<PAGE>
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, 1996
/ / 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, 1997.
<PAGE>
SUMMIT SECURITIES, INC.
Part I - Financial Information: Index
Item 1: Financial Statements
Condensed Consolidated Balance Sheets --
December 31, 1996 and September 30, 1996 (Unaudited)
Condensed Consolidated Statements of Income--
Three Months Ended December 31, 1996 and 1995 (Unaudited)
Condensed Consolidated Statement of Cash Flows
Three Months Ended December 31, 1996 and 1995 (Unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART I - FINANCIAL INFORMATION
SUMMIT SECURITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31 September 30,
1996 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 7,583,409 $ 4,461,315
Investments in Affiliated Companies 4,522,425 4,522,425
Available-for-Sale Securities,
at Market 1,482,893 269,305
Held-to-Maturity Securities,
at Amortized Cost (Market
Value $8,156,702 and $7,622,194 8,386,679 7,784,322
Real Estate Contracts and Mortgage
Notes and Other Receivables,
Net of Unrealized Discounts
and Allowance for Losses 88,250,024 91,796,883
Real Estate Held For Sale 2,351,069 1,191,495
Deferred Acquisition Costs, Net 5,122,351 4,862,046
Other Assets, Net 950,720 2,378,889
------------ ------------
TOTAL ASSETS $118,649,570 $117,266,680
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Annuity Reserves $ 64,595,713 $ 62,439,855
Investment Certificates and Accrued
Interest 45,085,528 42,823,871
Debt Payable 86,913 3,850,970
Accounts Payable and Accrued Expenses 1,094,256 1,367,131
Deferred Income Taxes 1,685,537 1,426,079
------------ ------------
TOTAL LIABILITIES 112,547,947 111,907,906
------------ ------------
STOCKHOLDER'S 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:
45,757 and 41,312 Shares Issued and
Outstanding (Liquidation Preference
$4,574,700 and $4,131,170
respectively) 457,470 413,117
Additional Paid-In Capital 2,644,482 2,269,137
Retained Earnings 2,876,909 2,586,654
Net Unrealized Gains (Losses)
on Investments 22,762 (10,134)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 6,101,623 5,358,774
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $118,649,570 $117,266,680
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SUMMIT SECURITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
<S> <C> <C>
REVENUES:
Interest and Earned Discounts $ 2,742,088 $ 2,126,616
Annuity Fees and Charges 12,000 7,800
Realized Net Gains on Sales of
Investment Securities 583
Realizes Net Gains on Sales of
Receivables 317,219
Real Estate Sales 419,300 213,000
Dividend Income 51,833 48,623
Fees, Commissions Services
and Other Income 665,243 801,585
------------ -----------
TOTAL REVENUES 4,207,683 3,198,207
------------ -----------
EXPENSES:
Annuity Benefits 1,015,397 861,364
Interest 1,035,862 917,680
Cost of Real Estate Sold 418,018 213,350
Provision for Losses on Real
Estate Contracts and Real
Estate Held 229,526 220,043
Salaries and Employee Benefits 433,409 408,027
Commissions to Agents 358,511 429,362
Other Operating and Underwriting
Expenses 514,182 397,890
Less Increase in Deferred Acquisition
Costs (259,503) (417,555)
------------ ------------
TOTAL EXPENSES 3,745,402 3,030,161
------------ ------------
Income Before Income Taxes 462,281 168,046
Provision for Income Taxes (68,860) (47,563)
------------ ------------
NET INCOME 393,421 120,483
Preferred Stock Dividends (103,186) (70,996)
------------ ------------
Income Applicable to Common
Stockholder $ 290,235 $ 49,487
============== ============
</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,
1996 1995
----- -----
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 2,728,864 $ 491,070
----------- ----------
INVESTING ACTIVITIES:
Purchase of Subsidiaries Net of
Cash Received (757,868)
Purchase of Available-for-Sale
Securities (1,167,568)
Purchase of Held-to-Maturity
Investments (995,469)
Proceeds from Sale of Available-
for-Sale Securities 999,790
Proceeds from Maturities of Held-to
Maturity Investments 500,000
Principal Payments on Real Estate
Contracts and Mortgage Notes
and Other Receivables 2,056,484 3,271,865
Purchase of Real Estate Contracts
and Mortgage Notes and
Other Receivables (10,152,412) (2,336,634)
Proceeds From Real Estate Sales 214,537 60,000
Additions to Real Estate Held (1,270,616) (30,886)
Proceeds from Sale of Receivables 11,739,777
------------ -----------
NET CASH PROVIDED BY INVESTING
ACTIVITIES 924,733 1,206,267
------------ -----------
FINANCING ACTIVITIES:
Receipts from Annuity Products 3,220,925 3,871,563
Withdrawals of Annuity Products (2,074,646) (1,293,196)
Proceeds From Sales of Investment
Certificates 3,273,047 1,389,970
Repayment of Investment Certificates (1,340,450) (558,779)
Repayment to Banks and Others (3,805,426) (59,903)
Debt Issuance Costs (121,485) (58,787)
Issuance of Preferred Stock 419,698 23,086
Preferred Stock Dividends (103,166) (70,996)
------------ -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (531,503) 3,242,958
------------ ----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 3,122,094 4,940,295
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 4,461,315 2,979,362
------------ -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 7,583,409 $7,919,657
=========== ==========
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 $ 51,098 $ 26,823
Real Estate Held for Sale and
Development Acquired Through
Foreclosure 484,577 229,176
Loans to Facilitate the Sale of
Real Estate 204,763 693,892
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, 1996, the
results of operations for the three months ended December 31, 1996 and
1995 and changes in cash flows for the three months ended December 31,
1996 and 1995. The results of operations for the three month period ended
December 31, 1996 and 1995 are not necessarily indicative of the results
to be expected for the full year. As provided for in regulations
promulgated by the Securities and Exchange Commission, all financial
statements included herein are unaudited; however, the condensed
consolidated balance sheet at September 30, 1996 has been derived from
the audited consolidated balance sheet. These financial statements
should be read in conjunction with the consolidated financial statements
including notes thereto included in the Company's fiscal 1996 Form 10-K.
2. The principal amount of receivables as to which payments were in arrears
more than three months was $3,275,000 at December 31, 1996 and $3,375,000
at September 30, 1996.
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. In November 1996, Summit and Old Standard Life Insurance Company (OSL)
participated as two of the four co-sellers in a receivable
securitization sponsored by Metropolitan Asset Funding, Inc., an
affiliated company. Approximately $126.7 million of receivables, with
$11.2 million from Summit and OSL, were sold in the securitization with
proceeds, after costs, of approximately $121.1 million, with $10.8
million allocated to Summit and OSL. With an amortized carrying value
of approximately $10.5 million in the receivables sold in the
securitization, Summit and OSL recorded approximately $.3 million in
pre-tax gains from their portion of the sale. Metropolitan Asset
Funding, Inc. sold in a public offering approximately $113.4 million in
varying classes of mortgage pass-through certificates. In addition to
the certificates sold in the public offering, approximately $13.3
million in subordinate class certificates and residual class
certificates were returned to the various co-sellers of the collateral
included in the securitization. Summit and OSL received approximately
$9.6 million, after costs, from the securitization and also received
approximately $1.2 million in subordinate class and residual class
certificates.
7. The preparation of financial statement in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Significant Transactions:
In November 1996, Summit and Old Standard Life Insurance Company (OSL)
participated as two of the four co-sellers in a receivable securitization
sponsored by Metropolitan Asset Funding, Inc., an affiliated company.
Approximately $126.7 million of receivables, with $11.2 million from Summit
and OSL, were sold in the securitization with proceeds, after costs, of
approximately $121.1 million, with $10.8 million allocated to Summit and OSL.
With an amortized carrying value of approximately $10.5 million in the
receivables sold in the securitization, Summit and OSL recorded approximately
$.3 million in pre-tax gains from their portion of the sale. Metropolitan
Asset Funding, Inc. sold in a public offering approximately $113.4 million in
varying classes of mortgage pass-through certificates. In addition to the
certificates sold in the public offering, approximately $13.3 million in
subordinate class certificates and residual class certificates were returned
to the various co-sellers of the collateral included in the securitization.
Summit and OSL received approximately $9.6 million, after costs, from the
securitization and also received approximately $1.2 million in subordinate
class and residual class certificates.
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 Metro, 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 bases on the earnings of OSL. The
purchase price plus estimated future contingency payments approximate the
actuarial appraised valuation of OSL.
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 price was
approximately $1,234,000, 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 price included approximately $268,000 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:
At December 31, 1996, the Company had cash and cash equivalents of
approximately $7.6 million as compared to $4.5 million at September 30, 1996.
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, 1996, the Company's receivable portfolio totaled $88.3 million as
compared to $91.8 million at September 30, 1996. Real estate held for sale
and development, acquired through receivable foreclosures and direct
purchases, totaled $2.4 million at December 31, 1996 as compared to $1.2
million at September 31, 1996. Total assets were $118.6 million at December
31, 1996 as compared to $117.3 million at September 30, 1996.
At December 31, 1996, the Company had outstanding insurance annuity
reserve liabilities of $64.6 million as compared to $62.4 million at September
30, 1996. The Company had outstanding investment certificate liabilities of
$45.1 million at December 31, 1996 as compared to $42.8 million at September
30, 1996. Total liabilities were $112.5 million at December 31, 1996 as
compared to $111.9 million at September 30, 1996. Total stockholders' equity
was $6.1 million or 5.1% of total assets at December 31, 1996 compared to $5.4
million or 4.6% of total assets at September 30, 1996.
Sales of Investment Certificates, net of repayments, and Preferred Stock
generated approximately $2.4 million in net cash flow during the three months
ended December 31, 1996, while sales of insurance annuity products, net of
withdrawals, generated approximately $1.1 million net cash flow during the
same period. Sales and maturities of investments, along with sales of real
estate and sales and principal payments on receivables added additional cash
flow of approximately $14.5 million during the three month period ended
December 31, 1996. The cash flows from these sources along with cash of $2.7
million provided by operating activities were used to invest approximately
$10.2 million in receivables, approximately $2.2 million in securities
investments, approximately $1.3 million for the acquisition of real estate
held for sale and development and fund the repayment of approximately $3.8
million in short-term broker borrowings. At December 31, 1996, the Company
had cash and cash equivalents of approximately $7.6 million.
Results of Operations:
Net income was $393,000 on revenues of approximately $4.2 million for
the three months ended December 31, 1996. For the similar period in the prior
year, the Company reported net income of $120,000 on revenues of approximately
$3.2 million.
Net income for the comparative three month periods has significantly
increased as result of improvements from (1) an increased spread between
interest sensitive income and interest sensitive expense, due principally to
the increased investment in the receivable portfolio, (2) an increase in
overall gains from the sale of investments, receivables and real estate and
(3) a reduced effective income tax rate due primarily to the effects of the
dividend exclusion benefits and the small life insurance tax benefits; which
were only partially offset by (1) a reduction in fees, commission and service
revenues, (2) an increase in other operating expenses and (3) an increase in
the provision for loss on receivables and other real estate assets.
For the three months ended December 31, 1996, the interest spread was
$703,000, while in the prior year's period the spread was $355,000. The
increase of $348,000 is the result of additional investments in the receivable
portfolio 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.
During the three months ended December 31, 1996, the Company realized
gains on the sale of real estate of $1,300 and gains on the sale of
receivables of $317,200 for a total of $318,500. In the prior year's period,
the Company realized gains from the sales of investments, real estate and
receivables of less than $1,000. The current year's gain on the sale of
receivables is primarily from Summit's participation as a co-seller in a
securitization sponsored by Metropolitan Asset Funding, Inc.
In the current year's period, the Company received approximately $51,800
in dividends from its preferred stock investment in Metropolitan Mortgage &
Securities Co., Inc. (Metro), its former parent company, compared to
approximately $48,600 in the prior year's period. The Company acquired this
investment in September 1994 through the exchange of its own preferred stock
for a similar preferred and common stock investment in Metro.
Commencing January 31, 1995, with the purchase of MIS and the creation
of a property development subsidiary, the Company began to generate
significant fee revenues along with increased operating expenses associated
with these revenues. Additionally, commencing May 28, 1995, with the purchase
of OSL, and December 28, 1995, with the purchase of AZL, the Company began to
incur significant operating expenses relative to its insurance operations.
During the three months ended December 31, 1996, the Company generated
approximately $665,000 of fee revenues while incurring $1.0 million in other
operating expenses. In the prior year, the Company realized $802,000 of fee
revenues offset by $818,000 of other operating expenses. This increased net
cost, of approximately $365,000, is primarily the result of costs associated
with its insurance operations and a reduction in fees generated by its
property development subsidiary.
In conjunction with increased investments in its receivable portfolio,
along with the valuation of foreclosed real estate, the Company provided for
losses on receivables and real estate assets of $230,000 in the current year's
period as compared to $220,000 in the prior year's period. At December 31,
1996, the Company's carrying value for its receivable portfolio and its real
estate held for sale and development was approximately $90.6 million as
compared to $76.9 million at December 31, 1995.
New Accounting Rules:
In June 1996, Statement of Financial Accounting Standards No. 125 (SFAS
125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" was issued. SFAS 125 provides accounting and
reporting standards based on a consistent application of a financial-
components approach that focuses on control. Under this approach, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes financial
assets when control has been surrendered and derecognizes liabilities when
extinguished. This statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996.
<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
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A Form 8-K was filed December 10, 1996, which disclosed the sale through
a securitization of approximately 11.25 million in first line residential
mortgages, as more fully described in such Form 8-K.
<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 18, 1997 ____________________________________
Tom Turner
President/Director
/S/ PHILIP SANDIFUR
Date: February 18, 1997 ___________________________________
Philip Sandifur
Vice President/Director
/S/ GREG GORDON
Date: February 18, 1997 ___________________________________
Greg Gordon
Secretary/Treasurer/Director
/S/ STEVE CROOKS
Date: February 18, 1997 _________________________________
Steve Crooks
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 7,583
<SECURITIES> 14,392
<RECEIVABLES> 89,276
<ALLOWANCES> 1,026
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 118,650
<CURRENT-LIABILITIES> 0
<BONDS> 45,172
<COMMON> 100
0
457
<OTHER-SE> 5,545
<TOTAL-LIABILITY-AND-EQUITY> 118,650
<SALES> 0
<TOTAL-REVENUES> 4,208
<CGS> 0
<TOTAL-COSTS> 2,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 230
<INTEREST-EXPENSE> 1,036
<INCOME-PRETAX> 462
<INCOME-TAX> 69
<INCOME-CONTINUING> 393
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 393
<EPS-PRIMARY> 29.02
<EPS-DILUTED> 29.02
</TABLE>
