January 20, 1994 SUMMIT SECURITIES INC.
/s/ Reuel Swanson
___________________________
Reuel Swanson, Secretary
<PAGE>
EXHIBIT 10
MANAGEMENT, ACQUISITION AND SERVICING AGREEMENT
Agreement made this 9th day of September, 1994 by and between Summit
Securities, Inc. (hereinafter "SUMMIT"), a Washington corporation with
principal offices at 1000 West Hubbard, Suite 140, Coeur d'Alene, ID 83814,
and Metropolitan Mortgage & Securities Co., Inc. (hereinafter
"METROPOLITAN"), a Washington corporation with its principal office at W.
929 Sprague Ave., Spokane, Washington 99204, (also hereinafter referred to
jointly as the "Parties".)
WITNESSETH
WHEREAS, METROPOLITAN engages in the business of purchasing and
servicing receivables, and maintains subsidiaries, internal staff, and
operations to support such activities, and; WHEREAS, SUMMIT also
engages in the business of investing in receivables, but SUMMIT does not
maintain internal staff or operations to support the purchasing and
servicing of receivables, and;
WHEREAS, METROPOLITAN has the personnel, systems and expertise to
provide to SUMMIT general support services, receivable acquisition services
and receivable collection and management services, and;
WHEREAS, SUMMIT desires to obtain from METROPOLITAN general support
services, receivable acquisition services and receivable collection and
management services;
NOW THEREFORE, for the foregoing reasons and in consideration of the
mutual promises, covenants and agreements set forth herein, the parties
promise, covenant and agree as follows:
I. REPRESENTATIONS AND WARRANTIES OF METROPOLITAN:
METROPOLITAN REPRESENTS AND WARRANTS TO SUMMIT THAT:
1. METROPOLITAN is a corporation duly organized, validly existing
and in good standing under the laws of the State of Washington.
2. METROPOLITAN is licensed, or qualified, and in good standing in
each of the states where the laws require licensing or qualification in
order to conduct METROPOLITAN'S receivable acquisition, collection and
management activities, or METROPOLITAN is exempt under applicable law from
such licensing or qualification.
3. The consummation of the transactions contemplated herein have
been validly authorized and all requisite corporate action has been taken
by METROPOLITAN to make this agreement binding upon METROPOLITAN in
accordance with its terms.
4. The consummation of the transactions contemplated by this
agreement are in the ordinary course of business of METROPOLITAN.
5. The execution and delivery of this agreement, the servicing of
receivables by METROPOLITAN, the other services and transactions
contemplated hereby, and the fulfillment of and compliance with the terms
and conditions of this agreement, will not conflict with or result in a
breach of any of the terms of METROPOLITAN's articles of incorporation,
bylaws or any other agreement, instrument, law, regulation, rule, order, or
judgment to which METROPOLITAN is now a party or by which it is bound.
METROPOLITAN is not subject to any agreement, instrument, law, regulation,
rule, order or judgment which would impair the ability of SUMMIT to collect
its receivables or impair the value of SUMMIT'S receivables.
6. METROPOLITAN does not believe, nor does it have any reason or
cause to believe, that it cannot perform each and every covenant contained
in this agreement.
7. There is no action, suit, proceeding or investigation pending or
threatened against METROPOLITAN which, either in any one instance or in the
aggregate, may result in any material adverse change in the business,
operations, financial condition, properties or assets of METROPOLITAN, or
in any material impairment of the right or ability of METROPOLITAN to carry
on its business substantially as now conducted, or which would draw into
question the validity of this agreement or of any action taken or to be
taken in connection with the obligations of METROPOLITAN contemplated
herein, or which would be likely to impair materially the ability of
METROPOLITAN to perform under the terms of this agreement.
8. No consent, approval, authorization or order of any court or
governmental agency or body is required for METROPOLITAN'S execution,
delivery and performance of or compliance with this agreement.
9. The receivables acquisition practices, receivable collection
practices and other services provided hereunder shall each be conducted in
accordance with generally accepted business practices in all respects, as
applicable to each respective activity.
II. REPRESENTATIONS AND WARRANTIES OF SUMMIT
SUMMIT REPRESENTS AND WARRANTS TO METROPOLITAN THAT:
1. SUMMIT is a corporation duly organized, validly existing and in
good standing under the laws of the State of Idaho.
2. SUMMIT is licensed or qualified, and in good standing in each of
the states where the laws require licensing or qualification in order to
hold and enforce the terms of its receivables and conduct its business, or
SUMMIT is exempt under applicable law from such licensing or qualification.
3. The consummation of the transactions contemplated herein have
been validly authorized and all requisite corporate action has been taken
by SUMMIT to make this agreement binding upon SUMMIT in accordance with its
terms.
4. The consummation of the transactions contemplated by this
agreement are in the ordinary course of business of SUMMIT.
5. The execution and delivery of this agreement, the fulfillment of
and compliance with the terms and conditions of this agreement, will not
conflict with or result in a breach of any of the terms of SUMMITS
articles of incorporation, bylaws or any other agreement, instrument, law,
regulation, rule, order, or judgment to which SUMMIT is a party, by which
it is bound or its property is subject, which would impair the ability of
METROPOLITAN to service and collect the receivables in accordance with the
terms of this Agreement.
6. SUMMIT does not believe, nor does it have any reason or cause to
believe, that it cannot perform each and every covenant contained in this
agreement.
7. There is no action, suit or proceeding or investigation pending
or threatened against SUMMIT which, either in any one instance or in the
aggregate, may result in any material adverse change in the business,
operations, financial condition, properties or assets of SUMMIT, or in any
material impairment of the right or ability of SUMMIT to carry on its
business substantially as now conducted, or which would draw into question
the validity of this agreement or of any action taken or to be taken in
connection with the obligations of SUMMIT contemplated herein, or which
would be likely to impair materially the ability of SUMMIT to perform under
the terms of this agreement.
8. No consent, approval, authorization or order of any court or
governmental agency or body is required for SUMMIT's execution, delivery
and performance of or compliance with this agreement.
III. GENERAL SUPPORT SERVICES:
1. DESCRIPTION OF SERVICES
a. Administrative Support Services:
METROPOLITAN shall provide SUMMIT administrative support services
including but not limited to Human Resources, Information Systems, Art
& Advertising, Accounting, legal, check processing, and cashiering
services.
b. Financial Services:
METROPOLITAN shall provide financial advice to SUMMIT.
c. Office Space:
METROPOLITAN shall lease or sublease to SUMMIT sufficient office space
for SUMMIT'S business needs at METROPOLITAN'S headquarters facility in
Spokane, Washington and/or such other location as agreed to by the
parties. Any such lease may include lease of office furnishing and
equipment.
2. FEES FOR GENERAL SUPPORT SERVICES
SUMMIT will pay METROPOLITAN monthly fees for General Support Services
provided by METROPOLITAN to SUMMIT. Fees for General Support Services
shall be determined by mutual agreement of the parties.
IV. RECEIVABLE ACQUISITION SERVICES
1. GENERAL DUTIES AND AUTHORITY
METROPOLITAN shall provide receivable acquisition services to SUMMIT
which shall be performed substantially in compliance with the following:
a. METROPOLITAN shall secure opportunities for SUMMIT to purchase
receivables through the use of METROPOLITAN's branch office system,
industry contacts and the other methods developed by METROPOLITAN for
its own receivable purchases.
b. In reviewing the receivables offered to SUMMIT, METROPOLITAN
shall review, among other things, the receivable loan to value ratio,
security value, security condition, payment record, payor's credit,
security title reports and legal documents, taking into account the
investment guidelines provided by SUMMIT.
c. METROPOLITAN or its agent, shall close the receivable purchase in
a manner and using practices which are consistent with industry
standards for the location where the receivable is closed.
d. Loans resulting from financing that may be provided by
METROPOLITAN as a means to induce the purchase of property (e.g. for
the financing of repossession resales or other seller financing) may
be placed in SUMMIT's receivable portfolio if such receivables are
consistent with SUMMIT's investment guidelines.
e. METROPOLITAN shall prepare and maintain such books, records,
computer systems and procedures as shall be required and necessary to
maintain control over the day to day activities regarding offers to
purchase and closing of receivable purchases.
f. METROPOLITAN shall furnish to SUMMIT such periodic, special or
other reports or information as requested by SUMMIT including reports
of total receivables purchased, closing periods and closing costs.
All such reports, documents or information shall be provided by and in
accordance with all reasonable instructions and directions which
SUMMIT may give.
g. METROPOLITAN may carry out any other activity or procedure, which
in METROPOLITAN's discretion, is necessary or appropriate in
connection with the acquisition and closing of the receivables for the
benefit of SUMMIT.
2. RECEIVABLE ACQUISITION SERVICES FEE:
SUMMIT shall pay METROPOLITAN fees for Receivable Acquisition and
Support Services provided by METROPOLITAN to SUMMIT. Fees shall be
determined by mutual agreement of the parties.
3. RIGHT TO REJECT.
SUMMIT shall have the right at anytime to review the receivables
acquired pursuant to this agreement and to reject any receivables which in
SUMMIT's opinion are not consistent with its investment guidelines as such
guidelines existed at the time of the acquisition. Any receivables not
rejected within three months of acquisition are deemed accepted. Any
receivable which is rejected shall be purchased by METROPOLITAN at its face
amount or such other amount as agreed to by the parties.
V. RECEIVABLE COLLECTION AND MANAGEMENT SERVICES
1. SERVICING:
METROPOLITAN or its agents shall perform collection and management
services for SUMMIT substantially in compliance with the following:
a. Hold and safe keep all original receivable documents and files.
b. Prepare and maintain such books, records, computer systems and
procedures as shall be required and necessary to maintain control over
the day to day activities regarding the collection and enforcement of
the rights, obligations and performance of each receivable subject to
this agreement.
c. Furnish to SUMMIT such periodic, special, or other reports,
documents or information as requested by SUMMIT including, but not
limited to, cash receipt reports, aging of all receivables balances on
a contractual basis, and itemizations of unearned or deferred income
all in accordance with generally accepted accounting and statutory
accounting principles. All such reports, documents or information
shall be provided by and in accordance with all reasonable
instructions and directions which SUMMIT may give.
d. METROPOLITAN shall manage the receipt of receivable payments
substantially as follows:
i. Deposit all monies received from the receivable payors into
a general collection account maintained by METROPOLITAN, or its
agent, which account may contain other monies and funds which may
be held for others. Within a reasonable time the amounts
collected and deposited on behalf of SUMMIT shall be transferred
to an account designated by SUMMIT.
ii. For the purposes of this subparagraph d, reasonable time
shall mean two to three business days, unless extraordinary
circumstances beyond METROPOLITAN'S control, such as computer
failure, makes such time frame unreasonable, in which case the
reasonable time shall be two to three days following elimination
of the circumstances causing the delay.
e. Accept and remit to appropriate parties any amounts designated as
reserves for the payment of real estate taxes, insurance premiums or
similar items as may be provided by the receivable documents;
f. Monitor the tax, insurance and other payments required to be paid
directly by receivable payor to third parties, or collect from the
receivable payors and remit to the appropriate third parties any
amounts due for any taxes imposed upon the real estate securing any
receivable, any insurance premiums and any other sums required to be
paid by the receivable payor pursuant to the terms of any receivable.
Any funds so collected by METROPOLITAN or subsidiaries shall be held
in escrow if required by the receivable documents or applicable
regulations, or METROPOLITAN shall pay such sums to SUMMIT as provided
in Paragraph V.1.d. hereinabove. METROPOLITAN shall pay out such
monies to such taxing authorities or other parties or persons as shall
be authorized to receive such payments.
g. Implement routine collection procedures (including telephone
calls and the preparation and mailing of written notices) as
METROPOLITAN may, in its discretion, deem to be reasonable or
appropriate and in accordance with its customary practice and
procedure in the servicing of its own accounts, on delinquent
receivables;
h. When appropriate, in METROPOLITAN's discretion, METROPOLITAN or
its agent may undertake any legal action, whether judicial or non-
judicial, to enforce the payment of any sums due or other performance
required by the terms of any receivable documents or to foreclose upon
or forfeit any real estate or other security securing a receivable.
i. Whenever METROPOLITAN shall commence suit to enforce the
terms of a receivable which is subject to this agreement,
METROPOLITAN shall be deemed to be the authorized legal agent and
representative of SUMMIT in any court of law in any federal,
state, or commonwealth, or other court of competent jurisdiction,
and to so act, without receiving any other prior authority of
SUMMIT, to enforce, sue, settle, compromise, and/or collect such
monies and recover any and all such real estate security which
shall be the subject of any receivable. Any such action may be
maintained in the name of "SUMMIT" or "METROPOLITAN", at
METROPOLITAN's discretion.
j. Carry out any other activity or procedure which, in
METROPOLITAN'S discretion, is necessary or appropriate in connection
with the maintenance and enforcement of the receivables for the
benefit of SUMMIT.
2. COOPERATION BY SUMMIT
SUMMIT agrees to cooperate with METROPOLITAN in the enforcement of all
receivables, make personnel available to METROPOLITAN and cause such
personnel to execute documents, and to make such documents, records,
papers, or other items of evidence available as needed to assist
METROPOLITAN in the collection and servicing of the receivables subject to
this agreement.
3. RECEIVABLE COLLECTION AND MANAGEMENT SERVICES FEES
SUMMIT agrees to compensate METROPOLITAN for its duties performed
hereunder in the following manner and amounts:
a. SUMMIT agrees to pay in addition to any applicable taxes a
monthly management and servicing fee. Such sum shall be due whether or
not a receivable is in default. The Receivable Collection and
Management Services Fee shall be determined by mutual agreement of the
parties.
b. In addition, SUMMIT shall reimburse METROPOLITAN for all outside
attorney costs and all third party fees and charges which may be
incurred in performance of the collections services.
c. SUMMIT agrees that as additional compensation to METROPOLITAN for
such management and collection efforts that METROPOLITAN shall be
entitled to retain any and all late charges, extension charges, and
any other charges or costs imposed upon a delinquent obligor that do
not relate to changing the terms or conditions of the loan to effect
a restructuring or otherwise.
VI. GENERAL TERMS AND CONDITIONS
1. ADJUSTMENTS TO FEES
METROPOLITAN may, from time to time, change the method for determining
any or all of the fees charged pursuant to this agreement so long as the
new method conforms with the intent of the parties, is reasonable and
reflects changes in market rates and/or the cost for providing such
services.
2. REVIEW OF FEES
SUMMIT shall have the right at any time to review the method for
determining the fees charged pursuant to this Agreement. If, in SUMMIT's
opinion, any fee is unacceptable SUMMIT may request a review by the
officers of SUMMIT and METROPOLITAN, who shall use their best efforts to
resolve any objection in consideration of the best interests of both
parties.
3. NON-EXCLUSIVITY OF AGREEMENT
a. This agreement is non-exclusive. SUMMIT reserves the right and
privilege to employ and engage, from time to time, any other entity or
person to perform any of the services which are the subject of this
agreement, or may itself perform any such services. Such actions by
SUMMIT shall not be construed as an event of termination of this
agreement.
b. SUMMIT may withdraw any receivable at any time from those being
serviced pursuant to this agreement, which action shall not be a
breach or termination of this agreement.
4. DELEGATION
METROPOLITAN may utilize, delegate to or subcontract with any of its
subsidiaries, divisions, affiliates or third parties in connection with its
performance of the terms of this agreement, in full or in part, as deemed
appropriate at METROPOLITAN's discretion.
5. RIGHT TO EXAMINE METROPOLITAN'S RECORDS
SUMMIT shall have the right to examine and audit any and all of the
books, records, or other information of METROPOLITAN, with respect to or
concerning this agreement or the receivables during business hours or at
such other times as may be reasonable under applicable circumstances.
6. EVENT OF DEFAULT
The following shall be construed as an event of default:
a. The failure by METROPOLITAN to deliver any and all monies
received by METROPOLITAN which METROPOLITAN is obligated to pay to
SUMMIT pursuant to the terms of this agreement;
b. The failure by SUMMIT to deliver any sums required to be paid to
METROPOLITAN pursuant to the terms of this agreement.
c. The failure of either party to perform in accordance with the
terms and conditions of this agreement to the extent that such failure
to perform shall constitute a material breach of a term or condition
of this agreement.
d. In the event that METROPOLITAN shall file bankruptcy or otherwise
be determined to be insolvent, this agreement may be terminated by
SUMMIT and SUMMIT may take immediate steps to employ another entity to
collect and service the receivables then being serviced by
METROPOLITAN.
7. TERMINATION
a. Either party may terminate this agreement by providing written
notice of termination to the other party, in which event this
agreement shall terminate immediately upon receipt of such notice or
at such later date as provided in said notice.
b. In the event of a default as defined in paragraph VI.6.
hereinabove, the non-defaulting party may, in lieu of immediately
terminating this agreement, provide written notice of default to the
defaulting party, which notice shall set forth the time-period for
cure, which shall be no less than ten (10) days from receipt of the
notice by the defaulting party. If the breaching party does not cure
the default within the time period set forth in the notice, this
agreement shall terminate upon expiration of said time period.
8. NOTICE
Notice under this agreement shall be in writing, and delivered by
hand, receipt acknowledged, or delivered by registered certified United
States mail, return receipt requested, and if refused, by regular United
States mail, addressed to the parties as stated below:
a. ATTN: PRESIDENT
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
W. 929 Sprague Ave.
Spokane, WA 99204.
b. ATTN: PRESIDENT
SUMMIT SECURITIES INC.
1000 W. Hubbard, Suite 140
Coeur d'Alene, ID 83814
9. BINDING EFFECT
This agreement sets forth the entire agreement between the parties,
and shall be binding upon all successors and assigns of both of the parties
hereto, and shall be construed under the laws of the State of Washington.
10. PRIOR AGREEMENTS
This agreement replaces and supercedes each and every prior agreement
executed by the parties related to the management, Receivable acquisition
and Receivable collection services provided by METROPOLITAN to SUMMIT.
This agreement is executed the day, month, and year first above written
by the duly authorized officers of each party.
METROPOLITAN MORTGAGE & SUMMIT SECURITIES, INC.
SECURITIES CO., INC.
/S/ C. Paul Sandifur, Jr. /S/ John Trimble
By: By:
C. Paul Sandifur, Jr. John Trimble
President President
Attest /S/ Susan Thomson Attest /S/ Tom Turner
Susan Thomson Tom Turner
Assistant Secretary Secretary/Treasurer
<PAGE>
ADDENDUM TO MANAGEMENT, ACQUISITION AND SERVICING AGREEMENT
BETWEEN
SUMMIT SECURITIES, INC.
AND
METROPOLITAN MORTGAGE & SECURITIES CO., INC.
DATE OF ORIGINAL AGREEMENT: September 9, 1994
DATE OF THIS ADDENDUM: September 9, 1994
ADDENDUM NUMBER: 1
1. FEES FOR GENERAL SUPPORT SERVICES
a. Administrative Support Fees:
i. SUMMIT will pay METROPOLITAN a monthly fee for general
office services provided by METROPOLITAN to SUMMIT. It is the
intent of the parties hereto that the Administrative Support Fees
be calculated at a fair and equitable rate that reflects the
current market cost for comparable services.
ii. METROPOLITAN has developed and shall continue to maintain a
cost-allocation system designed to measure the activity of the
general support services departments used by both parties, to
provide a basis for allocation of the costs generated by those
departments. The cost allocation system shall be expressed in
terms of labor hours, machine hours, square footage, and/or other
appropriate measures. The cost allocation system will be used to
support charges found in the market place for comparable services
and may be used as a proxy for market charges when the market
cost for such services cannot be determined and as agreed to by
the parties.
b. Financial Services Fees:
i. SUMMIT shall pay to METROPOLITAN an agreed amount to
METROPOLITAN for METROPOLITAN providing financial consultation
and advice.
ii. The financial consultation and advice, when provided, shall
be charged at a fee negotiated by the parties in each instance
and based upon the expertise and hours required to provide the
service.
c. Office Space Rental Fees:
i. SUMMIT shall also pay to METROPOLITAN an agreed amount of
rent for the real and personal property utilized by SUMMIT during
the term hereof, which amount shall be determined on the basis of
a triple net lease.
ii. The lease for office space and related triple net charges
shall be determined on a square foot basis, based upon a
percentage of the building's total expenses, or such other
appropriate measure as determined by the parties.
2. RECEIVABLE ACQUISITION SERVICES FEE:
a. METROPOLITAN shall acquire receivables for SUMMIT, which, after
deduction of METROPOLITAN's fee, earn a minimum net yield equivalent
to the yield obtainable in the market place for assets of comparable
credit quality (estimated to approximate 400 basis points over the
average Treasury Mortgage Equivalent Yield). Calculation of this fee
shall be determined by mutual agreement of the parties.
b. The minimum fee to METROPOLITAN will be no less than 100 basis
points for all receivables purchased through its origination network.
c. The following formula sets forth the initial method for
calculating the fee and corresponds to the sample calculation set
forth in Exhibit A.
i. Determine the net carrying value (net book value) of the
receivables(s) by decreasing its/their face amount by the
purchase discount, and adding back the capitalized closing costs.
For the purposes of this paragraph, purchase discount is the
difference between the face value of the receivable and its
purchase price paid to the third party seller.
ii. Determine the weighted average remaining contractual term of
the receivable(s).
iii. Set forth the expected average remaining life for the
receivable(s), which expectation shall be determined after
applying the prepayment assumption set forth in paragraph v. The
average remaining life is equal to the life in which the average
balance is reached.
iv. Determine the weighted average coupon (weighted average
interest rate) for the receivable(s).
v. Set forth the expected prepayment assumption for the
receivable(s) which shall be determined by considering the
weighted average coupon (set forth in iv. hereinabove) in light
of the current interest rate environment.
vi. Determine the average weekly treasury yield for the expected
average time to maturity of the receivable(s) as set forth in
paragraph IV.2.c.iii. over the time period that the receivable(s)
was/were acquired. The weekly yield shall be a weekly average
calculated on a consistent basis, such as the average weekly rate
published by the Bloomberg Investment System. The rate used may
reflect an interpolation between proximate treasury yields and
terms. The rate may be the result of rounding to the nearest
whole year, e.g. an expected receivable average term of 4.6 years
may be rounded to 5.0 years.
vii. Determine the mortgage equivalent (monthly payment
equivalent) for the average weekly treasury yield set forth in
vi. hereinabove.
viii. Add the appropriate spread to the mortgage yield
equivalent (IV.2.a.). The result is the receivable yield to
SUMMIT (subject to IV.2.b.).
ix. Determine the percent of the face value of the receivable
which SUMMIT can pay to achieve its yield requirement as set
forth in viii. hereinabove.
x. Set forth the dollar amount which results from applying the
percent in paragraph ix, to the face amount of the receivable.
xi. The difference between the amount SUMMIT can pay to obtain
its desired yield (ix.) and the net carrying value (i.), is the
acquisition services fee.
xii. Determine that the fee prescribed in (xi) is equal to or
greater than the minimum fee prescribed in IV.2.b. If the fee
derived from the above formula is less than the minimum then
recalculate the fee at the prescribed minimum.
d. The receivable acquisition services fee may be calculated by
METROPOLITAN, at its discretion, on an individual receivable basis, or
on a pooled basis.
3. COMPENSATION FOR CONTRACT SERVICES
SUMMIT agrees to compensate METROPOLITAN for its duties performed
hereunder in the following manner and amounts:
a. SUMMIT agrees to pay in addition to any applicable taxes a
monthly management and servicing fee. Such sum shall be due whether or
not a receivable is in default. The fee shall be calculated based on
the cost for similar services in the market place. The charge will be
derived based generally on the following methodology: The standard
servicing charge in the market place for conventional residential
loans (currently 25 basis points) will be applied to the average
Washington, regional, or national average loan balance. The parties
may agree to further segregate the charges between residential,
commercial or other loan property types. The resulting annual per
loan charge will be divided by the recent average SUMMIT loan balance
and multiplied by one plus a factor that considers the additional
servicing cost attendant to the types of loan products generally
acquired by SUMMIT.
METROPOLITAN MORTGAGE & SUMMIT SECURITIES, INC.
SECURITIES CO., INC.
By: /S/ C. Paul Sandifur, Jr. By: /S/ John Trimble
C. Paul Sandifur, Jr. John Trimble
President President
Attest /S/ Susan Thomson Attest /S/ Tom Turner
Susan Thomson Tom Turner
Assistant Secretary Secretary/Treasurer
<PAGE>
Exhibit 27
[ARTICLE]5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
<PERIOD TYPE> <YEAR>
[FISCAL-YEAR-END] SEP-30-1994
[PERIOD-END] SEP-30-1994
[CASH] 3,609
[SECURITIES] 3,022
[RECEIVABLES] 27,534
[ALLOWANCE] 251
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 35,102
[CURRENT-LIABILITIES] 0
[BONDS] 31,213
[COMMON] 100
[PREFERRED-MANDATORY] 0
[PREFERRED] 317
[OTHER-SE] 2,904
<TOTAL-LIABILITY-AND-EQUITY. 35,102
[SALES] 0
[TOTAL-REVENUES] 3,395
[CGS] 0
[TOTAL-COSTS] 307
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 155
[INTEREST-EXPENSE] 2,528
[INCOME-PRETAX] 405
[INCOME-TAX] 140
[INCOME-CONTINUING] 265
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 265
[EPS-PRIMARY] 13.47
[EPS-DILUTED] 13.47
</TABLE>
