<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended December 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE AT OF 1934 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.)
W. 929 Sprague Avenue, Spokane, WA 99204
(Address of principal executive offices)(Zip Code)
(509)838-3111
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes /X/ No / /
Applicable only to issuers involved in bankruptcy proceedings during
the preceding five years: (Not Applicable)
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes / / No / /
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
10,000 SHARES - Common at January 31, 1995.
<PAGE>
SUMMIT SECURITIES, INC.
Part I - Financial Information: Index
Item 1: Financial Statements
Condensed Consolidated Balance Sheets --
December 31, 1995 (unaudited)
and September 30, 1995
Condensed Consolidated Statements of Operations--
Three Months Ended December 31,
1995 and 1994 (Unaudited)
Condensed Consolidated Statements of Cash Flows
Three Months Ended December 31, 1995 and
1994 (Unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
<PAGE>
PART I - FINANCIAL INFORMATION
SUMMIT SECURITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
(Unaudited)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 7,919,657 $ 2,979,362
Investments in Affiliated Company 3,022,425 3,022,425
Held-to-Maturity Securities,
at Amortized Cost (Market
Value $7,707,812 and $8,071,465) 7,881,370 8,315,750
Real Estate Contracts and Mortgage
Notes and Other Receivables,
Net of Unrealized Discounts
and Allowance For Losses 76,089,641 77,013,121
Real Estate Held For Sale 794,646 836,291
Deferred Acquisition Costs 3,967,101 3,582,202
Other Assets, Net 883,490 597,421
---------- ----------
TOTAL ASSETS $ 100,558,330 $ 96,346,572
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Insurance Annuity Reserves $ 53,005,624 $ 49,559,589
Investment Certificates and Accrued
Interest 39,911,162 38,545,896
Debt Payable 72,466 104,636
Accounts Payable and Accrued Expenses 2,406,486 2,938,182
Accrued Income Taxes Due Parent 1,185,168 1,291,202
---------- -----------
TOTAL LIABILITIES 96,580,906 92,439,505
---------- -----------
STOCKHOLDERS' EQUITY:
Common Stock, $10 Par Value:
2,000,000 Shares Authorized:
10,000 Shares Issued and Outstanding 100,000 100,000
Preferred Stock, $10 Par Value:
10,000,000 Shares Authorized:
35,862 and 35,622 Shares Issued and
Outstanding (Liquidation Preference
$3,586,180 and $3,562,220,
respectively) 358,618 356,222
Additional Paid-In Capital 1,807,681 1,786,991
Retained Earnings 1,725,225 1,675,738
Net Unrealized Losses on Investments (14,100) (11,884)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 3,977,424 3,907,067
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 100,558,330 $ 96,346,572
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
SUMMIT SECURITIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1995 1994
<S> <C> <C>
REVENUES:
Interest and Earned Discounts $ 2,126,616 $ 909,559
Insurance Premiums Earned 7,800
Realized Net Gains on Sales of
Investment Securities 583
Realized Net Gains on Sales of
Receivables 49,103
Real Estate Sales 213,000 169,000
Dividend Income 48,623 58,870
Fees, Commissions, Service and
Other Income 801,585 28,659
--------- ---------
TOTAL REVENUES 3,198,207 1,215,191
--------- ---------
EXPENSES:
Insurance Annuity Benefits 861,364
Interest 917,680 758,259
Cost of Real Estate Sold 213,350 169,035
Provision for Losses on Real
Estate Contracts and Real
Estate Held 220,043 89,729
Salaries and Employee Benefits 408,027
Commissions to Agents 429,362
Other Operating and Underwriting
Expenses 397,890 64,976
Less Increase in Deferred Acquisition
Costs (417,555)
--------- ---------
TOTAL EXPENSES 3,030,161 1,081,999
--------- ---------
Income Before Income Taxes 168,046 133,192
Provision for Income Taxes (47,563) (31,751)
--------- ---------
NET INCOME 120,483 101,441
Preferred Stock Dividends (70,996) (76,343)
--------- ---------
Income Applicable to Common
Shareholder $ 49,487 $ 25,098
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SUMMIT SECURITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1995 1994
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 112,623 $ 696,434
---------- ----------
INVESTING ACTIVITIES:
Purchase of Subsidiaries Net of Cash
Received (757,868)
Proceeds from Sale of Available-
for-Sale Securities 999,790
Principal Payments on Real Estate
Contracts and Mortgage Notes
and Other Receivables 3,650,312 1,195,206
Purchase of Real Estate Contacts
And Mortgage Notes and Other
Receivables (2,336,634) (10,814,580)
Proceeds From Real Estate Sales 60,000 15,500
Additions to Real Estate Held (30,886) (29,464)
Proceeds from Sale of Receivables 5,305,602
---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,584,714 (4,327,736)
---------- ----------
FINANCING ACTIVITIES:
Receipts from Annuity Products 3,871,563
Withdrawals of Annuity Products (1,293,196)
Proceeds From Sale of Investment
Certificates 1,389,970 1,765,981
Repayment of Investment Certificates (558,779) (400,058)
Repayment to Banks and Others (59,903) (185,388)
Insurance and Debt Issuance Costs (58,787) (66,086)
Issuance of Preferred Stock 23,086 233,747
Cash Dividends (70,996) (76,343)
---------- ----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 3,242,958 1,271,853
---------- ----------
NET INCREASE (DECREASE)IN CASH
AND CASH EQUIVALENTS 4,940,295 (2,359,449)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 2,979,362 3,608,764
--------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 7,919,657 $ 1,249,315
========== ==========
NON CASH INVESTING AND FINANCING
ACTIVITIES OF THE COMPANY:
Assumption of Other Debt Payable in
Conjunction With Purchase of Real
Estate Contracts and Mortgage Notes $ 26,823 $ 120,230
Real Estate Held for Sale and
Development Acquired Through
Foreclosure 229,176 289,000
Loans to Facilitate the Sale of
Real Estate 693,892 81,800
Increase In Assets and Liabilities
Associated with Purchase of
Subsidiaries:
Investments 497,868
Other Assets 260,000
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
SUMMIT SECURITIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments necessary to present fairly the financial position as
of December 31, 1995 and the results of operations and change in
cash flow for the three months ended December 31, 1995 and 1994.
The results of operations for the three month period ended
December 31, 1995 and 1994 are not necessarily indicative of the
results to be expected for the full year.
2. The principal amount of receivables as to which payments were in
arrears more than three months was $2,850,000 at December 31,
1995 and $2,675,000 at September 30, 1995.
3. Summit Securities, Inc. is a wholly-owned subsidiary of National
Summit Corp. The Company files consolidated federal income tax
returns with its parent. The Company is allocated a current and
deferred tax provision from National Summit Corp. as if the
Company filed a separate tax return.
4. Summit Securities, Inc. had no outstanding material legal
proceedings other than normal proceedings associated with
receivable foreclosures.
5. Certain amounts in the prior years' condensed financial statements
have been reclassified to conform with the current years'
presentation.
6. On January 31, 1995 the Company consummated an agreement with
Metropolitan Mortgage & Securities Co., Inc. (Metro), the
Company's former parent company, whereby it acquired Metropolitan
Investment Securities, Inc. (MIS) effective January 31, 1995, at
a purchase price of $288,950, which approximated the book value
of MIS at date of purchase. On May 31, 1995, the Company
consummated an agreement with Metropolitan, whereby it acquired
Old Standard Life Insurance company (OSL) effective May 31, 1995,
at a purchase price of $2,722,000, which approximated the current
book value of OSL at date of purchase, with future contingency
payments based on the earnings of OSL. The purchase price plus
estimated future contingency payments approximate the actuarial
appraised valuation of OSL. On December 28, 1995, the Company
consummated an agreement with ILA Financial Services, Inc.
whereby it acquired Arizona Life, an insurance company domiciled
in Arizona, at a purchase price of $1,225,987, which approximated
the book value of Arizona Life at date of purchase. Arizona Life
holds licenses to engage in insurance sales in seven states and
the purchase price included approximately $260,000 in value
assigned to these state licenses.
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Completed Transactions:
On January 31, 1995, Summit Securities, Inc. (Summit or the
Company) and Metropolitan Mortgage & Securities Co., Inc. (Metro)
completed a purchase/sale transaction whereby 100% of the outstanding
common stock of Metropolitan Investment Securities, Inc. (MIS) was
sold to Summit. The cash purchase/sale price was $288,950, the
approximate net book value of MIS at closing. MIS is a limited-
purpose broker dealer and the exclusive broker/dealer for the
securities sold by Summit and Metro. It is anticipated that this sale
will not materially affect the future business operations of MIS.
Additionally, by agreement, effective January 31, 1995, Metro
discontinued its property development division, which consisted of a
group of employees experienced in real estate development. On the
same date, Summit commenced the operation of a property development
subsidiary employing those same individuals who had previously been
employed by Metro. Summit Property Development Corporation, a 100%
owned subsidiary of Summit, has negotiated an agreement with Metro to
provide future property development services.
On May 31, 1995, Summit and Metro completed a purchase/sale
transaction whereby 100% of the outstanding common stock of Old
Standard Life Insurance Company (OSL) was sold to Summit. The cash
purchase/sale price was $2,722,000, the approximate net book value of
OSL at closing, with future contingency payments based on the earnings
of OSL. The purchase/sale price plus estimated future contingency
payments approximated the actuarial appraised valuation of OSL. OSL
is engaged in the business of acquiring receivables using funds
derived from the sale of annuities and funds derived from receivable
cash flows. The purchase of OSL increased total assets by
approximately $48.9 million while total liabilities increased by
approximately $46.2 million. Significant assets acquired included
cash and cash equivalents of $4.1 million, investments of $9.4
million, receivables of $32.1 million, real estate of $.5 million,
deferred acquisition costs of $2.6 million and other assets of $.2
million. Significant liabilities assumed included insurance annuity
reserves of $44.5 million and accounts payable and other liabilities
of $1.7 million.
On December 28, 1995, Summit and ILA Financial Services Inc.
(ILA) completed a purchase/sale transaction whereby 100% of the
outstanding common stock of Arizona Life (AZL), an insurance company
domiciled in Arizona, was sold to a wholly owned subsidiary of Summit.
The cash purchase/sale price was approximately $1,226,000, which
approximated the book value of AZL at date of purchase. AZL holds
licenses to engage in insurance sales in seven states and the
purchase/sale price included approximately $260,000 in value assigned
to these state licenses. AZL is anticipated to be in the business of
acquiring receivables using funds derived from the sale of annuities
and funds derived from receivable cash flows. At date of purchase,
AZL had no outstanding insurance business or other liabilities. The
addition of AZL had no affect on total assets or liabilities of
Summit.
Financial Condition and Liquidity:
As of December 31, 1995, the Company had cash or cash equivalents
of approximately $7.9 million as compared to $3.0 million at September
30, 1995. Management believes that cash, cash equivalents and
liquidity provided by other investments are adequate to meet planned
asset additions, required debt retirements or other business
requirements during the next twelve months. At December 31, 1995, the
Company's receivable portfolio totaled $76.1 million as compared to
$77.0 million at September 30, 1995. The receivable portfolio totaled
$31.7 million at December 31, 1994, however, this portfolio was
significantly increased by approximately $32.1 million with the
addition of OSL in May 1995. Real estate held for sale, acquired
through receivable foreclosures, totaled $794,600 at December 31. 1995
as compared to $836,300 at September 30, 1995.
Sales of Investment Certificates and Preferred Stock generated
approximately $854,000 net cash flow during the three months ended
December 31, 1995, while sales of insurance annuity products generated
approximately $2.6 million net cash during the same period. Sales of
investments and principal payments on receivables added additional
cash flow of approximately $4.7 million during the period. The cash
flows from these sources, along with cash provided by operating
activities were used to invest approximately $2.3 million in
receivables along with the net cash expended of approximately $758,000
for the acquisition of AZL. For the three month period ended December
31, 1995 cash inflows exceeded outflows by approximately $4.9 million
and resulted in a cash and cash equivalent balance of approximately
$7.9 million at December 31, 1995. Management is actively developing
investment strategies for these available funds.
Results of Operations:
Net income was $120,000 on revenues of approximately $3.2 million
for the three months ended December 31, 1995. For the similar period
in the prior year, the Company reported net income of $101,000 on
revenues of approximately $1.2 million. Current period revenues as
compared to the prior year's have significantly increased as the
result of the MIS and OSL acquisitions in 1995, however, net income
has remained relatively flat as these acquisitions were financed with
existing capital. Net income in the comparative periods has remained
comparatively stable with improvements from (1) an increased spread
between interest sensitive income and interest sensitive expense, due
principally to the increased investment in the receivable portfolio
and (2) an increase in other income less other operating expenses;
which were almost totally offset by (1) a reduction in gains from the
sale of receivables as the Company recorded no sales in the current
year's period; (2) a reduction in dividend income on its variable rate
preferred stock investment, principally due to the declining interest
rate environment; and (3) an increase in the provision for loss on
receivables and other real estate assets in the current year's period.
For the three months ended December 31, 1995, the net interest
spread was $355,400, while in the prior year's period the spread was
$151,300. The increase of $204,100 is the result of additional
investment in receivables, primarily from the acquisition of OSL,
coupled with a slight decrease in the weighted average interest rate
on the outstanding Investment Certificates issued by the Company and
the lower cost of insurance annuity funds generated by OSL.
Commencing January 31, 1995, with the purchase of MIS and the
creation of a property development subsidiary, the Company began to
generate fee revenues along with increased operating expenses
associated with these revenues. During the three months ended
December 31, 1995, the Company generated $802,000 of fee revenues
offset by $817,700 of operating expenses, including the net increase
in deferred acquisition costs. In the prior year, before the MIS
acquisition and startup of the property development subsidiary, the
Company realized $28,700 of fee revenues offset by $65,000 of other
operating expenses.
During the three months ended December 31, 1995, the Company
realized no gains from the sale of receivable investments as compared
to gains of $49,100 in the prior year. The prior year gain resulted
from the sale of approximately $5.3 million in receivables to Western
United Life Assurance Company, which is a subsidiary of Metro,
Summmit's former parent company. The sale of financial instruments
was priced at the current market value at date of sale.
In the current period, the Company received $48,600 in dividends
from its preferred stock investment in Metro as compared to $58,900 in
the prior year's period. This investment is a variable rate preferred
issue and dividends have been reduced in conjunction with the lower
interest rate environment.
In conjunction with increased investments in its receivable
portfolio, along with the valuation of foreclosed real estate, the
Company expensed a provision for loss on receivables and real estate
assets of $220,000 in the current year's period as compared to $89,700
in the prior year's period. At December 31, 1995, the Company's
carrying value for its receivable portfolio and its real estate held
for sale was approximately $76.9 million as compared to $32.2 million
at December 31, 1994.
New Accounting Rules:
In May 1993, Statement of Financial Accounting Standards No.114
(SFAS No.114) "Accounting by Creditors for Impairment of a Loan" was
issued. Additionally, in October 1994, SFAS No.118 "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures"
(an amendment to SFAS No.114) was issued. SFAS No.114 (as amended by
SFAS No.118) requires certain impaired loans be measured based on the
present value of expected cash flows discounted at the loans'
effective interest rate or the fair value of the collateral. The
Company was required to adopt the new standard as by October 1, 1995.
The adoption of SFAS No.114 and SFAS No.118 had no material effect on
the consolidated financial statements.
In December 1991, 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.
The Company's subsidiary, OSL, adopted the provisions of SFAS
No.115, "Accounting for Certain Investments in Debt and Equity
Securities" on December 31, 1993. The effect of applying this new
standard was to decrease stockholders' equity by $59,300, which is net
of a $30,600 income tax effect. At December 31, 1995, the Company had
net unrealized losses on investments of $14,100. This amount is
reported as a reduction in stockholders' equity. Additionally, under
guidance issued by the Financial Accounting Standards Board for the
implementation of SFAS No.115, the Company transferred approximately
$1.0 million in Held-to-Maturity investments to Available-for-Sale
investments during the three month period ending December 31, 1995.
These investments were sold during the period after the designated
transfer date.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings or actions pending or
threatened against Summit Securities, Inc., or to which its property
is subject.
Item 2. Changes in Securities
N/A
Item 3. Defaults Upon Senior Securities
N/A
Item 4. Submission of Matters to a Vote of Security Holders
N/A
Item 5. Other Information
N/A
Item 6. Exhibits and Reports on Form 8-K
N/A
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SUMMIT SECURITIES, INC.
(Registrant)
/S/TOM TURNER
Date: February 13, 1996 ____________________________________
Tom Turner
President/Director
/S/ PHILIP SANDIFUR
Date: February 13, 1996
Philip Sandifur
Vice President/Director
/S/ GREG GORDON
Date: February 13, 1996
Greg Gordon
Secretary/Treasurer/Director
/S/ ERNEST JURDANA
Date: February 13, 1996
Ernest Jurdana
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 7,920
<SECURITIES> 10,904
<RECEIVABLES> 77,022
<ALLOWANCES> 932
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 100,558
<CURRENT-LIABILITIES> 0
<BONDS> 39,984
<COMMON> 100
0
359
<OTHER-SE> 3,518
<TOTAL-LIABILITY-AND-EQUITY> 100,558
<SALES> 0
<TOTAL-REVENUES> 3,198
<CGS> 0
<TOTAL-COSTS> 1,892
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 220
<INTEREST-EXPENSE> 918
<INCOME-PRETAX> 168
<INCOME-TAX> 48
<INCOME-CONTINUING> 120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120
<EPS-PRIMARY> 4.95
<EPS-DILUTED> 4.95
</TABLE>
