<PAGE> 1
As filed with the Securities and Exchange Commissiion on May 16, 1997
Registration No. 333-4837
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
MCA FINANCIAL CORP.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S><C>
Michigan 6162 38-3014001
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of incorporation or organization) classification code number) Identification No.)
</TABLE>
23999 Northwestern Highway
Southfield, Michigan 48075
(248) 358-5555
(Address, including zip code, and telephone number, including area code
of registrant's principal executive offices)
<TABLE>
<S><C>
Copy to:
Lee P. Wells, President Paul R. Rentenbach
MCA Financial Corp. Dykema Gosett PLLC
23999 Northwestern Highway 400 Renaissance Center
Southfield, Michigan 48075 Detroit, Michigan 48243
(248) 358-5555 (313) 568-6973
(Name, address, including zip code, and telephone number, (313) 568-6915 (FAX)
including area code, of agent for service)
Approximate date of commencement of proposed sale to public: As soon as practicable after the effective date of this
Registration Statement.
</TABLE>
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
_____________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
===============================================================================
<PAGE> 2
MCA FINANCIAL CORP.
Cross Reference Sheet Pursuant to Item 501 of Regulation S-K
Between Items in Part I of Form S-1 and Prospectus
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<CAPTION>
ITEMS OF FORM S-1 HEADINGS IN PROSPECTUS
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<S> <C> <C>
Item 1 Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus ........................ Facing Page; Cross-Reference Sheet; Outside Front Cover
Page of Prospectus
Item 2 Inside Front and Outside Back
Cover Pages of Prospectus ................. Inside Front Cover Page of Prospectus; Back Cover Page
of Prospectus
Item 3 Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges ................................... Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
Item 4 Use of Proceeds ........................... Use of Proceeds
Item 5 Determination of Offering Price............ Not Applicable
Item 6 Dilution .................................. Not Applicable
Item 7 Selling Security Holders .................. Not Applicable
Item 8 Plan of Distribution ...................... Plan of Distribution
Item 9 Description of Securities to be
Registered ................................ Description of Series 1996 Debentures
Item 10 Interests of Named Experts
and Counsel ............................... Not Applicable
Item 11 Information with Respect to the
Registrant ................................ Business; Index to Consolidated Financial Statements;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Management; Compensation Committee Interlocks
and Insider Participation; Principal
Stockholders
Item 12 Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities ........................... Not Applicable
</TABLE>
<PAGE> 3
PROSPECTUS
$6,000,000
MCA FINANCIAL CORP.
11% SUBORDINATED DEBENTURES, SERIES 1996
DUE JUNE 30, 2002
MCA Financial Corp., a Michigan corporation ("MCA Financial"), is hereby
offering $6,000,000 in aggregate principal amount of 11% Subordinated
Debentures, Series 1996, Due June 30, 2002 (the "Series 1996 Debentures").
Interest on the Series 1996 Debentures will be payable on March 31, June 30,
September 30 and December 31 of each year, from the date the Series 1996
Debentures are issued or from the most recent interest payment date on which
interest has been paid or duly provided for. The Series 1996 Debentures will
be issued in fully registered form, without coupons, in denominations of $1,000
and integral multiples thereof, and will be dated on their Date of Issue. The
Series 1996 Debentures are subordinated unsecured obligations of MCA Financial.
The unsecured obligations of MCA Financial, including the Series 1996
Debentures, are subordinate in right of payment to all current and future
Senior Indebtedness of MCA Financial and will rank on an equal basis with MCA
Financial's outstanding 11% Asset-Backed Subordinated Debentures Due 2000 (the
"1994 Debentures") and with MCA's proposed offering of Subordinated Debentures
Due 2003 (the "1997 Debentures"), except insofar as the 1994 Debentures are
secured by specific collateral. The issuance of Senior Indebtedness by MCA
Financial is not restricted by the Indenture. See "Description of Series 1996
Debentures."
MCA Financial is a holding company which, through its principal subsidiaries,
MCA Mortgage Corporation and Mortgage Corporation of America, engages in the
mortgage banking business.
FOR INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS", BEGINNING ON PAGE 5.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Price to Sales Proceeds to
the Public(1) Commissions(2) Company(1)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture............ 100% 6.5% 93.5%
Total ................... $6,000,000 $390,000 $5,610,000
- ---------------------------------------------------------------------------------------
</TABLE>
(1) The Series 1996 Debentures will bear interest from their Date of Issue,
which will be the date on which subscription monies are accepted by the
Company. Accordingly, no accrued interest will be charged to purchasers.
See "Plan of Distribution." Before deduction of expenses of this offering
(the "Offering"), estimated at $86,469, which are payable by MCA
Financial.
(2) The Offering is being made on a "best efforts" basis. There is no
assurance as to the amount of Series 1996 Debentures that will be sold.
Participating broker-dealers will be paid a commission of 6.5%, provided,
however, that if a broker-dealer sells $250,000 or more of the Series 1996
Debentures it will be paid a commission of 7.0% on all sales, and if a
broker-dealer sells $500,000 or more of the Series 1996 Debentures it will
be paid a commission of 8.0% on all sales.
-------------
As of June 1, 1997, MCA Financial had sold $______ principal amount of Series
1996 Debentures. This Offering will continue until all Series 1996 Debentures
are sold or until May 31, 1998, whichever is earlier; however, MCA Financial
may elect to extend the offering until all of the Series 1996 Debentures
offered hereby are sold, as permitted under applicable securities laws and
regulations. MCA Financial may reject a subscription for any reason or for no
reason whatever and may terminate the Offering at any time.
The date of this Prospectus is June __, 1997
<PAGE> 4
STATEMENT OF AVAILABLE INFORMATION
MCA Financial is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
filed by MCA Financial with the Commission can be inspected and copied at the
office of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, or at its Regional Offices located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60601; and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission maintains a Web site on the
Internet (which can be found at http://www.sec.gov) that contains reports and
other information regarding registrants that file electronically with the
Commission.
A Registration Statement on Form S-1 relating to the Series 1996
Debentures offered hereby has been filed by MCA Financial with the Commission
in Washington, D.C. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits thereto. For further
information with respect to MCA Financial and the Series 1996 Debentures
offered hereby, reference is made to the Registration Statement and exhibits.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement, including
exhibits, may be inspected without charge at the Commission's principal offices
in Washington, D.C. or at the Commission's regional offices, and copies of all
or any part thereof may be obtained from the Commission's principal office in
Washington, D.C. upon the payment of the fees prescribed by the Commission.
Annual Reports will not be sent to the security holders of MCA Financial.
i
<PAGE> 5
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus, including information contained under the caption "Risk
Factors." Reference is made to, and this summary is qualified in its entirety
by, the more detailed information and consolidated financial statements,
including the notes thereto, contained elsewhere in this Prospectus.
THE COMPANY
MCA Financial is a holding company which, through its principal
subsidiaries and certain affiliates, engages in mortgage banking, land contract
and mortgage syndication, loan originating and servicing and real estate
acquisitions, rehabilitation, leasing and sales. MCA Financial is a Michigan
corporation which was formed in 1989 and was inactive until 1991 when it became
a holding company for its principal subsidiaries. Unless otherwise indictated,
MCA Financial and its subsidiaries are hereinafter collectively referred to as
the "Company." Currently, MCA Financial operates through the following
wholly-owned subsidiaries:
- MCA Mortgage Corporation ("MCA Mortgage") is a Michigan corporation
that was incorporated in 1985 and has conducted a mortgage banking
business since that date. It was known as Primary Mortgage
Corporation until that date and was known as Mortgage Corporation
of America from August 1985 until March 1993.
- Mortgage Corporation of America ("MCA") is a Michigan corporation
that was incorporated in 1984 and has conducted a mortgage banking
business since that date. It was known as First American Mortgage
Corporation, Inc. until September 1989 and as First American
Mortgage Associates, Inc. from September 1989 until October 1993.
- RIMCO Realty & Mortgage Company, doing business as MCA Realty
Corporation ("MCA Realty") is a Michigan corporation that was
incorporated in 1993 and was acquired by MCA Financial on January
31, 1995. MCA Realty is engaged in the purchase and sale of
residential real estate.
- Mortgage Corporation of America, Inc. ("MCA-Ohio") is an Ohio
Corporation that was incorporated in 1993 and has conducted a
mortgage banking business, emphasizing non-conforming loans, since
that date. It was known as Charter 1st Mortgage Banc, Inc. from
May 1993 until July 1995 when it was acquired by MCA.
As of January 31, 1997, the Company operated 30 offices in the states of
Michigan, Illinois, Indiana, Kentucky, Ohio, Florida, North Carolina and
California which are engaged in mortgage and land contract origination. The
Company's principal executive offices are located at 23999 Northwestern
Highway, Southfield, Michigan 48075, and its telephone number is (248)
358-5555.
<PAGE> 6
THE OFFERING
Securities Offered: $6,000,000 of 11% Subordinated Debentures, Series 1996, Due
June 30, 2002. The Series 1996 Debentures are subordinated
unsecured obligations of the Company. The minimum
subscription amount which the Company will accept in this
offering is $1,000. As of June 1, 1997, the Company had
sold $______ prinicpal amount of the Series 1996
Debentures.
Redemption: The Series 1996 Debentures are redeemable prior to
maturity, at the option of the Company, on or after July 1,
1998, in whole or in part, at the prices set forth herein,
plus accrued interest to the date of redemption. Such
redemption is subject to the payment of or receipt of
waivers from all Senior Indebtedness of the Company and is
subject to the Company's financial ability to engage in
such a redemption. In addition, commencing March 31, 1998,
an individual Holder may request the Company to redeem up
to $25,000 of Series 1996 Debentures per year, with
priority given to requests made on behalf of deceased
Holders, but only up to an aggregate of $100,000 per
calendar year for all Holders. See "Description of Series
1996 Debentures - Right of Redemption."
Subordination: The Series 1996 Debentures are subordinated in right of
payment to all Senior Indebtedness of MCA Financial,
which as of the date hereof totalled approximately $35.2
million, and will rank on an equal basis with the Company's
outstanding 1994 Debentures (except insofar as the 1994
Debentures are secured by specific collateral), of which as
of the date hereof, there were outstanding $13.0 million in
principal amount. As of the date hereof, the Company's
subsidiaries had outstanding indebtedness which totalled
approximately $105.5 million, which the Company has
guaranteed. There are no limitations on the amount of
Senior Indebtedness that may be issued or incurred in the
future and since the Company is a holding company, its
rights and, indirectly, the rights of the holders of the
Series 1996 Debentures, to participate in any distribution
of assets of its subsidiaries will be limited. See
"Description of Series 1996 Debentures - Subordination."
Acceleration: If an Event of Default occurs, then the Trustee or Holders
of not less than 25% in principal amount of the Series 1996
Debentures may declare the principal of all Series 1996
Debentures immediately due and payable. Such acceleration
would be subject to the payment of or receipt of waivers
from all Senior Indebtedness of the Company and is subject
to the Company's financial ability to comply with such
obligation. See "Description of Series 1996 Debentures -
Event of Default; - Subordination."
Consolidation: The Company may not consolidate with, merge with or
transfer all or substantially all of its assets to another
entity unless such other entity assumes the Company's
obligations under the Indenture, regardless of whether the
transaction is a leveraged buyout initiated or supported by
the Company, its management or any of their
2
<PAGE> 7
affiliates. Neither the Company nor the Trustee has the
right to waive this covenant. See "Description of Series
1996 Debentures - Consolidation, Merger or Transfer."
Trading Market: No market exists at the present time for the Series 1996
Debentures and it is likely that no trading market will
develop. As a result, investors will remain as investors
for a substantial period of time. See "Risk Factors -
Limited Market for Series 1996 Debentures."
Use of Proceeds: The net proceeds of the Offering will be used by the
Company for general corporate purposes, which will include
providing advances to its subsidiaries and certain of its
affiliates. See "Use of Proceeds."
3
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth a summary of selected historical financial
data of the Company for each of the periods indicated in the five-year period
ended January 31, 1997, which were derived from the audited consolidated
financial statements of the Company for the periods in the five-year period
ended January 31, 1997. The audited consolidated financial statements of the
Company for each of the periods in the three-year period ended January 31, 1997
are included elsewhere in this Prospectus. This table should be read in
conjunction with such consolidated financial statements of the Company and the
notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------------------------------
1997 1996 1995(1) 1994 1993
-------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME DATA:
Revenues ................................... $ 58,926 $ 41,951 $ 33,371 $ 29,534 $ 14,393
Expenses ................................... 57,522 40,823 33,547 28,562 13,477
Income (loss) before federal income taxes .. 1,404 1,128 (176) 972 916
Net income (loss) .......................... 765 616 (278) 551 586
Net income (loss) per share ................ 0.59 0.30 (1.80) 0.98 2.01
Ratio of earnings to fixed charges(2)
Historical ............................... 1.11x 1.13x n/a 1.20x 1.82x
Pro forma(3) ............................. 1.05x 1.01x n/a n/a n/a
Earnings (deficiency of earnings) over
fixed charges ............................ 1,404 1,128 (176) 972 916
BALANCE SHEET DATA:
Mortgages held for resale .................. $ 54,430 $ 63,306 $ 15,702 $ 39,250 $ 14,084
Total assets ............................... 144,992 135,191 77,112 76,845 28,632
Notes payable(4) ........................... 83,975 86,598 44,843 54,549 13,824
11% Subordinated Debentures due 1997(5) .... 4,921 4,921 4,938 4,938 3,171
11% Subordinated Debentures due 2000 ....... 10,000 4,253 -- -- --
11% Subordinated Debentures due 2002 ....... 621 -- -- -- --
10% Subordinated Notes due 2006 ............ 15,000 -- -- -- --
Total liabilities .......................... 134,087 125,030 67,822 67,982 23,460
Redeemable common stock(6) ................. 256 -- -- 300 300
Stockholders' equity ....................... 10,649 10,161 9,290 8,563 4,872
OPERATING DATA:
Loan production--
Number of loans originated ................ 10,107 7,928 8,224 8,910 2,448
Average loan balance ...................... $ 80 $ 80 $ 69 $ 77 $ 83
Total loans originated .................... $809,756 $632,281 $564,235 $687,484 $203,087
Number of full-time employees .............. 433 412 336 448 202
</TABLE>
- --------------
(1) On July 19, 1994, the Company purchased substantially all of the revenue
producing activities of Liberty National Mortgage Corporation. See Note
15 of Notes to Consolidated Financial Statements.
(2) The ratio of earnings to fixed charges was computed by dividing (a) net
income (loss) for the period plus fixed charges by (b) fixed charges,
which consist of interest expense, amortization of debt expense and that
portion of rentals that represents interest. The ratio of earnings over
fixed charges and preferred dividends was 1.12x, 1.12x, 1.19x, and 1.79x
for the years ended January 31, 1997, 1996, 1994, and 1993, respectively.
Earnings were insufficient to cover fixed charges for the year ended
January 31, 1995. The deficiency of earnings over fixed charges and
preferred dividends was $0.6 million for the year ended January 31, 1995.
(3) The pro forma data reflects interest expense on the Series 1996 Debentures
assuming all such debentures are sold, and reflects the amortization of
debt issuance costs over a five year period using the interest method.
(4) See Note 3 of Notes to Consolidated Financial Statements.
(5) The Subordinated Debentures due 1997 were redeemed in full as of March
17, 1997.
(6) See Note 5 of Notes to Consolidated Financial Statements.
4
<PAGE> 9
RISK FACTORS
The Offering is being made on a best efforts basis and there is no
assurance as to the amount of Series 1996 Debentures that will be sold. In
addition, the purchase of the Series 1996 Debentures involves a number of
significant risk factors, and each prospective investor should consider the
following:
ABILITY TO SERVICE DEBT; SUBSTANTIAL LEVERAGE
The Company is highly leveraged. The Company has current obligations
relating to its outstanding securities as follows: (i) the holders of its
Series A Preferred Stock are entitled to receive annual cumulative dividends of
approximately $183,000 ($0.90 per share on 203,022 outstanding shares), (ii)
the holders of its Series B Preferred Stock are entitled to receive annual
cumulative dividends of approximately $303,000 ($0.90 per share on 336,619
outstanding shares), (iii) the holders of its outstanding 11% Subordinated
Debentures Due 2000 (the "1994 Debentures") are entitled to receive annual
interest of approximately $1,100,000, on $10.0 million and (iv) the holders of
the Series 1996 Debentures are entitled to receive annual interest of
approximately $_______ on $____ million aggregate principal amount sold as of
June 1, 1997 (such annual interest will be $660,000 if all 1996 Debentures are
sold). The Company is also obligated to pay interest with respect to
indebtedness due to certain financial institutions at rates ranging from the
Federal Funds rate plus 1.5% (fluctuating from 6.8% to 12.0%). The amount of
this indebtedness at January 31, 1997 was $84.0 million.
At the then-current interest rates, the Company would be obligated to pay
$9.62 million in annual interest on its existing indebtedness as of January 31,
1997. The obligations with respect to the preferred stock dividends are
subordinate to the Company's obligations with respect to the Series 1996
Debentures. However, the dividend and other obligations of the Company
represent significant leverage and financial risk and the annual interest
expense on the Series 1996 Debentures, $______ if all Series 1996 Debentures
are sold, will be additional leverage and financial risk with respect to the
Company. Prospective investors should note that the Series 1996 Debentures,
which are due on June 30, 2002, do not provide for periodic repayment of
principal through a sinking fund provision. Thus, the Company will be required
to make substantial cash payments on this debt at the time it matures. The
Company's ability to withstand adverse market conditions may not be as great as
that of competitors who are not as highly leveraged. Failure to make payments
when due will result in default under and possible acceleration of one or more
of the Company's debt instruments. A substantial portion of the Company's cash
flow from operations will be required to pay the Company's interest expense and
principal repayment obligations. Although management believes that the cash
flow generated from the operations of MCA Mortgage and MCA will provide the
Company with sufficient resources to meet the Company's present and foreseeable
liquidity and capital needs for the next fiscal year, including those arising
from debt obligations, there can be no assurance that the Company will generate
earnings in any future period sufficient to cover its fixed charges. In the
event the Company's cash flow so generated is insufficient for these purposes,
the Company may be required to dispose of assets, refinance its indebtedness or
raise additional capital. There is no assurance that the Company will be able
to complete such transactions if required to do so.
5
<PAGE> 10
RANKING OF SERIES 1996 DEBENTURES
The Series 1996 Debentures are subordinated unsecured obligations of MCA
Financial and are subordinate in right of payment to all current and future
Senior Indebtedness of MCA Financial. See "Description of Series 1996
Debentures - Subordination." The Series 1996 Debentures will rank on an equal
basis with the Prior Debentures, however, unlike the 1994 Debentures, the
Series 1996 Debentures are unsecured obligations of MCA Financial.
HOLDING COMPANY STRUCTURE
Holders of the Series 1996 Debentures will be creditors of MCA Financial
Corp., but not creditors of MCA Mortgage, MCA or any other subsidiary of the
Company. Certain of the net proceeds from this Offering may be invested in MCA
Mortgage and MCA and may also be invested in other subsidiaries of the Company.
The Company's assets consist primarily of its ownership of MCA Mortgage, MCA,
MCA Realty, MCA-Ohio and two other subsidiaries which are currently inactive.
As of the date hereof, the Company and its subsidiaries have $153.7 million of
indebtedness outstanding. Since the Company has limited operations, its cash
flow and ability to service its debt are dependent upon the earnings of its
subsidiaries and their ability to distribute those earnings to the Company
through the payment of dividends, repayment of loans or other distributions of
funds. The Company's subsidiaries are limited with respect to the
distributions they may make to the Company as a result of various financial
covenants contained in loan documents to which they are parties and as a result
of minimum net worth requirements imposed by various mortgage investors and
government agencies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business - Regulation." Furthermore,
the Company's right and, indirectly, the right of the Debenture holders, as
creditors, to participate in the assets of MCA Mortgage, MCA, MCA Realty,
MCA-Ohio or the Company's other subsidiaries in the event of their liquidation
or reorganization, will be subordinate to the claims of any and all other
creditors of MCA Mortgage, MCA, MCA Realty, MCA-Ohio or the Company's other
subsidiaries.
LIMITED MARKET FOR SERIES 1996 DEBENTURES
The Company can provide no assurances as to whether a market for the
Series 1996 Debentures will develop. If such a market were to exist in the
future, the Series 1996 Debentures could trade at prices higher or lower than
their initial public offering price depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. Investors who do not wish, or who are not financially
able, to remain as investors for a substantial period of time are advised
against purchasing Series 1996 Debentures.
REGULATION
The Company is subject to various federal and state rules and regulations
with respect to the processing, origination and purchase, sale and servicing of
mortgage loans and land contracts. MCA Mortgage is an approved seller/servicer
for the Federal Home Loan Mortgage Corporation ("Freddie Mac"), the Federal
National Mortgage Association ("Fannie Mae") and the Government National
Mortgage Association ("Ginnie Mae"). MCA is an approved seller/servicer for
Freddie Mac, and both MCA Mortgage and MCA are registered with the Commissioner
of the Michigan Financial Institution Bureau as a mortgage broker, lender and
servicer. The failure of these subsidiaries to meet the requirements of such
federal and state agencies, which might result in the loss of Freddie Mac,
Fannie Mae, Ginnie Mae or U.S. Department of Housing and Urban Development
("HUD") approvals, would have a material adverse impact on the
6
<PAGE> 11
Company's ability to carry on its current business. MCA Realty is a licensed
real estate broker in the State of Michigan. See "Business - Regulation."
SUBSTANTIAL COMPETITION
The Company competes with numerous other mortgage banking firms, state and
national banks, thrift institutions and insurance companies for loan
originations and purchases. Many of such companies are well-established with
greater financial and personnel resources and significantly more offices with a
greater market presence than the Company. See "Business - Competition."
CONFLICTS OF INTEREST
The Company and its subsidiaries have entered into various contracts and
other transactions with corporations, limited partnerships and other persons
affiliated with the Company and its officers and directors. The terms and
conditions of such transactions were not negotiated at arm's length and may not
have been as favorable to the Company as terms and conditions that would have
been obtained with unaffiliated parties. This is particularly true with
respect to certain real estate transactions with affiliates of the Company.
Future dealings between the Company and such affiliated entities, if any, may
not be at arm's length. The Company currently does not have any standards,
policies or procedures for dealing with such transactions but it expects to
establish a procedure whereby the approval of a majority of disinterested
directors would be required for any such transactions. The Company, through
certain affiliates, engages in the purchase and rehabilitation of real estate
which is syndicated through affiliated partnerships of the Company. A decrease
in this revenue would have an adverse impact on the Company. See "Selected
Consolidated Financial Data" and "Compensation Committee Interlocks and Insider
Participation."
DEPENDENCE UPON MORTGAGE INVESTORS
The vast majority of the mortgage loans originated by the Company are
currently purchased by Freddie Mac or Fannie Mae or are pooled to form Ginnie
Mae mortgage-backed securities which are sold to institutional investors.
These conventional loans must comply with the particular mortgage investor's
guidelines and underwriting standards. During fiscal 1997, Freddie Mac
purchased $171 million of conventional mortgage loans from the Company, Fannie
Mae purchased $139 million of conventional mortgage loans from the Company and
$320 million of conventional mortgage loans of the Company were converted into
Ginnie Mae mortgage-backed securities and sold to various institutional
investors. During fiscal 1996, Freddie Mac purchased $228.6 million of
conventional mortgage loans from the Company, Fannie Mae purchased $56.5
million of conventional mortgage loans from the Company and $224 million of
conventional mortgage loans of the Company were converted into Ginnie Mae
mortgage-backed securities and sold to various institutional investors. The
price each mortgage investor will pay the Company for loans fluctuates on a
daily basis and is finally determined when the mortgage investor has committed
to purchase a loan from the Company. In general, the Company sells these
conventional loans to mortgage investors on a "non-recourse" basis, which means
that the Company has no liability to the mortgage investor if there is a
default on the loan unless (i) the Company has breached its representations and
warranties to the mortgage investor, (ii) the Company fails to deliver the
appropriate documentation with respect to the loan, (iii) the loan does not
comply with applicable laws or (iv) the borrower defaults on payment of the
loan within varying periods of up to six months after the loan is made. In any
such event, the Company generally will be required to repurchase the loan by
paying the principal, accrued interest, late charges, servicing release
premiums, escrow deficiencies and any other amounts associated with the loan.
Although the Company is
7
<PAGE> 12
approved as a correspondent with 17 conventional mortgage investors, the
Company anticipates that the majority of its originated conventional mortgages
will be purchased by Freddie Mac or Fannie Mae or through Ginnie Mae programs.
Management of the Company believes that the loss of the Freddie Mac or Fannie
Mae seller/servicer approval would have a material adverse effect on the
Company. See Note 11 of Notes to Consolidated Financial Statements.
In addition, the Company has made bulk sales of non-conforming mortgages
of approximately $141 million in fiscal 1997 to 21 different non-conforming
mortgage investors. None of the non-conforming mortgage investors has
purchased more than 30% of the aggregate non-conforming mortgage bulk sales to
date. During fiscal 1996, the Company sold $86.6 million of non-conforming
mortgages to these investors. Non-conforming mortgages are defined as
mortgages which do not comply with the guidelines and underwriting standards of
Freddie Mac, Fannie Mae or Ginnie Mae. Non-conforming mortgages are
responsible for a significant portion of the Company's mortgage banking income.
The Company's management believes that the loss of its non-conforming mortgage
investors would have a material adverse effect on the Company.
AVAILABILITY OF FUNDING SOURCES
The Company finances its land contract and mortgage operations through a
program of selling participation interests in pools of land contracts and
mortgage interests and through various lines of credit, which currently total
$125 million. To the extent that the Company is not successful in renewing its
lines of credit, or if the Company experiences difficulty in selling its
mortgages or pass-through securities, it may have to curtail its mortgage
origination and purchasing activities, which would have a material adverse
effect on the Company's operations, profitability and its ability to service
debt.
In addition, the Company has a credit facility, currently $28.5 million,
with Comerica Bank that is secured by a stand-by Note Purchase Agreement
between Comerica Bank and the Detroit Policemen and Firemen Retirement System
whereby the pension fund has agreed to provide payment to Comerica Bank upon
the occurrence of certain events of default by the Company. This facility is
utilized by the Company to finance its servicing portfolio, which provides
collateral under the facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." The Detroit Policemen and Firemen Retirement System has also
provided the Company with $15 million in subordinated debt to expand its
non-conforming originations.
The Company also has $1.0 million available under a credit facility with a
commercial bank for the acquisition and rehabilitation fo residential real
property prior to resale.
RELIANCE ON CERTAIN WAREHOUSE LENDING ARRANGEMENTS
Among its short-term financing sources, MCA Mortgage has loan arrangements
with Texas Commerce Bank, N.A., and Paine Webber Real Estate Securities, Inc.,
pursuant to which they have agreed to lend MCA Mortgage up to $115 million and
$10 million, respectively, to fund mortgage loans until they are sold to
Freddie Mac, Fannie Mae, to certain institutional investors through Ginnie Mae
mortgage-backed securities, or to other approved mortgage investors. If for
any reason these lending arrangements are terminated, MCA Mortgage's ability to
fund mortgages and land contracts will be adversely impacted. This would also
adversely impact the Company's operations, cash flow, profitability and ability
to service debt.
8
<PAGE> 13
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
INTEREST RATE RISKS
The Company's ability to originate mortgages in volume is affected by
prevailing market interest rates. These rates affect consumers' decisions to
obtain new loans or refinance existing loans. Declining interest rates,
for example, generally increase the level of loan origination activity, whereas
the rise in interest rates from April 1994 to October 1994 caused a decline in
the amount of loan originations during the Company's 1995 fiscal year. The
Company's mortgage origination fees, which include gains and losses from loan
resale transactions, increased from $5.6 million for fiscal 1995 to $14.3
million for fiscal 1996 and to $24.9 million for fiscal 1997. Included in the
increase for fiscal 1996 are $4.2 million of additional gains from loan resale
transactions. The Company's originations decreased from approximately $687
million for fiscal 1994 to approximately $564 million for fiscal 1995,
increased to $632 million for fiscal 1996, and increased to $810 million for
fiscal 1997. The rise in interest rates during the period from April 1994 to
October 1994 also caused a slowdown in refinancings from approximately $498
million for fiscal 1994 to approximately $194 million for fiscal 1995 and to
approximately $172 million for fiscal 1996, which also adversely affected
mortgage origination fees. In fiscal 1997, interest rates experienced a slight
decline and refinancings remained steady at approximately $174 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
Interest rate changes can also directly affect the Company's operating
results. An increase in rates would adversely affect the value of existing
mortgage loans held directly by the Company, as well as any commitments to make
loans at fixed interest rates which are not covered by third-party commitments
to purchase the loans. The Company's general policy is to minimize the amount
of uncovered loans and loan commitments. Declining interest rates, while
likely to increase loan origination and refinancing activity, can also lead to
more prepayments of outstanding fixed-rate loans with relatively higher
interest rates. The prepayment of such loans results in (i) a decrease in the
value of servicing rights and (ii) the elimination of the associated servicing
income and a resulting increase in charges against earnings from the
acceleration of the amortization of any loan premiums reflected as income and
capitalized when the loans were made. See "Business - Mortgage Banking."
Furthermore, variations in the relationship between short-term rates and
long-term rates for mortgages can affect the Company's ability to earn net
interest income on loans held for sale.
POSSIBLE OBLIGATION TO REPURCHASE LOANS
When the Company sells loans which it has originated or which its loan
correspondents have originated, it will attempt to sell them on a non-recourse
basis. However, under limited circumstances the Company may sell loans with
recourse. In those cases, any significant adverse economic developments in the
Company's service area (primarily Michigan, Indiana, Ohio, Florida and
Illinois) could result in an increase in defaults or delinquencies that the
Company would then be required to satisfy. In those cases where the Company
sells its loans on a non-recourse basis but retains the servicing rights, a
loan default would increase the cost of servicing the loan and cause the
Company to incur the costs of going through a foreclosure and subsequent
liquidation of the property. Most of these costs may, however, be recouped
when the property is sold, assuming the property maintains its value. In
addition, when the Company sells loans into the secondary market, it will make
representations and warranties concerning the accuracy of the
9
<PAGE> 14
information contained in the loan documentation which concern such items as
property appraisal values and borrower qualifications. If a buyer of a loan
discovers a breach of these representations and warranties after the sale of a
loan, the Company could be required to repurchase the loan. The Company
employs strict due diligence and quality control standards to minimize this
risk. With respect to loans originated by the Company's loan correspondents,
the Company's general practice will be to attempt to pass on this risk to the
loan correspondent. However, if the correspondent is unwilling or unable to
perform, the Company will remain liable. For additional information relating
to the Company's experience with respect to delinquencies and losses, see
"Business - Mortgage Banking - Servicing."
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
A significant portion of the Company's revenues consists of gains
recognized upon the sales of mortgage loans, mortgage servicing rights and real
estate interests. As a result, the timing of such mortgage loan, servicing
right, and real estate interest sales has a significant effect on the Company's
results of operations, and the results of one quarter are not necessarily
indicative of results for the next quarter. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
GENERAL BUSINESS RISKS
The Company's business is subject to various business risks. The level of
the Company's revenues is dependent upon demand for the type of mortgage loan
purchased, sold and serviced by the Company from both potential borrowers and
investors. Future declines in real estate values, changes in prevailing
interest rates and changes in the availability of attractive returns on
alternative investments each could make mortgage loans of the type originated
and purchased by the Company less attractive to borrowers and investors.
IMPACT OF ECONOMIC CYCLES
The business risks associated with the Company's business become more
acute in an economic slowdown. Such an environment is generally characterized
by decreased demand for real estate and declining real estate values in many
areas of the country. Delinquencies, foreclosures and loan losses generally
increase during economic slowdowns or recessions, and any such future slowdowns
could adversely affect future operations of the Company.
ANNUAL REPORTS
The Company will not send Annual Reports to the holders of its Series 1996
Debentures. Each Holder of Series 1996 Debentures may obtain a copy
of the Company's Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission, and its interim Quarterly Reports on Form 10-Q, as filed
with the Securities and Exchange Commission, upon written request to Lee P.
Wells at 23999 Northwestern Highway, Southfield, Michigan 48075, telephone
number (248) 358-5555.
10
<PAGE> 15
THE COMPANY
MCA Financial Corp. ("MCA Financial" or the "Company") is a holding
company which, through its principal wholly-owned subsidiaries MCA Mortgage and
MCA, is principally engaged in the business of mortgage banking, which includes
mortgage originating, lending and servicing. MCA Financial was founded in
1989 and became a holding company for MCA Mortgage and MCA in 1991. Through
its subsidiaries, MCA Financial currently originates and purchases
conventional mortgage loans secured by one-to-four family residential
properties that comply with the requirements for sale to Freddie Mac or Fannie
Mae, mortgage loans which qualify for sale in the form of mortgage-backed
securities guaranteed by Ginnie Mae as well as non-conforming loans that do
not conform to Freddie Mac or Fannie Mae requirements and sells these
mortgages to certain financial institutions and investor-owned pass-through
pools sponsored by MCA. Unless otherwise indicated, MCA Financial and its
subsidiaries are hereinafter collectively referred to as the "Company."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Series 1996
Debentures are estimated to be $5,523,531 if all Series 1996 Debentures offered
are sold, after deducting expenses of the Offering and an assumed 6.5% sales
commission. The Company intends to use the net proceeds from the Offering,
regardless of the amount of Series 1996 Debentures sold, for general corporate
purposes, which includes providing advances to its subsidiaries and certain of
its affiliates, as well as the possible acquisition of mortgage servicing
rights and the business of one or more unaffiliated mortgage companies. See
"Compensation Committee Interlocks and Insider Participation."
11
<PAGE> 16
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of January 31, 1997, and as adjusted to give effect to the sale of
the Series 1996 Debentures offered hereby:
<TABLE>
<CAPTION>
JANUARY 31, 1997
------------------------
ACTUAL AS ADJUSTED
----------- -----------
Long-term debt:
<S> <C> <C>
Capitalized lease obligations (1) ......... $ 636,298 $ 636,298
11% Subordinated Debentures due 1997 (2) .. 4,921,000 4,921,000
11% Subordinated Debentures due 2000 ...... 10,000,000 10,000,000
11% Subordinated Debentures due 2002
(offered hereby) ........................ 621,000 6,000,000
10% Subordinated Notes due 2006 ........... 15,000,000 15,000,000
----------- -----------
Total long-term debt .................... $31,178,298 $36,557,298
----------- -----------
Redeemable Common Stock ...................... 256,373 256,373
Stockholders' equity:
Common Stock--3,750,000 shares
authorized, 503,281 shares issued ....... 5,033 5,033
Series A Preferred Stock--350,000 shares
authorized, 203,022 shares issued ....... 2,030,220 2,030,220
Series B Preferred Stock--750,000 shares
authorized, 336,619 shares issued ....... 3,366,190 3,366,190
Additional paid-in capital ................ 3,664,976 3,664,976
Retained earnings ......................... 1,582,384 1,582,384
----------- -----------
Total stockholders' equity .............. 10,648,803 10,648,803
----------- -----------
Total capitalization .................... $42,083,474 $47,462,474
=========== ===========
</TABLE>
- ---------------
(1) See Note 10 of Notes to Consolidated Financial Statements.
(2) The 11% Subordinated Debentures due 1997 were redeemed in full as of March
17, 1997.
12
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical financial data of the
Company for each of the periods indicated in the five-year period ended January
31, 1997, which were derived from the audited consolidated financial statements
of the Company for the periods in the five-year period ended January 31, 1997.
The audited consolidated financial statements of the Company for each of the
periods in the three-year period ended January 31, 1997, are included elsewhere
in this Prospectus. This table should be read in conjunction with the audited
consolidated financial statements of the Company and the notes thereto.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31
---------------------------------------------------------
1997 1996 1995(1) 1994 1993
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME DATA:
Revenues--
Gain on sale of land contracts .............. $ 3,438 $ 2,981 $ 2,983 $ 1,753 $ 1,433
Gain on sale of real estate ................. 708 751 --- 67 299
Gain on sale of real estate--
related parties ......................... 7,539 6,530 7,365 4,811 3,249
Gain on bulk sales of servicing rights ...... 5,231 4,726 7,475 5,579 997
Mortgage origination fees and
gain on sale of mortgages ............... 24,862 14,339 5,584 11,282 6,280
Servicing fees .............................. 8,499 6,244 4,617 1,917 851
Interest income ............................. 8,168 5,903 5,106 3,948 856
Other ....................................... 481 477 241 177 428
-------- -------- -------- -------- --------
Total revenues .......................... 58,926 41,951 33,371 29,534 14,393
Expenses ........................................ 57,522 40,823 33,547 28,562 13,477
-------- -------- -------- -------- --------
Income (loss) before federal income taxes ....... 1,404 1,128 (176) 972 916
Provision for federal income taxes .............. 639 512 102 421 330
-------- -------- -------- -------- --------
Net income (loss) ........................... $ 765 $ 616 $ (278) $ 551 $ 586
======== ======== ======== ======== ========
Net income (loss) per share ................. $ 0.59 $ 0.30 $ (1.80) $ 0.98 $ 2.01
Ratio of earnings to fixed charges--
Historical (2) .............................. 1.11x 1.13x n/a 1.20x 1.82x
Pro forma (3) ............................... 1.05x 1.01x n/a n/a n/a
Earnings (deficiency of earnings) over
fixed charges ............................... $ 1,404 $ 1,128 $ (176) $ 972 $ 916
BALANCE SHEET DATA:
Assets--
Cash ........................................ $ 3,097 $2,730 $ 2,931 $ 4,782 $ 3,699
Mortgages held for resale ................... 54,430 63,306 15,702 39,250 14,084
Other ....................................... 87,465 69,155 58,479 32,813 10,849
-------- -------- -------- -------- --------
Total assets ............................ $144,992 $135,191 $ 77,112 $ 76,845 $ 28,632
======== ======== ======== ======== ========
Liabilities--
Notes payable (4) ........................... $ 83,975 $ 86,598 $ 44,843 $ 54,549 $ 13,824
11% Subordinated Debentures due 1997 (5) .... 4,921 4,921 4,938 4,938 3,171
11% Subordinated Debentures due 2000 ........ 10,000 4,253 --- --- ---
11% Subordinated Debentures due 2002 ........ 621 --- --- --- ---
10% Subordinated Notes due 2006 ............. 15,000 --- --- --- ---
Other ....................................... 19,570 29,258 18,041 8,495 6,465
-------- -------- -------- -------- --------
Total liabilities ....................... 134,087 125,030 67,822 67,982 23,460
Redeemable Common Stock (6) ..................... 256 --- --- 300 300
Stockholders' equity ............................ 10,649 10,161 9,290 8,563 4,872
-------- -------- -------- -------- --------
Total liabilities and stockholders' equity .. $144,992 $135,191 $ 77,112 $ 76,845 $ 28,632
======== ======== ======== ======== ========
OPERATING DATA:
Loan production--
Number of loans originated .................. 10,107 7,928 8,224 8,910 2,448
Average loan balance ........................ $ 80 $ 80 $ 69 $ 77 $ 83
Total loans originated ...................... $809,756 $632,281 $564,235 $687,484 $203,087
Number of full-time employees ................... 433 412 336 448 202
</TABLE>
- --------------
(1) On July 19, 1994 the Company purchased substantially all of the revenue
producing activities of Liberty National Mortgage Corporation. See Note
15 of Notes to Consolidated Financial Statements.
(2) The ratio of earnings to fixed charges was computed by dividing (a) net
income (loss) for the period plus fixed charges by (b) fixed charges,
which consist of interest expense, amortization of debt expense and that
portion of rentals that represents interest. The ratio of earnings over
fixed charges and preferred dividends was 1.12x, 1.12x, 1.19x ,and 1.79x
for the years ended January 31, 1997, 1996, 1994,and 1993, respectively.
Earnings were insufficient to cover fixed charges for the year ended
January 31, 1995. The deficiency of earnings over fixed charges and
preferred dividends was $0.6 million for the year ended January 31, 1995.
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<PAGE> 18
(3) The pro forma data reflects interest expense on the Series 1996
Debentures assuming all such debentures are sold, and reflects the
amortization of debt issuance costs over a five-year period using the
interest method.
(4) See Note 3 of Notes to Consolidated Financial Statements.
(5) The 11% Subordinated Debentures due 1997 were redeemed in full as of March
17, 1997.
(6) See Note 5 of Notes to Consolidated Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary financing needs are for mortgage banking activities,
loan funding activities, operating cash flows and the purchase of mortgage
servicing rights. Loan funding activities are primarily financed through the
use of mortgage warehouse lines of credit with commercial banks. See Note 3 of
Notes to Consolidated Financial Statements. The Company also provides funding
for loans by using a technique known as "table funding", which is common in the
mortgage banking industry. In this case, funds are advanced directly to the
title company for closing from a third party source of funds, typically another
mortgage bank or a financial institution. This technique avoids the use of the
Company's warehouse lines of credit, but proves less profitable as a result of
fees charged by the third party provider of funds. For the past year, the
Company financed approximately 95% of its mortgage originations using its
warehouse lines of credit and approximately 5% with table funding sources.
The Company currently has a $115 million loan agreement with Texas
Commerce Bank, N.A. This revolving warehousing line of credit provides
financing for funding and originating a variety of residential mortgage loans
including, but not limited to, conforming mortgages, non-conforming mortgages
and land contracts. Interest on bank borrowings are based on LIBOR plus .85 to
2.5% depending on the type of loan. Mortgage loans held for resale are pledged
as collateral. This facility is scheduled to expire on September 3, 1997.
The Company also has a $10 million warehousing line of credit with Paine
Webber Real Estate Securities, Inc. ("Paine Webber"). Interest on borrowings
under this facility are based on Libor plus 1.5%. This facility is scheduled
to expire on November 1, 1997. The Company expects to renew these warehousing
lines of credit upon their respective expirations. At January 31, 1997 a total
of $52.8 million was outstanding under these facilities.
The Company also has a $15 million loan and financing agreement with the
Board of Trustees of the Policeman and Firemen Retirement System of the City of
Detroit. This subordinated term loan has been provided to expand the Company's
non-conforming lending business. Interest on this borrowing is 10% and is
payable quarterly. Commencing July 1, 2001 equal quarterly installments of
principal and interest will be paid until the loan terminates and is repaid in
full on June 30, 2006. Under conditions of this agreement, the lender was
issued 30,197 shares of the Company's common stock. This represented 6% of the
outstanding unrestricted shares at July 18, 1996. As part of the agreement the
lender has the right to "put" these shares back to the Company on August 1,
2006 or upon default under a number of different scenarios.
The Company also utilizes mortgage loan repurchase agreements with Paine
Webber pursuant to which Paine Webber purchases mortgage loans until such time
as the loans are pooled for resale to an end investor at which time the Company
repurchases such loans. Such agreements provide for interest payments based on
the federal funds rate. These agreements can be terminated on demand.
14
<PAGE> 19
The Company utilizes a strategy of retaining servicing rights on a portion of
its loan originations in order to provide a steady stream of servicing revenue
and cash flow in future years and as a hedge against inflation and rising
interest rates. To help facilitate this strategy, the Company utilizes three
funding sources: proceeds from its $4.9 million 1992 Debenture offering that
was completed in July 1993, a bank credit facility, which was first made
available to the Company in April 1993 and proceeds from its $10 million 1994
Debenture offering, of which $10 million principal amount was outstanding as of
January 31, 1997. The $4.9 million and the $10.0 million series of these prior
debentures, as well as the credit facility, are collateralized by certain of
the Company's servicing rights and rights to servicing income. The credit
facility, which is currently at $28.5 million, is with Comerica Bank and is
enhanced by a stand-by Note Purchase Agreement between Comerica Bank and the
Detroit Policemen and Firemen Retirement System (the "Fund") whereby the Fund
has agreed to provide payment to Comerica Bank upon the occurrence of certain
events of default by the Company. This credit enhancement permits the Company
to obtain a more favorable interest rate and collateralization terms from the
lending bank. In consideration for the credit enhancement provided, the
Company agreed to pay certain fees to the Fund and provide it with an option to
purchase up to 5% of the Company's outstanding common stock, at 70% of the
public offering price per share, if the Company completes a firm commitment
underwritten sale of its common stock prior to April 30, 2000. At January 31,
1997, $28.3 million was outstanding under the Comerica Bank credit facility.
During the years ended January 31, 1997 and 1996, mortgage servicing
rights with respect to approximately 75% and 75%, respectively, of loan
originations, or $607 million and $474 million principal amount, respectively,
were retained by the Company and financed primarily through operations, the
debenture offerings and the Comerica Bank credit facility. The Company intends
to continue the level of retained servicing and also to purchase additional
mortgage servicing rights.
As in mortgage banking, the Company also has a need to finance loan
funding activities with respect to its land contract and mortgage syndication
until such time as the loans are packaged and sold to investors. The principal
sources of this financing are two limited partnerships which have been
established in order to provide up to $4 million for this purpose. These
partnerships will terminate in December 1997. The Company also has $4 million
available as part of its $115 million facility with Texas Commerce Bank. The
Company is considering several alternatives to extend or replace these
financing sources at the time of their respective terminations. There is no
assurance that the Company will be successful in extending or replacing these
financing sources, however.
The Company has $1.0 million available under a credit facility with
commercial banks for the acquisition and rehabilitation of residential real
property prior to resale. At January 31, 1997, $.28 million was outstanding
under this facility. See Note 3 of Notes to Consolidated Financial Statements.
The Company also has $1 million available under a $1.5 million credit
facility with a commercial bank which is similar in structure to a mortgage
warehouse line of credit. This portion of the credit facility is used
exclusively for the warehousing of land contracts. The additional $0.5 million
is available for working capital. At January 31, 1997, $0.25 million was
outstanding under this facility. See Note 3 of Notes to Consolidated Financial
Statements.
During fiscal 1997, the Company's operating activities used $23.6 million.
Of this, $15.5 million was used to fund the increase in accounts
receivable-mortgages sold. The increase in accounts receivable, primarily
receivables related to bulk sales of servicing rights, used $7.3 million. The
Company used $8.0
15
<PAGE> 20
million to increase excess interest spread receivable and $9.5 million to
decrease accounts payable. These uses of cash were offset by an $8.9 million
net decrease in mortgages held for resale. The Company's investing activities
during fiscal 1997 provided $5.9 million. Financing activities provided the
Company $18.1 million during fiscal 1997. The Company used proceeds from notes
payable of $814.9 million to fund mortgage loans and invest in purchased
servicing rights. Proceeds from sales of mortgage loans and investments in
purchased servicing rights of $817.7 million were used to make payments on
notes payable. Sales of the Company's 11% Subordinated Debentures due June 30,
2000 and 2002 provided $6.4 million. Proceeds from subordinated notes payable
also provided $15.0 million.
RESULTS OF OPERATIONS
Revenue for the year ended January 31, 1997 increased by 40.5% to $58.9
million. Revenue for the year ended January 31, 1996, increased by 25.7% to
$42.0 million as compared to $33.4 million for the fiscal year ended January
31, 1995. Net earnings increased by 24.3% to net earnings of $765,338 for
fiscal 1997 as compared to net earnings of $615,530 for fiscal 1996. Net
earnings in fiscal 1996 had increased from a net loss of $227,546 in fiscal
1995. In fiscal 1997 revenue increased in virtually every revenue item. The
most substantial increase, $10,522,661, occurred in mortgage origination fees
and gain on sale of mortgages. Interest income and servicing fees increased
$2,265,185 and $2,255,648, respectively. The increase in revenue during
fiscal 1996 was the result of increased mortgage origination fees to $14.34
million in fiscal 1996 as compared to $5.58 million in fiscal 1995. Servicing
fees also increased to $6.24 million in fiscal 1996 from $4.62 million in
fiscal 1995. The only revenue item to substantially decrease was gain on bulk
sales of servicing rights which declined to $4.73 million in fiscal 1996 as
compared to $7.48 million in fiscal 1995. The increase in earnings in fiscal
1997 resulted from increased overall revenues, specifically in non-conforming
originations. The increase in earnings during fiscal 1996 is attributable to a
general decline in interest rates during the year resulting in increased
originations, gains on loan resale and increased non-conforming originations.
The net loss during fiscal 1995 was due to significant increases in long-term
interest rates during the first six months of the year. This severely
curtailed mortgage refinancings and increased competitive pressures in the
market. The mortgage prepayment rate was 8.9%, 9.8% and 12.5% during fiscal
1995, 1996 and 1997, respectively. The amount of refinancing activity was $173
million during fiscal 1995, $172 million during fiscal 1996, and $194 million
during 1997.
Mortgage origination fees, including gains on sale from loan resale
transactions, for fiscal 1997, increased to $24.86 million as compared to
$14.34 million in fiscal 1996, an increase of 73.4%. Such mortgage origination
fees had increased in fiscal 1996 from $5.58 million in fiscal 1995. The total
dollar volume of loans originated increased by 28.2% to $810 million, for
fiscal 1997, up from $632 million for fiscal 1996 which represented a 12.1%
increase from $564 million in fiscal 1995. The total number of loans produced
increased 27.5% from 7,928 in fiscal 1996 to 10,107 in fiscal 1997. The total
number of loans produced decreased 3.8% from 8,244 in fiscal 1995 to 7,928 in
fiscal 1996. The average loan balance increased to $80,118 in fiscal 1997 from
$79,753 in fiscal 1996 and $68,608 in fiscal 1995. Increased mortgage
originations in fiscal 1997 resulted from steady (relatively low) interest
rates, strong home buying and building markets and the continued addition of
new loan origination branches. The increase in the dollar volume of loan
originations during fiscal 1996 resulted from the general decline in long-term
interest rates and the continuity in production from branches opened in fiscal
1995 for a full year. Included in mortgage origination fees are gains and
losses on sale from loan resale transactions of $4.40 million in fiscal 1997,
$3.77 million fiscal 1996 and $(0.43) million in fiscal 1995.
16
<PAGE> 21
In fiscal 1997, wholesale originations totaled $195.71 million, in fiscal
1996, approximately $140.71 million and in fiscal 1995, approximately $137.95
million. The increase in wholesale originations from fiscal 1996 to fiscal
1997 was the result of the Company focusing its wholesale efforts on
non-conforming wholesale originations which increased from $52.49 million to
$108.93 million, respectively. Non-conforming wholesale originations in fiscal
1996 increased to $52.49 million from $9.46 million in fiscal 1995.
Mortgage origination revenues as a percent of total mortgage origination
volume increased from 1.0% in fiscal 1995 to 2.3% in fiscal 1996 to 3.1% in
fiscal 1997. The increase from fiscal 1995 to fiscal 1996 reflects an easing
in the competitive pressures experienced in fiscal 1995 resulting from the
decline in interest rates, increased production volume in non-conforming
mortgages, which typically have higher margins, and increased gains from loan
resale transactions. The increase in fiscal 1997 was attributable, primarily,
to the continued increase in the volume of non-conforming loan production.
The Company recorded revenues of $5.23 million related to the sale of bulk
servicing rights of $1.8 billion during fiscal 1997 as compared to $4.73
million on bulk sales of $940 million. Gains on bulk sales as a percent of
servicing rights sold decreased to 0.29% for fiscal 1997 from 0.5% in fiscal
1996. This decrease was due to the net effect of an increase of $500 million
of bulk sales involving servicing previously purchased. The gain on bulk sales
of this bulk-purchased servicing is lower because the Company's basis is much
greater than in originated mortgages. Revenues from bulk sales of servicing in
fiscal 1995 were $7.48 million, 0.4% of servicing rights sold. In fiscal 1996
and fiscal 1995, respectively, the Company sold servicing rights of $0.7 billion
and $1.2 billion that had previously been purchased by the Company in bulk.
Interest income increased from $5.11 million in fiscal 1995 to $5.90
million in fiscal 1996, an increase of 15.5%, and increased to $8.20 million in
fiscal 1997, an increase of 39.0% as compared to fiscal 1996. Interest income
is earned primarily on loans held by the Company pending resale in the
secondary market. The increases in fiscal 1997 and fiscal 1996 resulted from
increased production volumes in general and specifically increased
non-conforming production volumes which typically carry higher interest rates.
Servicing fee revenue increased $4.62 million in fiscal 1995 to $6.24
million, an increase of 35.2%, and increased to $8.50 million in fiscal 1997,
an increase of 36.2% as compared to fiscal 1996. In fiscal 1995 as compared to
fiscal 1996, the Company's servicing portfolio increased from $1.3 billion to
$2.2 billion and from 16,372 loans serviced to 27,357 loans serviced. At the
end of fiscal 1997, the Company's servicing portfolio was $1.6 billion with
21,248 loans serviced. The Company sold $1.0 billion of servicing at the end
of fiscal 1997. Average servicing revenue per loan remained constant at $286
per loan for fiscal 1995 and fiscal 1996 and increased to $350 per loan for
fiscal 1997. The variance was primarily due to the timing of bulk sales.
Servicing fees, measured in terms of an average percentage applied to the
amount of the outstanding mortgage, have not materially changed from year to
year.
The aggregate of gains on the sale of real estate-related parties and
gains on the sale of real estate decreased from approximately $7.4 million in
fiscal 1995 to $7.3 million in fiscal 1996 and increased in fiscal 1997 to $8.2
million. Of these amounts, gains on the sale of real estate-related parties
represented approximately $7.4 million in fiscal 1995, $6.5 million in fiscal
1996 and $7.5 million in fiscal 1997. This reflects the Company's strategy to
develop its business of real estate limited partnership syndications through a
former subsidiary. During fiscal 1997, 1996, and 1995, 820, 723, and 735
income producing properties were sold. Typically, these properties are
acquired in distressed situations, requiring rehabilitation expenditures or
having substantial tax delinquencies which need to be paid.
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<PAGE> 22
Gains on the sale of land contracts were stable during fiscal 1996 and
fiscal 1995, remaining approximately $3.0 million for both years and increased
to $3.4 million in fiscal 1997. This reflects an increase in the number of
loan originators employed by the Company and increased marketing efforts. The
Company syndicated 16 pass-through pools with a total of $20.9 million of real
estate related loans in fiscal 1997. In fiscal 1996, the Company syndicated 15
pass-through pools of real estate related loans with a total of $21.9 million
of loans, as compared to 15 pools with a total of $22.5 million of loans in
fiscal 1995. Gains as a percentage of total syndication amounts increased from
13.3% in fiscal 1995 to 13.6 % in fiscal 1996, and 16.3% in fiscal 1997. These
percentages are consistent with past results.
Expenses for fiscal 1997 increased by $16.7 million over fiscal 1996 from
a total of $40.8 million to a total of $57.5 million, an increase of 40.9%.
Expenses for fiscal 1996 increased by $7.3 million from a total of $33.5
million in fiscal 1995 to $40.8 million in fiscal 1996, an increase of 21.8%.
These increases were in line with the overall increase in revenue during these
three years. Higher expenses directly resulted from increases in virtually
every category of revenue, reflecting the Company's overall growth to meet
increases in production levels and number of loans serviced. As a percentage
of revenue, however, payroll and commissions dropped from 46.7% to 42.6% and
40.8% for fiscal 1995, fiscal 1996 and fiscal 1997, respectively. These
continued improvements in efficiency have resulted from the Company's
commitment to keeping up with the available technology in the industry.
Interest expense increased in fiscal 1997 to $11.4 million from $7.6 million in
fiscal 1996 and $6.0 million in fiscal 1995, following increased production
levels. As a percentage of revenue, interest expense has been 19.4%, 18.0% and
18.0% for fiscal 1997, 1996 and 1995, respectively. General and administrative
expense remained consistent at 24.8%, 24.1% and 24.4%, as a percentage of
revenue for fiscal 1997, 1996 and 1995, respectively. Amortization expense
increased from $1.9 million in fiscal 1995 to $3.3 million in fiscal 1996 and
$4.9 million in fiscal 1997. The increases correspond with the balances in the
servicing portfolio and the corresponding runoff and increased amortization of
certain deferred charges and other assets.
The Company is party to financial instruments with off-balance-sheet risk
in the normal course of business through the production and sale of mortgage
loans and the management of interest rate risk. These financial instruments
include commitments to extend credit and forward contracts to deliver and sell
loans to investors. The Company is exposed to credit loss in the event of
nonperformance by the counter-parties. However, the Company does not
anticipate such nonperformance and the Company's exposure to credit risk with
respect to commitments to extend credit are limited due to the non-recourse
nature of the loans upon sale to investors meeting certain requirements. At
January 31, 1995, 1996 and 1997, respectively, the Company had approved loans
that had not yet closed amounting to approximately $23.08 million, $74.3
million and $40.1 million. See Note 9 of Notes to Consolidated Financial
Statements.
INFLATION
Inflation affects the Company primarily in the mortgage banking operations
as a result of its impact on interest rates. Historically, interest rates have
increased during periods of high inflation and this has had a negative impact
on the Company's mortgage origination volume. Conversely, during periods of
low inflation interest rates have also been low and this has had a positive
impact on mortgage originations.
The total dollar volume of land contracts purchased and originated have
been consistent at $22.5 million, $21.9 and $20.9 for fiscal 1995, fiscal 1996,
and fiscal 1997, respectively. The Company's land contract originations volume
tends to run counter-cyclical to the mortgage origination cycle described
above. As mortgage interest rates increase, especially above 11%, the use of
land contract financing increases and
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<PAGE> 23
has a positive impact on land contract originations. As interest rates
decrease, mortgage financing activity increases and land contract originations
tend to decrease.
The Company's strategy of increasing its servicing portfolio may also act
as an inflationary hedge. As interest rates increase, prepayments decrease,
which decreases amortization expense and increases the earnings potential of
the servicing portfolio. However, during periods of low inflation and
decreasing interest rates, prepayments increase, which increases amortization
expense and results in a decrease in the earnings potential of the servicing
portfolio.
SEASONALITY
The mortgage banking industry is usually subject to an unpredictable
degree of seasonal trends. These trends reflect the general pattern of
nationwide home sales. Such sales typically peak during the spring and summer
seasons and decline to lower levels from October through January. In an effort
to mitigate this, the Company currently has four offices in Florida and one
office in Georgia.
BUSINESS
MORTGAGE BANKING
Mortgage banking is the business of acting as a financial intermediary in
the origination of mortgage loans, the holding or warehousing of such loans,
the subsequent marketing of such loans to investors and the ongoing management
or servicing of such loans during the repayment term. Mortgage bankers earn
revenue in each of the four phases of the mortgage banking process:
origination, warehousing, marketing, and servicing.
Origination. The origination of mortgage loans produces revenue through
fees paid by the borrower upon applying for a loan and at the loan closing.
The origination process involves providing competitive mortgage loan rates,
soliciting loan applications, performing title and credit review and funding
loans at closing. The Company originates mortgage loans through direct
solicitation of borrowers by its own sales force and through referrals from
real estate brokers, builder-developers and others (commonly referred to as
retail origination). In connection with the origination of each loan, the
Company prepares mortgage documentation, conducts credit checks, has the
property appraised by independent appraisers and closes the loan. The
Company's underwriting standards and procedures with respect to loans it
originates, as described above, conform to the requirements of its mortgage
loan investors. Referrals from real estate brokers account for the largest
portion of the Company's originated loans. In addition, advertising is used in
the local markets where offices are located and generates additional
origination activity.
The following tables set forth the aggregate amount of retail loans and
the percentage of such retail loans that related to properties in the various
states in which the Company operates.
Year State $Amount of Retail Loans Percentage of Retail Loans
- ---- ---------- -------------------------- --------------------------
1997 Michigan $247 million 40%
Indiana 72 million 12%
Florida 103 million 17%
Ohio 35 million 6%
Illinois 82 million 13%
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<PAGE> 24
1996 Michigan $193 million 39%
Indiana 57 million 11%
Florida 85 million 17%
Ohio 46 million 9%
Illinois 55 million 11
1995 Michigan $234 million 59%
Indiana 51 million 13%
Washington 31 million 8%
Ohio 48 million 12%
The remaining retail loans for fiscal 1997, 1996 and 1995 related to properties
located in various other states.
The Company currently purchases a substantial portion of its originated
mortgage loans through "wholesale" operations. Wholesale operations involve
the origination of loans by unrelated mortgage companies which prepare the
necessary documentation, but leave the credit evaluation, property appraisal
and loan funding functions for the Company to perform. The standards of loan
documentation by such unrelated mortgage company originators may not be as
stringent as the standards applied by the Company on its own direct
originations. For each wholesale loan the Company's credit evaluation and
property appraisal procedures are the same as for its retail originations.
The following tables set forth the aggregate amount of wholesale loans and
the percentage of such wholesale loans that related to properties in the
various states in which the Company operates.
Year State $Amount of Wholesale Loans Percentage of Wholesale Loans
- ---- ----- ---------------------------- ------------------------------
1997 Florida $33 million 17%
Michigan 61 million 31%
Illinois 34 million 18%
Ohio 41 million 21%
1996 Florida $11 million 8%
Michigan 66 million 47%
Illinois 28 million 20%
Ohio 25 million 18%
1995 Florida $45 million 33%
Michigan 35 million 25%
Indiana 17 million 2%
Oregon 9 million 7%
The remaining wholesale loans for fiscal 1997, 1996 and 1995 related to
properties located in various other states.
The Company is engaged in the origination of conventional mortgage loans,
secured by one- to four-family residential properties (including condominiums),
that conform to the requirements for sale to either the Federal National
Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage
Corporation ("Freddie Mac"). The Company also originates non-conforming
conventional loans that exceed the maximum amounts qualifying for sale to
Freddie Mac or Fannie Mae currently $214,600 but that otherwise conform to
their requirements ("jumbo loans"). The Company's principal mortgage banking
subsidiary, MCA Mortgage, is an approved seller/servicer for Freddie Mac, the
Government National Mortgage
20
<PAGE> 25
Association ("Ginnie Mae") and Fannie Mae, while its other principal
subsidiary, MCA, is an approved seller/servicer for Freddie Mac. In addition,
MCA Mortgage and MCA are qualified to originate mortgage loans insured by the
Federal Housing Administration ("FHA") and mortgage loans partially guaranteed
by the Veterans Administration ("VA"), which qualify for pooling by Ginnie Mae
and qualify for sale to other institutional investors.
The Company also originates loans which do not conform to Freddie Mac or
Fannie Mae requirements. These "non-conforming" loans are typically made to
self-employed individuals and others unable to meet the underwriting standards
for conventional lending. Generally, these loans carry higher interest rates
and fees commensurate with the additional credit risk. These loans are
typically sold on the secondary market to a different group of investors than
the conventional loans originated by the Company. The Company expanded its
originations in this market through the acquisition of MCA-Ohio in July 1995, a
company which has been engaged in this type of lending since 1993. In fiscal
1997, the Company expanded its originations of non-conforming loans by
employing the $15 million received from the Detroit Policemen and Firemen
Retirement System to recruit loan officers with non-conforming lending
experience and to open non-conforming lending branches.
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<PAGE> 26
The following table sets forth for the periods indicated the number,
dollar volume and percentage of total volume of the Company's loan production
(dollars in thousands except Average Loan Balances):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------
1997 1996 1995 1994
---------- ---------- -------- --------
RETAIL LOANS-- (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Conventional loans:
Number of loans ................. 3,076 2,715 2,241 1,792
Volume of loans ................. $272,943 $234,154 $186,452 $ 225,111
Percentage of total volume ...... 33.71% 38.47% 33.04% 32.74%
FHA/VA loans:
Number of loans ................. 3,765 2,669 2,681 3,181
Volume of loans ................. $291,601 $202,803 $186,136 $ 215,146
Percentage of total volume ...... 36.01% 32.07% 32.99% 31.30%
Non-conforming loans:
Number of loans ................. 418 581 1,425 1,142
Volume of loans ................. $ 32,012 $ 34,133 $ 42,301 $ 19,188
Percentage of total volume ...... 3.96% 5.40% 7.50% 2.79%
Jumbo loans:
Number of loans ................. 68 40 41 61
Volume of loans ................. $ 17,491 $ 11,478 $ 11,397 $ 20,281
Percentage of total volume ...... 2.16% 1.81% 2.02% 2.95%
Average loan balance ................ $ 83,806 $ 81,860 $ 66,732 $ 74,830
Total volume of retail loans (1).... $614,047 $491,568 $426,286 $ 479,726
WHOLESALE LOANS--
Conventional loans:
Number of loans ................. 546 617 655 1,664
Volume of loans ................. $ 48,048 $ 60,590 $ 54,740 $ 133,310
Percentage of total volume ...... 5.93% 9.58% 9.70% 19.39%
FHA/VA loans:
Number of loans ................. 427 309 1,059 1,066
Volume of loans ................. $ 37,904 $ 27,158 $ 73,746 $ 73,428
Percentage of total volume ...... 4.68% 4.30% 13.07% 10.68%
Non-conforming loans:
Number of loans ................. 1,803 995 122 *
Volume of loans ................. $108,928 $ 52,485 $ 9,463 *
Percentage of total volume ...... 13.45% 8.30% 1.68% *
Jumbo loans:
Number of loans ................. 4 2 * 4
Volume of loans ................. $ 829 $ 480 * $ 1,020
Percentage of total volume ...... 0.10% 0.07% * 0.15%
Average loan balance ................ $ 70,400 $ 73,174 $ 75,136 $ 75,990
Total volume of wholesale loans (2).. $195,709 $140,713 $137,949 $ 207,758
TOTAL LOANS--
Number of loans ..................... 10,107 7,928 8,244 8,910
Volume of loans ..................... $809,756 $632,281 $564,235 $ 687,484
Average loan balance ................ $ 80,118 $ 79,753 $ 68,608 $ 77,159
</TABLE>
- ---------------
*Indicates that these types of loans were not originated by the Company during
the applicable period.
(1) The total volume of retail loans for fiscal 1993 was $151.14 million. The
total volume of wholesale loans for fiscal 1993 was $51.95 million.
Further detail for fiscal 1993 is not available.
(2) During fiscal 1997, no single company was responsible for more than 10%
of the Company's wholesale originations. During fiscal 1996, Watson
Financial Group ("Watson") was responsible for 13% of the Company's
wholesale originations. Watson is not affiliated with the Company.
During fiscal 1995, no single company was responsible for greater than 10%
of the Company's wholesale originations.
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<PAGE> 27
At January 31, 1997 the Company had applications in process for
approximately 2,022 mortgage loans, aggregating approximately $154 million.
By comparison, on January 31, 1996, the Company had applications in process for
approximately 1,947 mortgage loans aggregating approximately $186 million. The
Company anticipates, based on past history, that 75% to 80% of the loan
applications will close within 45 to 90 days.
Warehousing. Warehousing is the term used to describe the process of
holding mortgage loans pending their sale to investors (typically financial
institutions) or into the secondary market. During the warehousing period the
Company earns income equal to the difference between the interest received on
the mortgage loans and the interest paid on short-term advances from banks
which are used typically to fund the mortgage loans. During periods when
short-term warehouse borrowing rates exceed long-term mortgage lending rates,
the warehousing of mortgage loans can result in a loss.
Pending sale and delivery to investors, the Company's mortgage loans are
funded almost entirely by borrowings under warehousing lines of credit from
banks. The Company typically holds mortgage loans for a period of up to 60
days after closing in order to prepare them for sale. Borrowed funds are
repaid when the Company receives payment upon the sale of the loans.
Accordingly, the Company is dependent on loan sales to free warehousing credit
lines in order that new loans can be closed.
Among its short-term financing sources, the Company maintains a Loan
Agreement with Texas Commerce Bank N.A. and a Mortgage Loan Agreement with
Paine Webber Real Estate Securities. As is customary in the industry, these
credit facilities can be terminated on demand or upon relatively short notice.
In such an event, the Company would seek replacement or new credit facilities
from other lenders for these existing lines of credit on terms at least as
favorable. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
Marketing. The offering, sale, packaging and delivery of closed mortgage
loans to investors is the activity which distinguishes a mortgage banker as a
financial intermediary from a portfolio lender or permanent investor.
Marketing mortgage loans is the most complex aspect (both financially and
operationally) of the mortgage banking business. It requires matching the
needs of the retail origination market (consisting of home buyers and
homeowners seeking new mortgages) with the needs of the secondary market for
mortgage loans (consisting of securities broker-dealers, depository
institutions, insurance companies, pension funds and other investors).
Conventional mortgage loans (i.e., those not guaranteed or insured by agencies
of the federal government), which are secured by one-to-four family residential
properties (including condominiums) and which comply with applicable
requirements, are packaged for direct sale to mortgage investors. In addition,
there is an active private market for mortgage loans which have not been pooled
or securitized.
Factors which may influence the market value of packaged loans include the
general level of interest rates, the types of loans (e.g., conventional
mortgage loans or larger jumbo loans), interest payment and principal
amortization schedules (e.g., self-amortizing or balloon, fixed-rate or indexed
adjustable-rate, equal monthly payment or adjustable payment), type of
mortgaged property (e.g., one-to four family detached, row or townhouse,
condominium or planned unit development), ratio of loan proceeds to appraised
property value, property location, credit profile, and whether loans are
packaged into pools (represented by securities) or sold separately on a whole
loan basis.
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<PAGE> 28
The following table sets forth for the periods indicated, the Company's
loan production by type of interest payment and principal amortization schedule
as well as loan to value ratio information (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
30-year Fixed Rate:
Number of Loans 6,092 5,349 4,569 5,084 818
Volume of Loans $492,949 $424,994 $339,394 $448,762 $ 94,297
Percent of Total Volume 60.88% 67.22% 60.15% 65.28% 46.43%
15-year Fixed Rate:
Number of Loans 785 611 844 1,953 673
Volume of Loans $ 49,149 $ 40,137 $ 49,536 $142,340 $ 50,985
Percent of Total Volume 6.07% 6.35% 8.78% 20.70% 25.11%
Adjustable Rate ("ARMS"):
Number of Loans 1,487 1,239 1,217 299 248
Volume of Loans $143,453 $114,619 $108,983 $ 34,073 $ 26,534
Percent of Total Volume 17.71% 18.13% 19.32% 4.96% 13.07%
Other (1):
Number of Loans 0 69 352 194 245
Volume of Loans - $ 5,225 $ 6,154 $ 3,121 $ 3,408
Percent of Total Volume - 0.82% 1.09% 0.45% 1.68%
Balloon Payment:
Number of Loans 1,743 660 1,242 1,380 464
Volume of Loans $124,205 $ 47,306 $ 60,167 $ 59,188 $ 27,863
Percent of Total Volume 15.34% 7.48% 10.66% 8.61% 13.71%
Total Number of Loans 10,107 7,928 8,224 8,910 2,448
Total Volume $809,756 $632,281 $564,235 $687,484 $203,087
Total Loan to Value Percent 84.1% 83.8% 90.5% 94.5% *
</TABLE>
- --------------
* Indicates that information is not available.
(1) This category represents mortgages and land contracts with other than 15 or
30 year terms, which have no balloon payment.
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<PAGE> 29
The following table sets forth for the periods indicated, the number,
dollar volume and percent of total volume of the Company's loan production by
occupancy status and type of mortgaged property (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
----------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Detached - Single Family
Owner Occupied:
Number of Loans 8,939 6,943 6,916 7,441 1,864
Volume of Loans $724,011 $578,154 $506,714 $636,440 $ 178,515
Percent of Total Volume 89.41% 91.44% 89.81% 92.58% 87.90%
Non-owner Occupied:
Number of Loans 442 133 947 1,088 447
Volume of Loans $ 20,733 $ 6,121 $ 28,603 $ 23,441 $ 14,427
Percent of Total Volume 2.56% 0.97% 5.07% 3.41% 7.11%
Other (1):
Number of Loans 76 66 39 64 9
Volume of Loans $ 6,022 $ 5,929 $ 3,310 $ 4,894 $ 698
Percent of Total Volume 0.75% 0.94% 0.59% 0.71% 0.34%
Multi-United Commercial
Owner Occupied:
Number of Loans 523 360 262 265 101
Volume of Loans $ 52,489 $ 28,919 $ 19,909 $ 18,895 $ 7,655
Percent of Total Volume 6.48% 4.57% 3.53% 2.75% 3.77%
Non-owner occupied:
Number of Loans 127 426 60 52 27
Volume of Loans $ 6,501 $ 13,158 $ 5,699 $ 3,814 $ 1,792
Percent of Total Volume 0.80% 2.08% 1.00% 0.55% 0.88%
</TABLE>
- ---------------
(1) Includes second homes and vacant land.
The sale of mortgage loans produces a net gain or loss equal to the sum of
(i) the difference between the principal amount of the loans and the net price
at which the loans are sold (the cash gain or loss on sales) and (ii) the
present value of the difference (the "premium on sale of mortgage loans"), if
any, between the stated interest rate collected by the mortgage banker from the
mortgage loan borrowers and the interest rate paid by the mortgage banker to
the purchasers of the loans, net of a normal servicing fee.
The Company typically holds its mortgage loans for up to 60 days before
selling them to investors. The Company sells conforming loans either directly
on a loan-by-loan basis to Freddie Mac, Fannie Mae or other financial
institutions, or by a process of "securitization" of loan pools. Conforming
loans and loans qualifying for securitization through Ginnie Mae programs may
be grouped in pools and assigned to Freddie Mac, Fannie Mae or Ginnie Mae, as
applicable, which issues a mortgage-backed security ("MBS") representing an
undivided interest in the loan pool. For issuing the MBS, Freddie Mac, Fannie
Mae or
25
<PAGE> 30
Ginnie Mae receives an annual fee, up to .50% of the declining principal
amount of the loan pool. The Company, through investment bankers, may then
sell these MBSs to investors or hold them for investment.
Loan pools may be sold to Freddie Mac or Fannie Mae, or securitized in the
form of Ginnie Mae mortgaged-backed securities and sold to institutional
investors with or without recourse in the event of default by the borrowers.
If a loan pool is sold without recourse, Freddie Mac will typically charge a
fee for issuing the MBS which is .05% to .07% higher than if such loan pool
were sold with recourse. The Company decides to sell loan pools with or
without recourse based primarily upon capital market conditions and perceived
risks of the terms of such mortgage loan documents. To date all of the loan
pools sold by the Company to Freddie Mac or Fannie Mae or through Ginnie Mae
programs have been sold on a non-recourse basis.
Mortgage loans are also sold on a loan-by-loan basis to banks, mortgage
companies and other private investors and, in the case of conforming loans, may
be sold to Freddie Mac or Fannie Mae. Such individual loan sales are typically
made by the Company on a non-recourse basis. During fiscal 1997, 1996, 1995,
1994 and 1993, the Company made $809.8 million, $632.3 million, $564.2 million,
$687.4 million and $203.1 million of non-recourse loans, respectively, and did
not sell any loans with recourse. Loans underwritten and sold may be subject
to repurchase if the underwriting standards of the investor are not met,
potentially resulting in actual loss and/or the limitation of the Company's
liquidity.
The Company packages substantially all of its FHA-insured and
VA-guaranteed mortgage loans into pools of loans sold in the form of
pass-through mortgage-backed securities guaranteed by Ginnie Mae. With respect
to loans secured through Ginnie Mae programs, the Company is insured against
foreclosure loss by the FHA or partially guaranteed against foreclosure loss by
the VA (at present generally 25% to 100% of the loan). Since the Company is
not an end investor in these types of loans, its risk with respect to these
loans is minimal. FHA-insured and VA-guaranteed mortgage loans represent
approximately 33% of the Company's originations in any given year. The
discontinuance of these programs would have a limited impact upon the Company
due to the Company's ability to originate a substantial volume of conventional
loans which enables the Company to market mortgage loans to Freddie Mac, Fannie
Mae or other investors.
The Company commits to sell loans in an amount equal to the closed loans
held in inventory, plus a portion of the loans that the Company has committed
to make but has not yet closed. This enables the Company to mitigate the
interest rate risk resulting from the fact that market interest rates may
change between the time that the Company commits to make or purchase a loan and
the time the Company commits to sell or sells such loans. The portion of loans
that have not yet closed which the Company commits to sell depends on numerous
factors, including the total amount of the Company's outstanding commitments to
make loans, the portion of such loans that is likely to close, the timing of
such closings and anticipated changes in interest rates. The Company
constantly monitors these factors and adjusts its commitments position
accordingly. The Company's commitment position may consist of mandatory
forward commitments on mortgage-backed securities or mortgage loans, options on
mortgage-backed securities or treasury futures contracts, or outright futures
contracts. See Note 9 of Notes to Consolidated Financial Statements for a
discussion of financial instruments with off-balance-sheet risk.
Non-conforming loans are sold to a different group of investors. They are
typically packaged with other similar loans and sold servicing released, in
bulk, to obtain a more favorable price. In the fourth quarter, the Company
entered into an agreement with another party to sell substantial portions of
the Company's non-conforming production for purposes of securitization. This
entitles the Company to the
26
<PAGE> 31
difference between the weighted average coupon rate of the loan it originated
and the security's stated yield, less a normal servicing fee and certain other
fees.
Servicing. At January 31, 1997, the Company owned servicing rights for
mortgages with outstanding balances of approximately $1.48 billion and to land
contracts with outstanding net balances of approximately $117 million. The
Company intends to increase its servicing of residential mortgage loans, and to
maintain a mortgage and land contract servicing system that emphasizes cash
management and compliance with investor servicing requirements. To this end,
the Company intends to purchase conventional mortgage loan servicing rights
from other unaffiliated loan servicers.
The Company also obtains additional servicing through the retention of
servicing with respect to mortgages and land contracts that it originates and
sells to others. For residential mortgage loans which it originates, the
Company retains the servicing related to most of these loans temporarily, then
sells the servicing rights from time to time on the open market. The Company
intends to restrict its purchases of mortgage servicing to servicing that can
be purchased at a price that provides targeted rates of return, and is
compatible with the Company's systems and processes. During fiscal 1997, the
Company has purchased servicing for a total of approximately $830 million of
mortgage loans and has sold servicing for a total of approximately $1.8 billion
of mortgage loans.
A loan servicing portfolio creates an earning asset in the form of income
created from servicing fees, which range generally from 0.25% to 0.50% per year
for mortgage loans and from 0.25% to 2.5% per year for land contracts, based on
the declining principal balance of the mortgage loans or the declining net
principal balances of land contracts serviced, and the potential interest
earnings on escrow funds held until the time payment for taxes and insurance
must be made. Based upon current market conditions, the Company estimates that
servicing rights for residential mortgage loans and land contracts have a
market value from 1.25% to 2.5% and from 1.25% to 4.0%, respectively, of the
principal balance of the mortgage loans and the declining net principal
balances of land contracts serviced.
One of the Company's strategies is to build and retain its servicing
portfolio. The Company believes that it has developed systems that enable it
to service mortgage and land contract loans efficiently and therefore enhance
the returns it can earn from investments in servicing rights. In addition, the
Company believes that the earnings from its servicing portfolio may to some
extent offset the effect of interest rate fluctuations on loan origination
revenue. In general, the value of the Company's loan servicing portfolio may
be adversely affected as mortgage interest rates decline and expected loan
prepayments increase. Income generated from the Company's loan servicing
portfolio also may decline in such an environment. On the other hand, these
effects may be offset somewhat by an increase in originations and servicing
income attributable to new loans which historically increase in periods of
declining mortgage interest rates. However, there can be no assurance that low
mortgage rates will result in increased loan originations, particularly during
periods of slow or negative economic growth. As of January 31, 1997, the
weighted average rate on mortgages serviced by the Company but owned by others
was 8.04% and the weighted average rate on mortgages and land contracts
serviced by the Company but owned by MCA Mortgage or MCA-sponsored pass-through
pools was 10.98%.
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<PAGE> 32
The following table sets forth information about the Company's retail and
wholesale loan origination and servicing activities:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(dollars in thousands, except average loan balance)
Beginning loan servicing portfolio $2,206,460 $1,303,628 $1,105,534 $ 234,743 $ 44,380
Add:
Loans purchased and originated for resale 727,007 632,281 536,881 687,484 203,087
Loans purchased for syndication 20,849 25,597 27,354 19,188 16,475
Mortgage servicing purchased (net of sales) (862,569) 618,780 (166,577) 471,587 98,808
---------- ---------- ---------- ---------- ----------
$2,091,747 $2,580,286 $1,503,192 $1,413,002 $ 362,750
Less:
Amortization (53,761) (43,491) (43,228) (36,832) (1,146)
Prepayment of loans (237,196) (172,100) (107,571) (210,305) (7,773)
Loans sold with servicing sold (199,748) (158,235) (48,765) (60,331) (119,088)
---------- ---------- ---------- ---------- ----------
Ending loan servicing portfolio $1,601,042 $2,206,460 $1,303,628 $1,105,534 $ 234,743
========== ========== ========== ========== ==========
Number of loans serviced (end of period) 21,248 27,357 16,372 15,900 4,063
Average loan balance $ 75,350 $ 80,650 $ 79,625 $ 69,530 $ 57,776
</TABLE>
The following table sets forth, for the periods indicated, the mortgage
delinquency rate of the Company's loan servicing portfolio and information
relating to foreclosed properties:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------
1997 1996 1995 1994 1993
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Delinquent mortgage loans at Period end:
30 days:
Number of loans 838 227 359 259 157
Percent of total loans 3.94% 0.83% 2.19% 1.87% 3.86%
60 days:
Number of loans 216 49 97 77 26
Percent of total loans 1.02% 0.18% 0.59% 0.56% 0.64%
90 days or more:
Number of loans 367 75 143 43 45
Percent of total loans 1.73% 0.27% 0.87% 0.31% 1.11%
Total delinquencies:
Number of loans 1,421 351 599 379 228
Percent of total loans 6.69% 1.28% 3.65% 2.74% 5.61%
</TABLE>
28
<PAGE> 33
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Foreclosed Properties:
<S> <C> <C> <C> <C> <C>
Beginning inventory 122 84 83 84 34
Properties acquired 106 136 89 122 162
Ending inventory 113 122 84 83 84
Aggregate carrying value,
net (-000's) $ 2,576 $ 2,288 $ 1,500 $ 1,495 $ 1,701
Average carrying value $22,798 $18,754 $17,854 $18,012 $20,246
</TABLE>
OTHER BUSINESS ACTIVITIES
Securitization and Syndication of Real Estate Interests. The Company is
involved in marketing real estate interests in the form of pass-through
securities which represent the ownership of undivided fractional interests in a
defined pool of real estate related loans and loan participations. The
Company's primary objective in marketing these securities is to provide
investors with consistent high income without undue risk of loss. To
accomplish this, the Company has developed a program of acquiring for resale
real estate related investments consisting primarily of land contract seller's
interests and real estate mortgage notes. The Company emphasizes investments
in land contract seller's interests because of the traditional absence of
competition from financial institutions in this market, which generally results
in higher yields, and the belief that legal rights and remedies available to
land contract sellers are more flexible and lead to collection of delinquent
accounts with greater success than can be realized with respect to mortgage
notes. In addition, a land contract may be used only as an instrument
facilitating the sale and exchange of real property. Therefore, the nature of
the debt owed by the land contract purchaser is a result of the purchaser's
desire to own, through installment payments, the realty involved.
Through January 31, 1997, the Company had sponsored more than 114
offerings of pass-through certificates. For each offering, a subsidiary acts
as the sponsor and servicing agent for the land contracts, mortgages and other
real estate interests which are held for the benefit of the certificate
holders. Pursuant to the participation and servicing agreement relating to
each pass-through pool ("Participation and Servicing Agreement"), the sponsor
is obligated to purchase all outstanding participation certificates held by
investors in that pass-through pool at such time as the aggregate net
receivable balance of each pass-through pool is less than 10% of the original
face amount. At January 31, 1997, the maximum amount of these future purchase
commitments totalled approximately $9.4 million. The sponsor can satisfy its
repurchase obligation for such a paid-down pool by arranging a purchase of the
underlying real estate interests by another pass-through pool or a mortgage
investor.
29
<PAGE> 34
The following table shows of the Company's originations and purchases of
loans for syndication in pass-through pools during the fiscal years indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of land contracts syndicated......... 855 933 1,002 798 308
Average balance............................. $ 24,418 $ 23,485 $ 22,453 $ 17,759 $ 31,413
Total amount of land contracts syndicated... $20,877,360 $21,911,707 $22,498,079 $14,172,104 $ 9,675,388
Number of mortgage notes syndicated......... 46 78 212 344 260
Average loan balance........................ $ 62,930 $ 47,246 $ 22,906 $ 14,580 $ 26,152
Total amount of mortgage notes syndicated... $ 2,894,797 $ 3,685,207 $ 4,856,239 $ 5,015,723 $ 6,799,612
Total number of loans syndicated............ 901 1,011 1,214 1,142 568
Average loan balance........................ $ 26,384 $ 25,318 $ 22,513 $ 16,802 $ 29,005
Total amount syndicated..................... $23,772,157 $25,596,914 $27,354,318 $19,187,827 $16,475,000
</TABLE>
Purchase and Resale of Real Property. The Company purchases and sells
income-producing real estate, with sales made primarily to limited partnerships
for which an affiliated company acts as general partner. This activity
produces income to the Company in the form of gains on the sale of such real
estate. In addition, MCA Realty purchases distressed residential real estate,
which is rehabilitated and sold to non-related individuals. During the year
ended January 31, 1997, the Company acquired and sold 820 single family homes
for a total gain of $8.2 million, $7.5 million of which represented sales to
the limited partnerships described above. During fiscal 1996, 1995, 1994 and
1993, the Company acquired and sold 723, 735, 415 and 268 single-family homes,
respectively, for total gains of $7.3 million, $7.4 million, $4.9 million and
$3.5 million, respectively, of which $6.5 million, $7.3 million, $4.8 million
and $3.2 million, respectively, represented sales to related parties. See Note
14 of Notes to Consolidated Financial Statements for a summary of selected
consolidated segment financial information.
The income producing real estate which is purchased by the Company and its
affiliates is acquired through the assistance of both affiliated and
unaffiliated real estate brokers. Approximately 60% and 40%, respectively, is
acquired through affiliated and nonaffiliated brokers. There appears to be
increased competition for these income-producing real estate properties as real
estate values continue to escalate and the economy continues to grow.
Most of the income-producing real estate is sold by the Company and its
affiliates on land contracts to limited partnerships controlled by an affiliate
of the Company. These transactions are not arm's length transactions with
independent third party appraisals. The land contracts are then sold by the
Company to real estate pass-through pools of which MCA is the sponsor of the
pools. The remaining balance of income-producing real estate is sold to
unrelated third parties.
Because most of the income-producing real estate sales are directed to
affiliated partnerships, the normal real estate concerns associated with
purchasers and fluctuating market values are not applicable. These
partnerships are engaged in the business of renting income producing properties
to individuals. The day-to-day real estate rental concerns are those of the
syndicated real estate limited partnerships of the affiliates and not those of
the Company. However, the payments to the Company pursuant to the land
30
<PAGE> 35
contract receivables are dependent upon the ability of these partnerships to
generate and collect rental income.
Other. During fiscal 1996, the Company made a common stock investment of
approximately $1.0 million in a Delaware Limited Liability Company. The
Company's passive investment in the Class B Securities issued by this Limited
Liability Company provides it the right to participate in earnings and
distributions, if any, subject to the preferential right of certain other
stockholders. This type of investment is similar to other passive investments
made by the Company. See Note 1 - "Investments" - of Notes to Consolidated
Financial Statements.
COMPETITION
The Company competes with other mortgage bankers, state and national
banks, thrift institutions and insurance companies for loan originations and
purchases. While there are several dominant competitors in the industry, the
Company believes it is a mid-range mortgage company in its markets. Many of
its competitors have substantially greater resources than the Company.
However, the Company believes that it offers a more diversified and, in some
cases, unique product line to its customers. The Company competes, in part,
through print and electronic media advertising campaigns, by motivating its
sales force through incentive compensation based on volume of loan
originations, by maintaining a network of branch locations designed to provide
sales support for its originators and by maintaining close relationships with
real estate brokers and builder-developers.
REGULATION
The Company is subject to the rules and regulations of, and examinations
by, Freddie Mac, Fannie Mae, Ginnie Mae and the Department of Housing and Urban
Development ("HUD") with respect to the processing, origination and purchase,
sale and servicing of mortgage loans and contracts. These rules and
regulations prohibit discrimination, provide for inspection and appraisals of
properties, require credit reports on prospective borrowers and, in some cases,
fix maximum interest rates, fees and loan amounts. The Company is required to
meet certain financial requirements and to submit certified financial
statements to these agencies annually. Mortgage loan origination activities
are subject to the Equal Credit Opportunity Act, Federal Truth-in-Lending Act,
Real Estate Settlement Procedures Act and the regulations promulgated
thereunder which prohibit discrimination and require the disclosure of certain
information to borrowers concerning credit and settlement costs. Mortgage
loans, other than first mortgages, are also subject to the usury statutes of
the states in which the Company does business. Additionally, there are various
state laws affecting the Company's mortgage banking operations, including
licensing requirements and substantive limitations on the interest and fees
that may be charged. MCA Mortgage and MCA are registered with the Commissioner
of the Michigan Financial Institutions Bureau under the Michigan Mortgage
Brokers, Lenders, and Servicers Licensing Act and are subject to the provisions
of such law. MCA Realty is a licensed real estate broker in the state of
Michigan. Expansion of the Company's operations has subjected it to similar
regulations in the states of Indiana, Illinois, Idaho, Kentucky, Maryland,
Ohio, Florida, West Virginia, California, North Carolina and Pennsylvania.
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<PAGE> 36
EMPLOYEES
At January 31, 1997, 452 individuals were employed by the Company, of
which 433 were full-time employees, including 157 mortgage and land contract
originators and mortgage and land contract servicers. The remaining full-time
employees are administrative and management personnel. None of the Company's
employees is represented by a bargaining agent. The Company believes its
relations with its employees are good.
PROPERTIES
The Company's executive and administrative offices and its mortgage
banking and real estate operations are located in approximately 39,000 square
feet of leased office space in Southfield, Michigan. The basic annual rent for
the Southfield office space is approximately $482,000. The lease for this
office expires on September 30, 1999. The Company believes that its offices
are adequate for present purposes and for any foreseeable increase in its
business activities. As of January 31, 1997, the Company leased office space
in 29 other locations: 12 in Michigan, 4 in Indiana, 5 in Florida, 3 in Ohio, 2
in Illinois, one in Kentucky, one in North Carolina, and one in California.
These locations are used by certain of the Company's mortgage and land contract
originators.
LEGAL PROCEEDINGS
The Company is a party to various routine legal proceedings arising out of
the ordinary course of its business. Management believes that none of these
actions, individually or in the aggregate, will have a material adverse effect
on the financial condition or results of operations of the Company.
32
<PAGE> 37
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information about the directors and executive
officers of MCA Financial.
Name and Age Principal Position(s) Held with MCA Financial
--------------------------- -----------------------------------------------
Patrick D. Quinlan, 50 ...... Chairman, Chief Executive Officer and Director
Thomas P. Cronin, 50 ........ Vice Chairman and Director
Lee P. Wells, 36 ............ President, Chief Operating Officer and Director
Keith D. Pietila, 47 ........ Executive Vice President and Director
Alexander J. Ajemian, 33 .... Senior Vice President, Controller and Treasurer
James B. Quinlan, 45 ........ Director
C. Thompson Wells, Jr., 56... Director
D. Michael Jehle, 47......... Director
The Board of Directors is divided into three classes, with each class
serving a three-year term. At each annual meeting of the stockholders,
directors in the class whose term expires are elected to serve a three-year
term. Lee P. Wells and Thomas P. Cronin are serving for a term ending at the
annual meeting of stockholders to be held in 1997 and Patrick D. Quinlan, C.
Thompson Wells and D. Michael Jehle are serving for a term ending at the annual
meeting of stockholders to be held in 1998. Keith D. Pietila and James B.
Quinlan are serving for a term ending at the Annual Meeting of Stockholders to
be held in 1999.
Executive officers serve at the pleasure of the Board of Directors. The
business experience of each director and executive officer during the past five
years is described below. Certain of the directors and executive officers of
MCA Financial are also directors or officers of MCA Financial's other
subsidiaries.
PATRICK D. QUINLAN has been Chairman of the Board, Chief Executive Officer and
a director of MCA Financial since its inception and served as President of MCA
Financial from its inception until July 1995. Mr. Quinlan was a founder and
served as Chairman of the Board, President and a director of MCA Mortgage from
1985 until July 1992. Mr. Quinlan is the brother of James B. Quinlan. See
"Principal Stockholders."
THOMAS P. CRONIN has been Vice Chairman of MCA Financial since July 1995 and a
director of MCA Financial since January 1993. Mr. Cronin has been Chief
Executive Officer of MCA Mortgage since November 1993 until February 1997. Mr.
Cronin served as President of MCA Mortgage from October 1992 until November
1993 and has been a director of MCA Mortgage since August 1992. From October
1990 until October 1992, Mr. Cronin was an Executive Vice President of MCA.
From 1977 until 1990, Mr. Cronin was a member of the Chicago Board of Trade and
a licensed floor broker with the Commodity Futures Trading Commission.
LEE P. WELLS has been President and Chief Operating Officer of MCA Financial
since July 1995 and has been a director of MCA Financial since its inception.
Mr. Wells served as Executive Vice President of MCA Financial from its
inception until July 1995, and served as Executive Vice President of MCA
Mortgage from 1990 until November 1993 and was a director of MCA Mortgage from
1990 until July 1992. Mr. Wells is responsible for land contract originations
and syndication of land contracts and mortgages into pass-through pools which
are sold to private mortgage investors. From 1987 until 1990 Mr. Wells was a
Vice President of MCA Mortgage, and served as the Controller of MCA Mortgage
from 1987 until 1988. Mr. Wells is the son of C. Thompson Wells, Jr. See
"Principal Stockholders."
33
<PAGE> 38
KEITH D. PIETILA has been Executive Vice President and Chief Financial Officer
of MCA Financial since July 1995 and has been a director of MCA Financial since
its inception. Mr. Pietila served as Chief Operating Officer and Vice
President of MCA Financial from MCA Financial's inception until July 1995. Mr.
Pietila also was a Vice President, Chief Financial Officer and Chief Operating
Officer and a director of MCA Mortgage from 1990 until July 1992. Mr. Pietila
has been a Director of U.S. Mutual Financial Corporation since 1991. From 1982
until 1990, Mr. Pietila was employed by Acorn Building Components, Inc., and
served in several positions, the last of which was as Chief Operating Officer.
ALEXANDER J. AJEMIAN has been a Senior Vice President of MCA Financial since
July 1995 and has been Controller and Treasurer of MCA Financial since its
inception. Mr. Ajemian served as Vice President of MCA Financial from its
inception until July 1995, served as Vice President of MCA Mortgage since
November 1992 and has served as Treasurer of MCA Mortgage since November 1993.
Mr. Ajemian was the Controller of MCA Mortgage from 1990 until July 1992 and
was the Vice President and Assistant Secretary of MCA Mortgage from 1991 until
July 1992. From 1986 until 1990, Mr. Ajemian was in the audit department of
BDO Seidman, independent certified public accountants. Mr. Ajemian is a
Certified Public Accountant licensed in Michigan.
JAMES B. QUINLAN has been a director of MCA Financial since its inception. Mr.
Quinlan is the President of Standard Home Mortgage, Inc., a residential
mortgage broker located in Grosse Pointe, Michigan. Mr. Quinlan served as
Senior Vice President of MCA Financial from 1991 until August 1993. Mr.
Quinlan has served as a director of MCA Mortgage since 1985 and served as a
Senior Vice President of MCA Mortgage from 1985 until August 1993. Mr. Quinlan
also served as Treasurer of MCA Mortgage from 1985 until August 1993. Mr.
Quinlan is the brother of Patrick D. Quinlan and the brother-in-law of David C.
Wells. See "Principal Stockholders."
C. THOMPSON WELLS, JR., has been a director of MCA Financial since its
inception and previously served in the same capacity with MCA Mortgage from
1990 until July 1992. Since 1987, Mr. Wells has been the President of Wells'
System, Inc., a consulting firm, and has been involved in child care centers as
the Chief Executive Officer of three primary entities: Discovery Learning
Centers, Discovery Learning Centers Limited Partnership and Kids at Work,
operating through 25 other related secondary entities. Of these entities four
filed bankruptcy petitions in 1991 and 1992. Two entities have completed their
liquidations and the other two entities' petitions under the Bankruptcy laws
have been dismissed. Mr. Wells is also the President and a director of Austin
Kids, Inc., which filed a bankruptcy petition in December 1994 and for which an
order confirming its plan of reorganization was entered in April 1995. Since
September 1996, Mr. Wells has served as President and Chief Executive Officer
of RIMCO Financial Corp., a company affiliated with MCA Financial Corp. C.
Thompson Wells, Jr. is the father of Lee P. Wells. See "Principal
Stockholders."
D. MICHAEL JEHLE has been a director of MCA Financial since November 1993 and
has served as a director of MCA Mortgage since November 1993. Mr. Jehle served
as President and Chief Operating Officer of MCA Mortgage from November 1993 to
November 1994 and since March 1996 has been the Chairman-Office of Production
for MCA Mortgage. Mr. Jehle served as the President and Chief Executive
Officer of Rimco Financial Corporation from November 1994 to February 1996 and
currently serves as a director of Rimco Financial Corporation. Prior to
joining the Company, Mr. Jehle was employed by First Fidelity Thrift and Loan
in San Diego, California, from 1991 to 1993 in both loan production and
servicing capacities. From 1989 to 1991, Mr. Jehle was self-employed in both
residential and commercial loan originations and prior to that he was President
of ABQ MoneyCenter, Inc., in San Diego, California.
34
<PAGE> 39
COMPENSATION
The following table sets forth, for the fiscal years shown, information
regarding amounts paid to or accrued for the Chief Executive Officer of MCA
Financial and the other four most highly compensated executive officers of MCA
Financial (the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Awards
---------------------- -----------------------------
Fiscal Restricted Stock All Other
Name and Principal Position Year Salary Bonus Awards(1) Compensation (2)
- --------------------------- ---------- ---------- ------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
Patrick D. Quinlan - 1997 $208,061 $ --- $ --- $23,172
Chairman and 1996 206,458 --- --- 16,048
Chief Executive 1995 195,000 --- --- 16,878
Officer
Thomas P. Cronin - 1997 $224,136 $ --- $ --- $ 9,670
Vice Chairman 1996 218,099 --- --- 9,670
1995 204,200 --- 110,000 9,670
Lee P. Wells - 1997 $170,000 $26,675 $ --- $ 1,766
President and Chief 1996 159,583 19,500 --- 2,146
Operating Officer 1995 117,000 40,000 --- 1,766
Keith D. Pietila - 1997 $160,000 $30,000 $ --- $11,640
Chief Financial 1996 153,333 25,000 --- 11,552
Officer and 1995 124,800 22,000 66,000 10,818
Executive Vice President
Alexander J. Ajemian-- 1997 $100,000 $15,000 $ --- $ ---
Controller, Treasurer and 1996 94,375 10,000 --- ---
Senior Vice President 1995 69,600 ---- 66,000 ---
</TABLE>
- ----------------
(1) During fiscal 1995, Mr. Pietila was awarded 6,000 shares of restricted
stock with a value of $66,000, with 2,000 shares vesting in each of fiscal
1996, 1997 and 1998. As of January 31, 1996, Mr. Pietila held 4,000
shares of restricted stock with a value of $27,160. During fiscal 1995,
Mr. Cronin was awarded 10,000 shares of restricted stock with a value of
$110,000 with 6,000 shares vesting in fiscal 1996 and 2,000 shares vesting
in each of fiscal 1997 and 1998. As of January 31, 1996, Mr. Cronin held
4,000 shares of restricted stock with a value of $27,160. During fiscal
1995, Mr. Ajemian was awarded 6,000 shares of restricted stock with a
value of $66,000, with 2,000 shares vesting in each of fiscal 1996, 1997
and 1998. As of January 31, 1996, Mr. Ajemian held 4,000 shares of
restricted stock with a value of $27,160. Dividends are payable on the
restricted stock when paid on the Company's Common Stock.
(2) Represents for each of the Named Executive Officers, premiums paid by the
Company for life insurance for the last fiscal year.
For the year ended January 31, 1997, the Company paid non-employee
directors an annual fee of $20,000 and paid James B. Quinlan an additional
annual fee of $10,000 for serving on the board of MCA Mortgage. This policy is
subject to review annually.
INDEMNIFICATION AND LIMITATION OF LIABILITY MATTERS
The Company's Restated Articles of Incorporation require the Company to
indemnify its directors, officers, employees and agents to the fullest extent
permitted by law, for expenses, judgments, penalties, fines and amounts paid in
settlement in connection with any pending, threatened or completed action, suit
or proceeding (other than by or in the right of the Company), to which any such
person was made a party by
35
<PAGE> 40
reason of the fact that he or she was acting in such capacity for the Company
or was serving as such for another corporation or enterprise at the Company's
request. Such indemnification will be provided if such persons acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the Company or its stockholders, or in respect to a criminal
proceeding, had no reasonable cause to believe such conduct was unlawful. In
actions by or in the right of the Company, indemnification is limited to
expenses and amounts paid in settlement.
The Michigan Business Corporation Act ("MBCA") permits Michigan
corporations to limit the personal liability of directors for a breach of their
fiduciary duty. The Company's Restated Articles of Incorporation limit
liability to the maximum extent permitted by law. The Company's Restated
Articles of Incorporation provide that a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of the director's fiduciary duty. However, they do not eliminate or
limit the liability of a director for any of the following (i) a breach of the
director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) declaring an unlawful dividend or distribution to
stockholders; (iv) a transaction from which the director derives an improper
personal benefit; and (v) an act or omission occurring prior to the effective
date of the pertinent article. As a result of the inclusion of such a
provision, stockholders of the Company may be unable to recover monetary
damages against directors for actions taken by them which constitute negligence
or gross negligence or which are in violation of their fiduciary duties,
although it may be possible to obtain injunctive or other equitable relief with
respect to such actions. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Patrick D. Quinlan, Keith D. Pietila and Lee P. Wells served on the
Compensation Committee of the Board of Directors of the Company during the year
ended January 31, 1997. Each of Messrs. Quinlan, Pietila and Wells is a
director and executive officer of the Company. Messrs. Quinlan and Wells are
executive officers and directors of Rimco Financial Corporation and certain of
its subsidiaries and Mr. Jehle is a director of Rimco Financial Corporation.
Messrs. Wells and Pietila are also directors and officers of Property
Corporation of America ("PCA") and Mr. Quinlan is a director of PCA. Mr.
Pietila is an officer and director of U.S. Mutual Financial Corporation.
From time to time, the Company and its subsidiaries have entered into
various contracts and other transactions with affiliates of the Company,
including certain officers and directors of the Company. The terms and
conditions of such transactions were not negotiated at arm's length and may not
have been as favorable to the Company as terms and conditions that would have
been obtained with unaffiliated parties.
During fiscal 1997, 1996 and 1995, the Company recognized a gain of
$7,539,447, $6,529,708, and $7,365,199, respectively, on the sale of properties
purchased from unrelated third parties and subsequently sold to limited
partnerships whose general partner is owned by Patrick D. Quinlan and Lee P.
Wells. During fiscal 1997, fiscal 1996, and fiscal 1995, the Company paid
commissions in connection with the acquisition of these properties totaling
$1,968,000, $1,735,000, and $1,315,000, respectively, to Rimco Financial
Corp. which is owned equally by Patrick D. Quinlan, Lee P. Wells and Leroy G.
Rogers.
36
<PAGE> 41
The Company provides accounting and administrative services to U.S. Mutual
Financial Corporation ("U.S. Mutual") and receives a base monthly fee of $3,000
plus additional amounts as periodically agreed to by the respective parties.
U.S. Mutual is a publicly-owned corporation; however, Patrick D. Quinlan
together with his wife, Cheryl J. Quinlan, and James B. Quinlan, their brother
John E. Quinlan and their mother Bonnie B. Quinlan collectively own
approximately 15% of the outstanding voting stock of U.S. Mutual, and it is
therefore considered an affiliate of the Company, as defined by the Securities
and Exchange Commission. This service arrangement can be terminated by either
party at any time. The Company earned $36,000 in management fees for
administrative services provided to U.S. Mutual during each of fiscal 1997,
1996 and 1995. Keith D. Pietila is a director of U.S. Mutual.
From time to time, the Company retained Consulting Services of America,
Inc. ("CSA") as a consultant for specific long range planning and other
projects. During fiscal 1995 and 1994, the Company retained the Alquin Group,
Inc. ("Alquin") to provide similar services. John E. Quinlan, the brother of
Patrick and James Quinlan, is a stockholder, director and executive officer of
CSA and was a stockholder, director and executive officer of Alquin. For its
services, CSA charges the Company its normal billing rate of $150 per hour, and
receives a minimum retainer of $5,000 per month. During fiscal 1997 and 1996,
the Company paid $105,000 and $120,000, respectively, in consulting fees to
CSA. During fiscal 1995 the Company paid $123,080 in consulting fees to Alquin.
In July 1995, Janet K. Wells, the wife of C. Thompson Wells, Jr., and the
mother of Lee P. Wells, purchased 20,000 shares of common stock of the Company
for $30 per share in exchange for promissory notes with an aggregate principal
amount of $600,000, secured by mortgages on certain appraised real estate. The
appraisal was performed by the Real Estate Appraisal Group, an unaffiliated
licensed real estate appraisal firm, and the value of the stock was negotiated
by the parties with approval by the Company's Board of Directors.
From time to time the Company has made working capital loans to related
entities, and these entities have entered into transactions in the ordinary
course of business with the Company pursuant to which the Company accrues net
payables to these entities. At January 31, 1997, 1996 and 1995, the Company's
accounts receivable from these related entities, net of accounts payable to
these entities, were $571,000, $793,000, and $796,000, respectively, due from
Rimco Financial Corp., a company owned by Patrick D. Quinlan, Lee P. Wells and
Leroy G. Rogers, and $1.67 million, $1.68 million and $1.10 million,
respectively, due from Property Corporation of America, the common stock of
which is owned by Patrick D. Quinlan and Lee P. Wells. In addition, there is
$3.4 million due from investor pass-through pools sponsored by MCA Mortgage or
MCA and limited partnerships sponsored by other affiliates of the Company. On
January 31, 1995, MCA Financial purchased all of the issued and outstanding
common stock of Rimco Realty & Mortgage Company from Rimco Financial Corp. for
$12,918. The payment for such shares was in the form of a reduction in debt
owned by Rimco Financial Corp. to MCA Financial. Rimco Realty & Mortgage
Company was engaged in the purchase and sale of residential real estate and now
operates as MCA Realty Corporation.
37
<PAGE> 42
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 1, 1997,
regarding each person known by the Company to own more than five (5%) percent
of the issued and outstanding shares of Common Stock of the Company, each
current director, each of the Named Executive Officers and all directors and
executive officers of the Company as a group. Unless otherwise noted, each
person is the record owner of the shares indicated and possesses the sole
voting and investment power with respect to such shares. Unless otherwise
noted, the address for each person is 23999 Northwestern Hwy., Southfield,
Michigan 48075.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP CLASS(1)
------------------------------------ ------------ --------------
<S> <C> <C>
Patrick D. Quinlan ................. 112,135 (2) 21.43%
James B. Quinlan ................... 55,734 (3) 10.65%
17150 Kercheval Ave.
Grosse Pointe, Michigan 48230
C. Thompson Wells, Jr. ............. 86,200 (4) 16.47%
Lee P. Wells ....................... 48,372 (2) 9.24%
NML, Inc. .......................... 33,700 (2) 6.44%
David C. Wells ..................... 28,347 (5) 5.42%
Keith D. Pietila ................... 28,167 (6) 5.38%
Thomas P. Cronin ................... 13,200 (6) 2.52%
D. Michael Jehle ................... 11,000 (6) 2.10%
Janet K. Wells ..................... 86,200 (4) 16.47%
3 Sycamore
Grosse Pointe, Michigan 48230
Alexander J. Ajemian ............... 8,280 (6) 1.58%
All executive officers and directors
as a group (8 persons) ........... 397,293 (2)(4)(6) 75.92%
</TABLE>
- --------------
(1) As of April 1, 1997, there were 523,283 shares of Common Stock of the
Company outstanding. This number includes 20,002 shares of Common Stock
which are subject to forfeiture.
(2) Patrick D. Quinlan owns 50% of NML, Inc. and Lee P. Wells owns 50% of
NML, Inc.
(3) These 55,734 shares are held by Standard Home Mortgage, Inc., a
corporation wholly owned by James B. Quinlan. Of these shares, 1,334 are
subject to forfeiture.
(4) Janet K. Wells holds 86,200 shares in revocable trust and has voting and
investment power with respect to these shares. Ms. Wells is the wife of
C. Thompson Wells, Jr., who disclaims beneficial ownership of these
shares.
(5) Includes 1,334 shares subject to forfeiture.
(6) Includes the following shares that were issued pursuant to compensation
arrangements and are subject to forfeiture: Mr. Pietila - 2,000 shares;
Mr. Cronin - 2,000 shares; Mr. Jehle - 2,668 shares; Mr. Ajemian - 2,000
shares; and all executive officers and directors as a group - 10,002
shares.
38
<PAGE> 43
DESCRIPTION OF SERIES 1996 DEBENTURES
General. In this Offering the Company is offering for sale up to
$6,000,000 aggregate principal amount of 11% Subordinated Debentures Series
1996, Due June 30, 2002 (the "Series 1996 Debentures"). The Series 1996
Debentures are unsecured obligations of the Company and are to be issued under
an Indenture (the "Indenture"), between the Company and First Union National
Bank, as Trustee (the "Trustee"), a copy of which has been filed as an exhibit
to the registration statement of which this Prospectus forms a part. The
following summaries of certain provisions of the Indenture do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Indenture, including the definitions of certain terms
in the Indenture. Wherever particular provisions and definitions of the
Indenture are referred to, such provisions and definitions are incorporated by
reference as part of the statements made, and the statements are qualified in
their entirety by those references. The Indenture has been qualified under the
Trust Indenture Act of 1939, as amended. In the discussion that follows, and
unless otherwise noted, the references to the Company are to MCA Financial
Corp. only and do not include any of its subsidiaries.
Since the Company is a holding company, its rights and, indirectly, the
rights of its creditors, including the holders of the Series 1996 Debentures,
to participate in any distribution of assets of the Company's subsidiaries upon
a liquidation or reorganization of any subsidiary will be subject to the prior
claims of creditors of that subsidiary, except to the extent that the Company
may itself be a creditor with recognized claims against its subsidiaries. In
the event a receiver or trustee is appointed for one or more of the Company's
subsidiaries or in the event of their insolvency, bankruptcy, assignment for
the benefit of creditors, reorganization or any other marshalling of assets and
liabilities of these entities, the Company will not be entitled to participate
or share, ratably or otherwise, in the distribution of the assets of that
subsidiary until all claims of all other present and future creditors of that
subsidiary have been fully satisfied.
The Indenture provides that the Company may issue additional debt during
or after the offering of the Series 1996 Debentures and such debt may be either
superior to, on a par with, or subordinated to the Series 1996 Debentures.
The total amount of Series 1996 Debentures that may be issued under the
Indenture and sold by the Company is limited to $6,000,000. Interest on the
Series 1996 Debentures will accrue from the Date of Issue and will be payable
on March 31, June 30, September 30 and December 31 of each year at the rate of
11% per annum. Interest will be payable to the person in whose name the Series
1996 Debentures are registered at the close of business on the first day of the
calendar month in which falls an Interest Payment Date. The Series 1996
Debentures will mature on June 30, 2002, unless redeemed earlier at the option
of the Company or at the request of a Holder or a Holder's authorized
representative upon the death of a Holder as set forth below. See "- Optional
Redemption" and "- Holders' Right of Redemption."
All interest payments to be made to registered holders of Series 1996
Debentures shall be paid directly by the Company to the Trustee, and the
Trustee shall mail these interest payments on the Interest Payment Date to the
Holders that are listed in the Debenture Register. Principal of the Series
1996 Debentures will be payable at maturity or upon redemption prior to
maturity by the Trustee by check mailed to the person entitled to payment, upon
surrender of the Series 1996 Debentures.
The Company will issue the Series 1996 Debentures only in fully registered
form, without coupons, in denominations of $1,000 and integral multiples
thereof. Holders may transfer or exchange the Series 1996 Debentures by
surrendering them for transfer or exchange at the Corporate Trust Department of
the Trustee,
39
<PAGE> 44
duly endorsed for transfer. The Series 1996 Debentures will be transferable or
exchangeable without service charge, but the Company may require payment to
cover taxes or other government charges. The Series 1996 Debentures must be
surrendered to the Trustee in order to receive principal payments.
Optional Redemption. Under the Indenture, the Company may redeem all of
the Series 1996 Debentures at any time on or after July 1, 1998, or some of
them from time to time on or after July 1, 1998, at the following redemption
prices (expressed in percentages of the principal amount to be redeemed), plus
accrued interest to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
July 1, 1998 through June 30, 1999 .....102.0%
July 1, 1999 through June 30, 2000 .....101.0%
July 1, 2000 and thereafter ............100.0%
</TABLE>
If the Company elects to redeem the Series 1996 Debentures in whole or in
part, it shall notify the Trustee of the desired redemption date and the
principal amount of Series 1996 Debentures to be redeemed. If less than all of
the Series 1996 Debentures are to be redeemed, the Trustee shall select the
Series 1996 Debentures to be redeemed either pro-rata or by lot, as the Trustee
in its sole discretion shall choose. Series 1996 Debentures shall be redeemed
only in denominations of $1,000 or integral multiples thereof.
At least 30 days but not more than 60 days prior to a redemption date the
Company shall mail, or shall cause the Trustee to mail, a notice of redemption
by first-class mail to each Holder of Series 1996 Debentures to be redeemed.
The notice shall identify the Series 1996 Debentures to be redeemed and shall
state (1) the redemption date and redemption price, (2) the name and address of
the Paying Agent, (3) in the event that a Debenture is to be redeemed in part
only, the portion of the principal amount thereof to be redeemed, and that on
and after the redemption date, upon surrender of the Series 1996 Debenture a
new Series 1996 Debenture, equal in principal amount to the unredeemed portion
thereof, will be issued, (4) that Series 1996 Debentures called for redemption
must be surrendered to the Paying Agent to collect the redemption price and (5)
that interest on the Series 1996 Debentures to be redeemed ceases to accrue on
and after the redemption date.
Holders' Right of Redemption. The Indenture provides that on each March
31, commencing with March 31, 1998, upon request by a Holder or on behalf of a
deceased Holder, the Company will redeem such Holder's Series 1996 Debentures,
but only up to $25,000 principal amount per Holder in each calendar year and
only up to an aggregate of $100,000 per calendar year for all Holders, without
any premium, provided that (a) the Series 1996 Debentures have been registered
in the name of the Holder or the deceased Holder for a period of at least six
months prior to the date of such request for redemption, (b) the Trustee has
been notified in writing of a request for redemption within one year after a
deceased Holder's death, and (c) the Company is not, or, after giving effect to
such redemption would not be, in default under any Senior Indebtedness. Series
1996 Debentures for which such redemption is requested on behalf of a deceased
Holder will be repaid at 100% of the principal amount thereof, whereas Series
1996 Debentures for which redemption is requested by any other Holder will be
repaid at 95% of the principal amount thereof; in either case, interest accrued
to the Redemption Date will also be paid. Redemption will be made on the March
31 next following a duly made redemption request. Redemption requests shall be
made to the Trustee and contain the following: (i) a written request for
redemption signed by a Holder or the duly authorized representative of a
deceased Holder, which (in the case of a deceased Holder) shall indicate the
name of the deceased Holder and the date of his death and shall indicate the
principal amount of Series 1996 Debentures to be redeemed, up to $25,000, (ii)
the Series 1996 Debentures to be redeemed, and (iii) evidence of the
40
<PAGE> 45
death of a deceased Holder and of the authority of his representative. After
receiving an initial redemption payment, a Holder or the authorized
representative of a deceased Holder may annually request that the Company
redeem additional Series 1996 Debentures in the principal amount of up to
$25,000 each year, which the Company will honor on March 31 of the succeeding
year, subject to the further limitation that Holders other than those
representing a deceased Holder may not have more than $50,000 principal amount
of Series 1996 Debentures redeemed in the aggregate. Authorized
representatives of a deceased Holder include executors, administrators or other
legal representatives of an estate, trustees of a trust, joint owners of Series
1996 Debentures owned in joint tenancy or tenancy by the entirety, custodians,
conservators, guardians, attorneys-in-fact, and other persons generally
recognized as having legal authority to act on behalf of another.
In applying the annual aggregate redemption limit of $100,000, the Trustee
shall give priority in the redemption of Series 1996 Debentures as follows:
first, to requests for redemption received prior to December 31 of each year
made on behalf of deceased Holders on a pro rata basis, and second, to all
other Holders of Series 1996 Debentures, on a pro rata basis.
The death of a Person owning a Series 1996 Debenture in joint tenancy or
tenancy by the entirety with another or others shall be deemed the death of the
Holder of the Series 1996 Debenture, and the entire principal amount of the
Series 1996 Debenture so held shall be subject to redemption, together with
interest accrued thereon to the Redemption Date. The death of a Person owning
a Series 1996 Debenture by tenancy in common shall be deemed the death of a
Holder of a Series 1996 Debenture only with respect to the deceased Holder's
interest in the Series 1996 Debenture so held by tenancy in common; except that
in the event a Series 1996 Debenture is held by husband and wife as tenants in
common, the death of either shall be deemed the death of the Holder of the
Series 1996 Debenture and the entire principal amount of the Series 1996
Debenture so held shall be subject to redemption. The death of a Person who,
during his lifetime, was entitled to substantially all of the beneficial
interests of ownership of a Series 1996 Debenture, will be deemed the death of
the Holder thereof for purposes of this provision, regardless of the registered
holder, if such beneficial interest can be established to the satisfaction of
the Company. Such beneficial interest will be deemed to exist in typical cases
of nominee ownership, ownership under the Uniform Gifts to Minors Act,
community property or other joint ownership arrangements between a husband and
wife, and trust arrangements where one Person has substantially all of the
beneficial ownership interests in the Series 1996 Debenture during his
lifetime.
Subordination. Any payment on the Series 1996 Debentures is subordinated
at all times, including upon liquidation of the Company, to the prior payment
of all "Senior Indebtedness" of the Company due and owing. Senior Indebtedness
is defined in the Indenture to mean all Indebtedness of the Company for money
borrowed from others, whether outstanding on the date of the Indenture or
thereafter created or incurred, which is not by its terms either expressly
subordinate and junior to, or on a parity with, the Series 1996 Debentures. At
January 31, 1997, MCA Financial had $35.2 million of Senior Indebtedness
outstanding. In addition, at January 31, 1997, MCA Mortgage and MCA, the
Company's principal subsidiaries, had $72.3 million aggregate indebtedness
outstanding, including amounts owing under all of their mortgage warehousing
credit facilities, which the Company has guaranteed. Since the Company is a
holding company, its rights and, indirectly, the rights of its creditors,
including the holders of the Series 1996 Debentures, to participate in any
distribution of assets of such subsidiaries upon a liquidation or
reorganization of either of them will be subject to the prior claims of
creditors of that subsidiary, except to the extent that the Company may itself
be a creditor with recognized claims against its subsidiaries.
41
<PAGE> 46
No payment of the principal of, or interest on, the Series 1996 Debentures
may be made if the Company is at the time in default with respect to any Senior
Indebtedness, or if such payment would cause the Company to be in default with
respect to any Senior Indebtedness, subject to exceptions for the cure or
waiver of any such default. Upon any distribution of assets of the Company
upon any dissolution, winding up, liquidation or reorganization of the Company,
as discussed below, all Senior Indebtedness would be required to be paid in
full before any payment of principal or interest on the Series 1996 Debentures
may be made. Such subordination will not prevent the occurrence of any Event
of Default (as defined below) under the Indenture.
BY REASON OF THE SUBORDINATION OF THE SERIES 1996 DEBENTURES, IN THE EVENT
OF LIQUIDATION OF THE COMPANY, THE RECOVERY, IF ANY, TO THE HOLDERS OF SERIES
1996 DEBENTURES MAY BE LESS, PROPORTIONATELY, THAN TO HOLDERS OF SENIOR
INDEBTEDNESS. THERE ARE NO LIMITATIONS ON THE AMOUNT OF SENIOR INDEBTEDNESS
THAT MAY BE ISSUED OR INCURRED IN THE FUTURE.
Restrictions on Dividends. So long as the year-end Common Equity (the
aggregate amount of the Common Stock, Additional Paid-in Capital and Retained
Earnings accounts) of the Company is less than $2,000,000, as reflected on the
Company's annual consolidated balance sheet, or if an Event of Default has
occurred and is continuing, the Indenture provides that the Company will not
(i) declare or pay any dividend or make any distribution on its Equity
Securities (other than dividends or distributions payable in shares of Equity
Securities of the Company); (ii) purchase, redeem or otherwise acquire or
retire for value any shares of Equity Securities of the Company; or (iii)
permit any Subsidiary to purchase, redeem or otherwise acquire or retire for
value any shares of Equity Securities of the Company. Otherwise, the Company
may declare and pay dividends on, make distributions on, and purchase, redeem
or otherwise acquire or retire for value shares of its Equity Securities.
Consolidation, Merger or Transfer. The Company may not consolidate with,
merge with, or transfer all or substantially all of its assets to another
entity unless such other entity assumes the Company's obligations under the
Indenture and unless, after giving effect thereto, no event which, after notice
or lapse of time, would become an Event of Default shall have occurred and be
continuing. Any consolidation, merger or acquisition of assets of the Company
is further conditioned on the surviving corporation having a Consolidated Net
Worth equal to or greater than that of the Company and the satisfaction of
certain other requirements. While the concept of "substantially all" of the
assets of a company has not been defined under Michigan law or by any Michigan
judicial decision, counsel has advised the Company that the potential sale of
assets having an aggregate book value of more than 50% of the total book value
of all assets, or the potential sale of assets from which more than 50% of the
Company's gross revenues were derived during the most recent fiscal year, would
be subject to this restriction.
Event of Default. An Event of Default, as defined in the Indenture,
includes: (a) default in the payment of the principal on any Series 1996
Debenture at its Maturity or upon redemption; (b) default in the payment of
interest on any Series 1996 Debenture when it becomes due and payable, and
continuance of such default for a period of ten (10) days after notice of such
default to the Company by the Trustee; (c) a default in the performance, or
breach, of any other covenant or warranty of the Company in the Indenture for a
period of 30 days after receipt of written notice specifying the default and
requiring the Company to remedy such default; (d) default in the payment at
stated maturity of certain indebtedness for money borrowed of the Company or
any of its Subsidiaries; (e) appointment of a receiver or conservator of the
Company or any of its Subsidiaries in certain circumstances; and (f) certain
events of insolvency, receivership, conservatorship or reorganization.
42
<PAGE> 47
Within 90 days after the occurrence of any default, as defined in the
Indenture, the Trustee shall give the Series 1996 Debenture holders notice of
all uncured defaults known to it; provided that, except in the case of a
default in the payment of the principal of or interest on any Series 1996
Debentures, the Trustee shall be protected in withholding such notice if and so
long as it in good faith determines that the withholding of such notice is in
the interests of the Series 1996 Debenture holders.
If an Event of Default occurs and is continuing, the Trustee, in its
discretion may, and, at the written request of holders of a majority in
aggregate principal amount of the Series 1996 Debentures Outstanding and upon
being indemnified to its satisfaction shall, proceed to protect and enforce its
rights and the rights of the Series 1996 Debenture holders. If an Event of
Default occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Series 1996
Debentures Outstanding may declare the principal of all the Series 1996
Debentures to be due and payable immediately, by a notice in writing to the
Company, and to the Trustee if given by Series 1996 Debenture holders, and upon
any such declaration such principal will become immediately due and payable,
subject to the limitation on accelerations described below. Prior to
acceleration of maturity of such Series 1996 Debentures, the Holders of a
majority in principal amount of the Series 1996 Debentures Outstanding may
waive an Event of Default resulting in acceleration of such Series 1996
Debentures but only if all Events of Default have been remedied and all
payments due, other than those due as a result of acceleration, have been made.
The Company must furnish annually to the Trustee an Officers' Certificate
stating whether, to the best of the knowledge of the signers, the Company is in
default under any of the provisions of the Indenture, and specifying all such
defaults and the nature thereof of which they have knowledge.
A Holder of any Series 1996 Debenture will not have any right to institute
any proceeding with respect to the Indenture, or for the appointment of a
receiver or trustee, or for any remedy thereunder, unless (i) such Holder has
previously given written notice to the Trustee of a continuing Event of
Default, (ii) the Holders of at least 25% in aggregate principal amount of the
Outstanding Series 1996 Debentures have made a written request, and offered
reasonable indemnity, to the Trustee to institute proceedings in respect of
such Event of Default in its own name as Trustee and (iii) the Trustee has not
received from the Holders of a majority in principal amount of the Outstanding
Series 1996 Debentures a direction inconsistent with such written request and
shall have failed to institute such proceeding within 60 days after its receipt
of such notice, request and offer of indemnity. However, the Holder of any
Series 1996 Debenture will have an absolute right to receive payment of and the
principal of and interest on such Series 1996 Debenture on or after the
respective due dates and to institute suit for the enforcement of any such
payment.
Modification and Waiver. With certain limited exceptions which permit
modification of the Indenture by the Company and Trustee only, the Indenture
may be modified by the Company with the consent of Holders of not less than 50%
in principal amount of Outstanding Series 1996 Debentures; provided, however,
that no such changes shall, without the consent of the holder of each
Outstanding Series 1996 Debenture affected thereby (i) change the Stated
Maturity of the principal of, or any installment of interest on any Series 1996
Debenture, (ii) reduce the principal of, or the rate of interest on, any Series
1996 Debenture (iii) change the coin or currency in which any Series 1996
Debenture or the interest thereon is payable, (iv) impair the right to
institute suit for the enforcement of any such payment, (v) reduce the
percentage in principal amount of the Outstanding Series 1996 Debentures, the
consent of whose Holders is required to modify the Indenture, (vi) reduce the
percentage in principal amount of the Outstanding Series 1996 Debentures, the
consent of whose Holders is required for any waiver of compliance with certain
provisions of the Indenture or certain defaults thereunder, (vii) subordinate
the Indebtedness evidenced by the Series 1996 Debentures to any Indebtedness of
the Company other than Senior Indebtedness, or (viii)
43
<PAGE> 48
impair or restrict the rights of the Holders of the Series 1996 Debentures
to redemption of the Series 1996 Debentures prior to the Stated Maturity
thereof as provided in the Indenture. No supplemental indenture shall
adversely affect the rights of any holders of Senior Indebtedness without the
consent of such holder.
The Holders of at least 50% in principal amount of the Series 1996
Debentures at the time the Series 1996 Debentures are Outstanding may waive
compliance by the Company with certain restrictive provisions of the Indenture.
DESCRIPTION OF COMMON STOCK
The Company's authorized capital stock consists of 1,250,000 shares of
Preferred Stock and 3,750,000 shares of Common Stock. As of April 1, 1997,
there were 523,283 shares of Common Stock outstanding, including shares subject
to forfeiture. Owners of the Common Stock are entitled to such dividends as
may be declared by the Board of Directors out of the assets legally available
for that purpose, and are entitled to one vote per share on all matters
submitted to a vote of the stockholders of the Company. The holders of shares
of Common Stock do not have cumulative voting rights and therefore holders of
more than fifty (50%) percent of the shares voting for the election of
directors can elect all of the directors and the remaining holders will not be
able to elect any directors. The holders of shares of Common Stock have no
preemptive rights or other rights to subscribe for additional shares. There
are no conversion rights, redemption rights or sinking fund provisions with
respect to shares of Common Stock. All shares of Common Stock now outstanding
are validly issued, fully paid and nonassessable. On liquidation, dissolution
or winding up of the Company, the holders of shares of Common Stock are
entitled to receive, pro rata, the net assets of the Company remaining after
the payment of all creditors and the payment of all accrued and unpaid
dividends and the liquidation value with respect to outstanding shares of
Series A and Series B Preferred Stock.
There is no established public trading market for the Company's Common
Stock. At April 1, 1997, there were 67 stockholders of record of the Company's
Common Stock. The Company has never paid a dividend on its Common Stock and
has no present plans to pay dividends in the future. The Company is restricted
in its ability to pay dividends under the terms of certain of its loan
agreements, as well as under the Indentures with respect to the Prior
Indentures and it is restricted under the Indenture with respect to the Series
1996 Debentures.
PLAN OF DISTRIBUTION
The Series 1996 Debentures being offered hereby are being offered by
the Company through certain officers, none of whom will be compensated,
directly or indirectly, in connection with his participation in the Offering.
The Company will rely on Rule 3a4-1 under the Securities Exchange Act of 1934,
as amended, and sales of Series 1996 Debentures will be conducted within the
requirements of Rule 3a4-1 by the Company's officers. In addition, the Company
has appointed East West Capital Corporation, Sigma Financial Corporation,
Chapel Hill Securities, Inc. and Sabel Management, Inc., each a member of the
National Association of Securities Dealers, Inc. ("NASD"), to act as selling
agents in the Offering on a "best efforts" basis. These participating NASD
members will not have any firm commitment for the purchase of Series 1996
Debentures. As compensation for their services in connection with this
Offering, participating broker-dealers will be paid a selling commission by the
Company of 6.5% of the purchase price of all Series 1996
44
<PAGE> 49
Debentures sold by them, provided, however, that if a broker-dealer sells
$250,000 or more of the Series 1996 Debentures it will be paid a commission of
7.0% on all sales, and if a broker-dealer sells $500,000 or more of the Series
1996 Debentures it will be paid a commission of 8.0% on all sales. The Company
has agreed to indemnify participating broker-dealers against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the broker-dealers may be required to
make in respect thereof.
For the duration of the Offering, the Company and any participating
broker-dealer will instruct investors to make their investment checks payable
to the Company and will forward all subscription monies promptly to the
Company.
LEGAL MATTERS
The validity of the Series 1996 Debentures offered hereby will be passed
on for the Company by Dykema Gossett PLLC, Detroit, Michigan.
EXPERTS
The Company's consolidated balance sheets as of January 31, 1997 and 1996,
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended January 31, 1997, included in this
Prospectus have been audited by Moore Stephens Doeren Mayhew, P.C. and Grant
Thornton LLP acting in a joint capacity, independent certified public
accountants, to the extent and for the periods indicated in their report
thereon appearing elsewhere herein and are included in reliance upon such
reports given upon the authority of said firms as experts in auditing and
accounting.
45
<PAGE> 50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants ........... F-2
Consolidated Balance Sheets as of January 31, 1997 and 1996 .. F-3
Consolidated Statements of Operations for the years ended
January 31, 1997, 1996 and 1995 ........................ F-4
Consolidated Statements of Stockholders' Equity for the years
ended January 31, 1997, 1996 and 1995 .................. F-5
Consolidated Statements of Cash Flows for the years ended
January 31, 1997, 1996 and 1995 ........................ F-6
Notes to Consolidated Financial Statements ................... F-9
</TABLE>
F-1
<PAGE> 51
Report of Independent Certified Public Accountants
To the Board of Directors of
MCA FINANCIAL CORP.
We have audited the accompanying consolidated balance sheets of MCA Financial
Corp. and Subsidiaries as of January 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended January 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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 MCA
Financial Corp. and its Subsidiaries as of January 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended January 31, 1997, in conformity
with generally accepted accounting principles.
As described in Note 1, in February 1996, the Company adopted Statement of
Financial Accounting Standards No. 122, "Accounting for Certain Mortgage
Servicing Rights".
Moore Stephens Grant Thornton LLP
Doeren Mayhew, P.C. Detroit, Michigan
April 28, 1997
Troy, Michigan
F-2
<PAGE> 52
MCA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash $ 3,096,993 $ 2,730,408
Land contracts held-for-resale 10,351,425 11,484,877
Mortgages held-for-resale 54,430,155 63,306,372
Accounts receivable - mortgages sold 15,489,908 -
Accounts receivable 16,997,311 9,722,527
Accounts receivable - related parties 6,827,285 8,256,090
Mortgage servicing rights - net 16,324,263 27,293,358
Excess interest spread receivable 7,987,053 -
Investments 2,571,750 2,492,816
Property and office equipment 5,582,612 4,856,330
Deferred charges and other assets 5,333,058 5,047,863
------------ ------------
Total assets $144,991,813 $135,190,641
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable $ 83,975,834 $ 86,597,703
Subordinated debentures 15,542,000 9,174,000
Subordinated notes payable 15,000,000 -
Accounts payable 15,705,913 25,206,687
Accounts payable - related parties 1,043,842 1,693,311
Accrued interest and other expenses 2,419,048 2,058,080
Deferred federal income tax 400,000 300,000
------------ ------------
Total liabilities 134,086,637 125,029,781
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
REDEEMABLE COMMON STOCK 256,373 -
STOCKHOLDERS' EQUITY
Common stock
Authorized 3,750,000 shares at January 31,
1997 and 1996. No par, stated value $.01 each.
Issued and outstanding, 503,281 shares at
January 31, 1997 and 448,617 shares at
January 31, 1996 5,033 4,486
Preferred stock (Series A)
Authorized 350,000 shares, $10 stated value,
issued and outstanding 203,022 shares at
January 31, 1997 and 1996 2,030,220 2,030,220
Preferred stock (Series B)
Authorized 750,000 shares, $10 stated value,
issued and outstanding 336,619 shares at
January 31, 1997 and 1996 3,366,190 3,366,190
Additional paid-in capital 3,664,976 1,457,251
Retained earnings 1,582,384 1,302,713
------------ ------------
Total stockholders' equity 10,648,803 10,160,860
------------ ------------
Total liabilities and stockholder's equity $144,991,813 $135,190,641
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 53
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Gain on sale of land contracts $ 3,437,662 $ 2,981,138 $ 2,983,022
Gain on sale of real estate 707,754 750,800 --
Gain on sale of real estate - related parties 7,539,447 6,529,708 7,365,199
Gain on bulk sales of servicing rights 5,231,163 4,725,872 7,475,444
Mortgage origination fees and gain on sale
of mortgages 24,861,881 14,339,220 5,584,454
Servicing fees 8,499,396 6,243,748 4,616,738
Interest income 8,167,899 5,902,714 5,106,041
Other income 481,138 477,810 240,783
---------- ---------- ----------
Total revenues 58,926,340 41,951,010 33,371,681
---------- ---------- ----------
EXPENSES
Payroll 15,775,097 11,955,536 10,985,576
Interest 11,426,082 7,565,044 6,018,518
Commissions 8,257,703 5,929,844 4,591,079
Professional services 1,879,525 1,447,810 1,511,215
Depreciation 687,333 554,904 351,964
Amortization 4,869,475 3,259,131 1,924,872
General and administrative 14,626,787 10,111,211 8,163,619
---------- ---------- ----------
Total expenses 57,522,002 40,823,480 33,546,843
---------- ---------- ----------
INCOME (LOSS) BEFORE FEDERAL INCOME TAXES 1,404,338 1,127,530 (175,162)
PROVISION FOR FEDERAL INCOME TAXES 639,000 512,000 102,384
---------- ---------- ----------
NET INCOME (LOSS) $ 765,338 $ 615,530 $ (277,546)
========== ========== ==========
EARNINGS (LOSS) PER SHARE $ 0.59 $ 0.30 $ (1.80)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 54
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED JANUARY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
PREFERRED
ADDITIONAL STOCK
COMMON PREFERRED PAID-IN RETAINED SUB-
STOCK STOCK CAPITAL EARNINGS SCRIPTIONS TOTAL
------ --------- ---------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance - February 1, 1994 $4,023 $4,698,870 $2,848,350 $1,897,815 $(886,000) $ 8,563,058
Net loss -- -- -- (277,546) -- (277,546)
Issuance of common stock 26 -- 28,211 -- -- 28,237
Issuance of preferred stock -- 697,540 (159,531) -- 886,000 1,424,009
Preferred stock dividends -- -- -- (447,446) -- (447,446)
------ ---------- ---------- ---------- ---------- -----------
Balance - January 31, 1995 4,049 5,396,410 2,717,030 1,172,823 -- 9,290,312
Net income -- -- -- 615,530 -- 615,530
Issuance of common stock 444 -- 764,300 -- -- 764,744
Repurchase of common stock (7) -- (24,079) -- -- (24,086)
Preferred stock dividends -- -- -- (485,640) -- (485,640)
------ ---------- ---------- ---------- ---------- -----------
Balance - January 31, 1996 4,486 5,396,410 3,457,251 1,302,713 -- 10,160,860
Net income -- -- -- 765,338 -- 765,338
Issuance of common stock 547 -- 207,725 -- -- 208,272
Preferred stock dividends -- -- -- (485,667) -- (485,667)
------ ---------- ---------- ---------- ---------- -----------
Balance - January 31, 1997 $5,033 $5,396,410 $3,664,976 $1,582,384 $ -- $10,648,803
====== ========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 55
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 765,338 $ 615,530 $ (277,546)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 5,556,808 3,814,035 2,276,836
Stock award compensation 207,970 165,744 28,237
Decrease (increase) in land contracts
held-for-resale 1,133,452 (2,175,379) (5,439,497)
Origination and purchase of mortgages
held-for-resale (794,266,291) (632,281,000) (564,235,000)
Sale of mortgages held-for-resale 803,142,508 585,277,031 587,782,628
Increase in accounts receivable -
mortgages sold (15,489,908) -- --
Decrease (increase) in accounts receivable (7,274,784) 4,432,277 (7,325,104)
Decrease (increase) in accounts receivable -
related parties 1,428,805 (986,951) (1,333,086)
Increase in excess interest spread receivable (7,987,053) -- --
Increase in deferred charges and other assets (1,104,199) (2,123,743) (1,538,268)
Increase (decrease) in accounts payable (9,500,774) 9,852,602 9,047,933
Increase (decrease) in accounts payable -
related parties (649,469) 193,729 194,211
Increase in accrued interest and other expenses 360,968 1,071,831 205,166
Increase in deferred Federal income taxes 100,000 100,000 20,000
------------- ----------- -----------
Net cash provided by (used in) operating activities (23,579,629) (32,044,292) 19,406,510
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 56
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Net cash provided by (used in) operating
activities - total from previous page $ (23,576,629) $(32,044,294) $ 19,406,510
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of MCA Realty Corporation - - 163,341
Investment in mortgage servicing rights-net 7,175,299 (12,125,632) (10,645,117)
Decrease (increase) in investments (78,934) 36,912 (224,702)
Capital expenditures (1,207,774) (1,073,420) (232,962)
------------- ------------ --------------
Net cash provided by (used in)
investing activities 5,888,591 (13,162,140) (10,939,440)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 814,899,838 548,960,490 529,181,111
Payments on notes payable (817,727,548) (597,680,156) (540,175,700)
Proceeds from subordinated debentures 6,368,000 4,236,000 -
Proceeds from subordinated notes payable 15,000,000 - -
Redemption of common stock - - (300,000)
Repurchase of common stock - (25,086) -
Proceeds from issuance of preferred stock - - 1,583,540
Preferred stock issuance costs - - (159,531)
Dividends on preferred stock (485,667) (485,640) (447,446)
------------- ------------ --------------
Net cash provided by (used in)
financing activities 18,054,623 45,005,608 (10,318,026)
------------- ------------ --------------
NET INCREASE (DECREASE) IN CASH 366,585 (200,826) (1,850,956)
CASH - BEGINNING 2,730,408 2,931,234 4,782,190
------------- ------------ --------------
CASH - ENDING $ 3,096,993 $ 2,730,408 $ 2,931,234
============= ============ ==============
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 57
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the period for:
Interest $10,950,833 $7,435,339 $5,943,047
=========== ========== ==========
Income taxes $ 412,000 $ 66,506 $ 325,878
=========== ========== ==========
</TABLE>
During the year ended January 31, 1997, the Company issued 24,467 shares of
common stock to employees and recognized $207,970 in compensation expense. The
Company also issued 30,197 shares of redeemable common stock as part of a loan
agreement with The Board of Trustees of the Policemen and Firemen Retirement
System of the City of Detroit and recorded $256,675 in deferred charges.
Capital leases totaling $205,841 were entered into for the purchase of various
property and equipment during the year ended January 31, 1997.
During the year ended January 31, 1996, the Company issued 24,410 shares of
common stock to employees and recognized $164,744 in compensation expense. The
Company also issued 20,000 shares of common stock to a stockholder/director of
the Company in exchange for $600,000 in notes receivable. Prior to January 31,
1996, the notes receivable were assigned to Investor Pass-Through Trusts in
satisfaction of amounts due the Trust by MCAFC. In December of 1995, the
Company exchanged a $1,000,000 investment in a real estate partnership acquired
from a related party in exchange for a reduction in amounts due the Company for
an interest in a limited liability company whose primary activity involves
providing financing for automobile dealerships. During the year ended January
31, 1996, capital leases totaling $474,077 were entered into for the purchase
of various property and equipment.
During the year ended January 31, 1995, the Company issued 2,567 shares of
common stock to employees and recognized $28,237 in compensation expense. The
Company also entered into capital lease arrangements for the purchase of various
property and equipment in the amount of $767,145. On January 31, 1995, the
Company acquired MCA Realty Corporation (see note 15) in a non-cash transaction.
The following assets and liabilities were acquired in exchange for a $945,117
net reduction in accounts receivable from RIMCO Financial Corporation:
<TABLE>
<S> <C>
Cash $ 163,341
Accounts receivable 414,126
Property and equipment 947,967
Deferred charges and other 18,918
Notes payable (521,634)
Accounts payable (77,601)
---------
$ 945,117
=========
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE> 58
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements at January 31, 1997, 1996 and
1995 include the accounts of MCA Financial Corp. (MCAFC) and its wholly
owned subsidiaries MCA Mortgage Corp. (MCAMC), Mortgage Corporation of
America (MCA), MCA Realty Corporation (MRC) and Complete Financial
Corp. (CFC). Mortgage Corporation of America - Ohio (MCA-Ohio) is a
wholly owned subsidiary of MCA.
Intercompany accounts and transactions are eliminated in consolidation.
NATURE OF OPERATIONS
MCAFC and its subsidiaries (the Company) is a diversified mortgage
banking and real estate services enterprise. The Company generates
revenue from four primary sources including mortgage banking, land
contract syndication, loan servicing and real estate sales.
The Company originates first mortgage loans on residential properties.
Loans are delivered, primarily on a pre-sold basis, to various
institutional investors throughout the United States. These mortgage
loans are typically sold on a non-recourse basis. Loans underwritten
and sold may be subject to repurchase if the underwriting standards of
the investor are not met. These transactions are accounted for as sales
of loans since the Company is able to estimate its obligation under the
recourse provisions, which historically have been immaterial. Gains and
losses from loan sale transactions are recognized when the mortgage
loans are sold and amount to approximately $12,513,000, $6,068,000 and
$430,000 for the years ending January 31, 1997, 1996 and 1995,
respectively.
MCA purchases land contracts and mortgage notes at a discount from face
value and packages (securitizes) these real estate investments into
Investor Pass-through Trusts. MCA is the sponsor of the Trusts, which
are sold as securities to investors by independent security
broker-dealers. The Trusts hold the entire interest, including any
residual, in the transferred loans. Gain on sale is recognized when the
Trusts have broken escrow (investor funds have been received).
F-9
<PAGE> 59
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
NATURE OF OPERATIONS -- CONTINUED
--------------------
MCAMC and MCA service the land contracts and mortgages for various
investors. Servicing revenues are recognized monthly according to the
servicing contracts related to the various portfolio interests.
MCAFC, MCA and MRC purchase residential and commercial income
properties which are sold to limited partnerships. Revenues related to
limited partnership sales are recognized when the sales are closed.
Substantially all of the real estate and land contracts held by the
limited partnerships and Investor Pass-through Trusts are located in,
or relate to, properties located in the greater Detroit, Michigan
metropolitan area.
LAND CONTRACTS HELD-FOR-RESALE
------------------------------
Land contracts held-for-resale are recorded at the lower of cost or
market and consisted of the following at:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
--------- ---------
<S> <C> <C>
Land contracts receivable $11,684,696 $12,158,775
Discount (197,796) (416,418)
Senior liens payable (1,135,475) (257,480)
----------- -----------
$10,351,425 $11,484,877
=========== ===========
</TABLE>
MORTGAGES HELD-FOR-RESALE
-------------------------
Mortgages held-for-resale are recorded at the lower of cost or market
which is determined by the aggregate method (unrealized losses are
offset by unrealized gains). Cost approximated market value,
therefore, no valuation allowance was necessary at January 31, 1997
and 1996.
F-10
<PAGE> 60
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
ACCOUNTS RECEIVABLE - MORTGAGES SOLD
Accounts receivable - mortgages sold represents amounts due from the
purchaser on sales of non-conforming mortgages. Management believes the
outstanding balance is fully collectible at January 31, 1997, and
accordingly no allowance for doubtful accounts has been provided.
ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
----------- ----------
<S> <C> <C>
Accounts receivable - sales of mortgage servicing rights $14,136,266 $5,912,243
Accrued fees and commissions 919,155 1,505,378
Accounts receivable - syndication sales 154,352 662,577
Accounts receivable - escrows on closed loans 983,971 563,061
Accounts receivable - stockholders 233,342 182,679
Accrued interest 181,420 211,843
Employee commission draws 128,178 113,799
Other 260,627 570,947
----------- ----------
$16,997,311 $9,722,527
=========== ==========
</TABLE>
Accounts receivable - related parties consist mainly of non-interest
bearing advances and other administrative charges to Investor
Pass-through Trusts and limited partnerships sponsored by the Company,
and other related entities.
Included in accounts receivable - related parties at January 31, 1997
and 1996, respectively, are approximately $571,000 and $793,000 due from
an entity owned by certain directors and stockholders of the Company;
$1,674,000 and $1,676,000 due from Property Corporation of America
(PCA), an entity owned by certain directors and stockholders of the
Company, and $3,384,000 and $4,568,000 due from investor pass-through
trusts and limited partnerships is substantially dependent upon
successful syndication of partnership interests and operating cash flows
generated by rental operations.
The Company uses the allowance method to account for possible losses of
accounts receivable, and no allowance was deemed necessary at January
31, 1997 and 1996.
F-11
<PAGE> 61
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
MORTGAGE SERVICING RIGHTS
In February 1996, the Company adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights". This requires the capitalization of a mortgage servicing
asset for every origination whether it be originated or purchased. SFAS No.
122 also dictates prescribed rules for the amortization, periodic valuation,
and the required valuation adjustment. As discussed in Note 1, the Company
adopted SFAS 122 in February 1996. The effect of the adoption was to
increase earnings by approximately $.73 million for Fiscal 1996 or $1.54
per share. Prior to adoption, a value was capitalized for purchased mortgage
servicing rights. This capitalization was in accordance with SFAS Statement
of Financial Accounting Standards No. 65, "Accounting for Certain Mortgage
Banking Practices".
The following is an analysis of the changes in mortgage servicing rights:
<TABLE>
<S> <C>
Balance - January 31, 1994 $ 8,257,305
Additions 22,145,428
Scheduled amortization (1,334,724)
Amortization due to changes in
prepayment and other assumptions --
Sales (11,500,311)
-----------
Balance - January 31, 1995 17,567,698
Additions 25,711,919
Scheduled amortization (1,991,974)
Amortization due to changes in
prepayment and other assumptions (468,007)
Sales (13,526,278)
-----------
Balance - January 31, 1996 27,293,358
Additions 10,780,600
Scheduled amortization (3,699,194)
Amortization due to changes in
prepayment and other assumptions --
Sales (18,050,501)
-----------
Balance - January 31, 1997 $16,324,263
===========
</TABLE>
F-12
<PAGE> 62
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
MORTGAGE SERVICING RIGHTS -- CONTINUED
-------------------------
Amortization of purchased servicing rights is based on the ratio of
net servicing income received in the current period to total net
servicing income projected to be realized from the purchased
servicing rights on a discounted basis. Projected net servicing income
is determined on the basis of the estimated balance of the underlying
mortgage loan portfolio, which declines over time from prepayment and
scheduled amortization. The Company estimates future prepayment rates
based on current interest rate levels and other economic conditions,
as well as relevant characteristics of the servicing portfolio, such
as loan types, interest rate stratification and recent prepayment
experience. Amortization of purchased servicing rights was $3,699,194,
$2,459,981 and $1,334,724 for the years ended January 31, 1997, 1996
and 1995, respectively. Accumulated amortization of purchased
servicing rights was $5,806,181, $2,887,705 and $427,704 at January
31, 1997, 1996 and 1995, respectively.
Properties securing the mortgage loans in the Company's servicing
portfolio are located throughout the United States.
At January 31, 1997, the net book value of the mortgage servicing
rights portfolio approximated fair value.
EXCESS INTEREST SPREAD RECEIVABLE
---------------------------------
The Company sells mortgage loans in bulk to a third party for purposes
of securitization. By agreement, the Company is entitled to the
difference between the weighted average coupon rate of the loans it
originated in the security and the security's stated yield, less a
normal servicing fee and certain other fees. The Company determines
fair value based on a discounted cash flow analysis. The analysis
takes into consideration projected prepayments, defaults, interest
rate and credit risks. Income is recognized at the time of sale and is
included in mortgage origination fees and gain on sale of mortgages.
INVESTMENTS
-----------
Partnership investments consist of partnership interests in limited
partnerships and are accounted for under the equity method. The
partnerships invest primarily in residential rental properties.
Presented below is summary unaudited financial information for the
above limited partnerships as of, and for the year ended:
F-13
<PAGE> 63
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
-------- --------
<S> <C> <C>
Total assets $8,586,116 $9,327,310
Total liabilities 2,945,782 2,885,888
Partnership equity 5,640,334 6,441,422
Net income 432,499 510,748
</TABLE>
Included in investments at January 31, 1997 and 1996 is a $1,000,000
membership interest investment in a LLC which was made in December
1995. This start-up Company participates in the used vehicle retail
industry through providing floor plan financing and participating in
joint venture activities with existing dealers. The Company's
investment in the Class B interest issued by this LLC provides it the
right to participate in earnings and distributions, if any, subject to
preferential rights of certain other members. This investment is
being accounted for on the cost method.
PROPERTY AND OFFICE EQUIPMENT
Property and office equipment are recorded at cost. Depreciation is
calculated principally using the straight-line method based upon the
estimated useful lives of the assets, ranging from seven to ten years.
Property and office equipment consisted of the following at:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
-------- ---------
<S> <C> <C>
Property and office equipment under
capital lease $ 2,370,809 $ 2,475,010
Property and office equipment 3,729,214 2,653,472
Building and improvements 1,498,614 1,090,714
----------- -----------
7,598,637 6,219,196
Less accumulated depreciation (2,016,025) (1,362,866)
----------- -----------
$ 5,582,612 $ 4,856,330
=========== ===========
</TABLE>
Depreciation expense for the year ended January 31, 1997, 1996 and 1995
amounted to $687,313, $554,904 and $351,964, respectively.
F-14
<PAGE> 64
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
REVENUE RECOGNITION
Gains on the sale of mortgage servicing rights are recognized when title
and all risks and rewards have irrevocably passed to the buyer and there
are no significant unresolved contingencies. Mortgage origination fees
on loans held-for-sale are recognized as income at the time the loan is
sold.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statements of Financial Accounting Standards ("SFAS") No. 107 issued by
the Financial Accounting Standards Board ("FASB"), "Disclosures About
Fair value of Financial Instruments", requires the disclosure of fair
value information about financial instruments, whether or not recognized
in the statement of financial condition, where it is practicable to
estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or
other valuation techniques. SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the Company.
The following methods and assumptions were used by the Company to
estimate the fair value of each class of financial instruments for which
it is practicable to estimate that value:
CASH AND CASH EQUIVALENTS
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
LAND CONTRACTS HELD-FOR-RESALE
This portfolio consists of land contracts held-for-resale underlying
single family residential properties. These are valued based on the fair
value of obligations with similar credit characteristics.
MORTGAGES HELD-FOR-RESALE
This portfolio consists of single family mortgage loans held-for-sale
and is valued using fair values attributable to similar mortgage
loans.
F-15
<PAGE> 65
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
MORTGAGE SERVICING RIGHTS
The fair value of the mortgaged servicing rights is determined using
the discounted present value of the net cash flows. Market estimates
are used for servicing costs, prepayment speeds and discount rates.
EXCESS INTEREST SPREAD RECEIVABLE
The fair value is determined by using the discounted present value
of the net cash flows. Market estimates are used for servicing
costs, prepayment speeds and discount rates.
NOTES PAYABLE, SUBORDINATED DEBENTURES AND SUBORDINATED NOTES
PAYABLE
The carrying amount for these instruments approximates fair value.
The following table sets forth the fair value of the Company's
financial instruments:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 3,096,993 $ 3,096,993 $ 2,730,408 $ 2,730,408
Land contracts held-for-resale 10,351,425 10,351,425 11,484,877 11,484,877
Mortgage held-for-resale 54,430,155 54,430,155 63,306,372 63,306,372
Mortgage servicing rights 16,324,263 16,324,263 27,293,358 27,293,358
Excess interest spread receivable 7,987,053 7,987,053 -- --
Liabilities:
Notes payable, subordinated debentures and
subordinated notes payable 114,517,834 114,517,834 95,771,703 95,771,703
</TABLE>
F-16
<PAGE> 66
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of
common and common equivalent shares outstanding during the period. Net
income (loss) has been adjusted for preferred stock dividends. The
weighted average number of shares used in the determination of earnings
per share was 475,949, 426,762 and 403,622 for the years ended January
31, 1997, 1996 and 1995.
RECLASSIFICATION
Certain amounts in the prior year's financial statements have been
reclassified to conform to the January 31, 1997 presentation.
NEW PRONOUNCEMENTS
In June 1996, the FASB issued "SFAS No. 125 - Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities."
This statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are
secured borrowings. This statement was to have been effective
prospectively from December 31, 1996, but was deferred when the FASB
issued "SFAS No. 127 - Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." The effective date of the
certain provisions have been deferred one year. The Company adopted
certain of the provisions for transactions entered into during
January, 1997. The effect of this adoption was not significant to net
income. Management does not believe adoption of the remaining
provisions will have a material effect on the financial statements.
F-17
<PAGE> 67
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
NEW PRONOUNCEMENTS - CONTINUED
In February 1997, the FASB issued SFAS No. 128. "Earnings Per Share,"
which replaces the presentation of primary earnings per share ("EPS")
with a presentation of basic EPS, requires dual presentation of basic
and diluted EPS on the face of the statement of earnings regardless of
whether basic and diluted EPS are the same, and requires a
reconciliation of the numerator and denominator used in computing basic
and diluted EPS. Basic EPS excludes dilution and is computed by
dividing earnings available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS
is computed similarly to fully diluted EPS pursuant to APB Opinion 15.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the entity. This Statement is
effective for financial statements issued for periods ending after
December 15, 1997, including interim periods, earlier application is
not permitted, and requires restatement of all prior period EPS data
presented.
NOTE 2 - RESTRICTED CASH
Included in cash and accounts payable are advance payments by borrowers
on loans serviced by the Company in the amount of approximately
$511,000 and $378,000, respectively, at January 31, 1997 and 1996.
F-18
<PAGE> 68
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 3 - NOTES PAYABLE
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
-------- --------
<S> <C> <C>
Note payable under $115 million mortgage
warehouse credit facility, subject to renewal on
September 3, 1997, interest is computed at LIBOR
plus .85% to 2.5% depending on type of loan and
payable monthly, principal payable upon sale of
mortgage collateral (mortgages held-for-resale)
to institutional investors $ 48,369,064 $ -
Note payable under $25 million mortgage warehouse
credit facility, interest is computed at the bank's
prime rate less 1/2% and payable monthly; principal
payable upon sale of mortgage collateral (mortgages
held-for-resale) to institutional investors or on
demand. This facility was terminated January 8, 1997 - 22,557,781
Note payable under $28.5 million revolving credit
facility, subject to renewal on October 31, 1997,
interest is computed at the Federal Funds rate plus
1.5% (6.8% at January 31, 1997), collateralized by
mortgage servicing rights 28,305,175 28,500,000
Note payable under $30 million mortgage warehouse
facility, interest is computed at the federal
funds rate plus 1.5% and deducted from the proceeds
of investor fundings, principal payable upon sale
of mortgage collateral (mortgages held-for-resale)
to institutional investors or on demand. This facility
was terminated August 31, 1996 - 26,554,708
----------- -----------
Total - this page 76,674,239 77,612,489
</TABLE>
F-19
<PAGE> 69
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 3 - NOTES PAYABLE - CONTINUED
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
-------- --------
<S> <C> <C>
Total - previous page $ 76,674,239 $ 77,612,489
Note payable under $10 million mortgage warehouse
facility, subject to renewal on November 1, 1997,
interest is computed at LIBOR plus 1.5% (6.94%
at January 31, 1997), principal payable upon sale
of mortgage collateral (mortgages held-for-resale)
to institutional investors. 4,426,335 3,729,748
Note payable under $1 million line-of-credit for
the acquisition and rehabilitation of residential
real property subject to renewal on February 1,
1998, interest is computed at the bank's prime
rate plus 1% (9.25% at January 31, 1997) collateralized
by a first security interest in residential real property 284,200 -
Revolving line-of-credit/note payable, $.5 million
credit line for working capital, $1 million note
payable for purchases of land contracts, interest
is computed at the bank's prime rate plus 1% (9.25%
at January 31, 1997). Land contracts are assigned to
the bank as collateral, personally guaranteed by
certain officers of the Company, payable upon sale
of collateral. This facility was terminated April 14, 1997 250,000 1,500,000
---------- ----------
Total-this page 81,634,774 82,842,237
</TABLE>
F-20
<PAGE> 70
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 3 - NOTES PAYABLE - CONTINUED
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996
-------- --------
<S> <C> <C>
Total - previous page $ 81,634,774 $ 82,842,237
Note payable under $1.5 million line-of-credit for
the acquisition and rehabilitation of residential
real property interest is computed at 12%,
collateralized by residential real property and
personally guaranteed by certain officers of the
Company, principal payable upon sale of collateral.
This facility was terminated December 13, 1996 - 1,448,042
Note payable under $1.5 million line-of-credit for
the acquisition and rehabilitation of residential
real property, interest is computed at the bank's
prime rate plus 3/4%, collateralized by residential
real property and personally guaranteed by certain
officers of the Company, principal payable upon
sale of collateral. This facility was terminated
September 17, 1996 - 408,773
Land contracts payable to certain Investor Pass-through
Trusts sponsored by the Company for purchase of a building,
interest at 11%, collateralized by the building, principal
payable based on 30 year amortization, balloon payment
required in 10 years 452,898 542,556
Other notes payable, including obligations under capital
leases, expiring at various times through 2002 1,888,162 1,356,095
------------ ------------
$ 83,975,834 $ 86,597,703
============ ============
</TABLE>
F-21
<PAGE> 71
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 3 - NOTES PAYABLE - CONTINUED
In connection with the $28.5 million credit facility, the Company
entered into an arrangement with the Policemen and Firemen Retirement
System of the City of Detroit (The "Fund") whereby the Fund has agreed
to provide payment upon the occurrence of certain events of default by
the Company. In consideration for this, the Company pays certain fees to
the Fund, and has provided it with an option to purchase up to five
percent of the Company's outstanding common stock, at seventy percent of
the public offering price per share, if the Company completes a firm
commitment underwritten sale of its common stock prior to April 30,
2000.
The above notes payable place certain financial restrictions on the
Company. If for any reason the warehouse credit facilities are
terminated, the Company's ability to fund mortgage loans will be
adversely impacted. The Company anticipates renewal of all of its
existing credit facilities.
NOTE 4 - SUBORDINATED DEBENTURES
In December 1991, the Company began offering up to $7,500,000 of 11%
Asset-Backed Subordinated Debentures due March 15, 1997. Interest on the
Debentures is payable quarterly. The Debentures are subordinate in right
of payment to all current and future senior indebtedness of the Company.
Payment of principal and interest on the Debentures is collateralized by
a security interest in and lien upon certain existing and future
contract rights to service mortgages and land contracts. These rights
must at all times have a formula value, as determined by provisions of
the Indenture, of at lease 105% of the principal amount of Debentures
outstanding. Under certain limited conditions, the Debentures are
redeemable commencing June 15, 1993 only up to $25,000 per holder in
each calendar year and only up to an aggregate of $100,000 per calendar
year for all holders. The right of redemption does not exist if the
Company is in default under any senior indebtedness. Through January 31,
1997 there have been $17,000 in redemptions. The Debentures also place
restrictions on dividends and certain equity transactions should the
Company's consolidated retained earnings fall below $1,000,000. The
Debentures are registered with the Securities and Exchange Commission.
These debentures were redeemed in full on March 17, 1997.
Through January 31, 1997, the Company has incurred approximately
$866,000 in fees related to the debenture offering. These costs are
included in deferred charges and other assets and are being amortized
over the life of the debentures on the straight-line method. Accumulated
amortization was $840,000 and $686,000 at January 31, 1997 and 1996.
F-22
<PAGE> 72
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 4 - SUBORDINATED DEBENTURES - CONTINUED
In December 1994, the Company began offering up to $10,000,000 of 11%
Asset-Backed Subordinated Debentures due June 30, 2000. Interest on the
Debentures is payable quarterly. The Debentures are subordinate in right
of payment to all current and future senior indebtedness of the Company.
Payment of principal and interest on the Debentures is collateralized by
a security interest in and lien upon certain existing and future
contract rights to service mortgages and land contracts and specified
mortgage notes and land contract vendors' interests relating to
one-to-four family residential and commercial real estate. This
collateral must at all times have a formula value, as determined by
provisions of the Indenture, of at least 105% of the principal amount
of Debentures outstanding. Under certain limited conditions, the
Debentures are redeemable only up to $25,000 per holder in
each calendar year and only up to an aggregate of $100,000 per calendar
year for all holders. The right of redemption does not exist if the
Company is in default under any senior indebtedness. Through January
31, 1997 there have been no redemptions. The Debentures are registered
with the Securities and Exchange Commission.
Through January 31, 1997, the Company has incurred approximately
$1,513,000 in fees related to the debenture offering. These costs are
included in deferred charges and other assets and are being amortized
over the life of the debentures on the straight-line method. Accumulated
amortization was $405,000 and $109,000 at January 31, 1997 and 1996.
In June 1996, the Company began offering up to $6,000,000 of unsecured
11% subordinated debentures due June 30, 2002. Interest on the
Debentures is payable quarterly. The debentures are subordinate in right
of payment to all current and future indebtedness of the Company. Under
certain limited conditions, the Debentures are redeemable only up to
$25,000 per holder in each calendar year and only up to an aggregate of
$100,000 per calendar year for all holders. The right of redemption does
not exist if the Company is in default under any senior indebtedness.
The Debentures are registered with the Securities and Exchange
Commission.
Through January 31, 1997, the Company has incurred approximately $67,000
in fees related to the debenture offering. These costs are included in
deferred charges and other assets and are being amortized over the life
of the debentures on the straight-line method. Accumulated amortization
was $1,000 at January 31, 1997.
F-23
<PAGE> 73
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 5 -- SUBORDINATED NOTES PAYABLE
In July 1996, the Company entered into a loan and financing agreement
with The Board of Trustees of the Policemen and Firemen Retirement
System of the City of Detroit ("The Fund") to provide the Company $15
million to expand its non-conforming lending business. Interest on this
borrowing is 10% and is payable quarterly. Commencing July 1, 2001 equal
quarterly installments of principal and interest will be paid until the
loan terminates and is repaid in full on June 30, 2006. As a result of
this agreement, the Fund was issued 30,197 shares, or 6% of the
Company's common stock at the time. Anti-dilution provisions of the
agreement may require the Company to issue additional shares in the
future. The Fund has the right to "put" these redeemable shares back to
the Company, under a number of different scenarios, on August 1, 2006,
or upon an event of default with a minimum guaranteed repurchase of
$1,400,000.
NOTE 6 -- PREFERRED STOCK
In March 1992 MCAFC began offering up to 350,000 units consisting of one
share of Series A 9%, $10 stated value, cumulative convertible preferred
stock and one warrant to purchase one share of common stock of the
Company. The stock is convertible only in the event of an initial public
offering of the Company's common stock. The warrants are conditional on
an initial public offering of the Company's common stock within one year
of the redemption of the warrant holders Series A preferred stock. The
preferred stock is redeemable at any time at the option of the Company
only. Redemption prices per share increase $.20 per year from $10.20 in
1993 to $11 in 1997 and thereafter. Through January 31, 1997 there have
been no redemptions. Dividends are payable quarterly.
In June 1993, MCAFC began offering up to 750,000 units consisting of one
share of Series B 9%, $10 stated value, cumulated convertible preferred
stock. The stock is convertible only in the event of an initial public
offering of the Company's common stock. The preferred stock is
redeemable at any time on or after July 15, 1994 at the option of the
Company only at a redemption price of $10 per share. Through January 31,
1997 there have been no redemptions. Dividends are payable quarterly.
Through January 31, 1997 the Company has incurred approximately $603,000
in fees related to the preferred stock offering. These costs have been
offset against additional paid-in capital.
F-24
<PAGE> 74
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 7 -- FEDERAL INCOME TAXES
Deferred income taxes are provided for on the liability method and
reflect the net tax effects of temporary differences between the
carrying cost and amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the deferred tax liability are as follows:
<TABLE>
<CAPTION>
January 31,
1997 1996
----------- ------------
<S> <C> <C>
Depreciation of property and
office equipment $ 518,000 $ 416,000
Amortization of goodwill (120,000) (108,000)
Other 2,000 (8,000)
--------- ---------
$ 400,000 $ 300,000
========= =========
</TABLE>
Components of income tax expense are:
<TABLE>
<CAPTION>
January 31,
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Current $539,000 $412,000 $ 82,384
Deferred 100,000 100,000 20,000
-------- -------- --------
$639,000 $512,000 $102,384
======== ======== ========
</TABLE>
The income tax provision reconciled to the tax computed at the
statutory federal rate is as follows for the years ended January 31:
<TABLE>
<S> <C> <C> <C>
Tax (benefit) at statutory
rate $478,000 $383,000 $(59,000)
Non-deductible items 161,000 169,000 107,000
Adjustment of prior year
accrual -- -- 38,000
Other -- (40,000) 16,384
-------- -------- --------
$639,000 $512,000 $102,384
======== ======== ========
</TABLE>
F-25
<PAGE> 75
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company purchased various real estate parcels during the years
ended January 31, 1997, 1996 and 1995. These parcels purchased from
unrelated third parties were subsequently sold to limited partnerships,
for which PCA is the general partner. Gains totaling $7,539,447,
$6,529,708 and $7,365,199 for the years ended January 31, 1997, 1996
and 1995 were recognized on the sales, respectively.
During the years ended January 31, 1997, 1996 and 1995 the Company
agreed to pay commissions of $1,968,000, $1,735,000 and $1,315,000,
respectively for the acquisition of properties acquired from unrelated
third parties to a Company owned by three stockholders of MCAFC. These
commissions reduced "Gain on Sale of Real Estate" in the consolidated
Statements of Operations.
MCA earned $36,000 for management fees for administrative services
provided to U.S. Mutual Financial Corporation (USMFC) during each of
the years ended January 31, 1997, 1996 and 1995, respectively. Certain
stockholders of the Company are directors or major stockholders of
USMFC.
Included in accounts payable at January 31, 1997 and 1996 are
approximately $1,044,000 and $1,500,000 attributable to transactions
with partnerships, trusts and other related entities. Such transactions
include rental payments received on behalf of these entities and
disbursed in subsequent months.
F-26
<PAGE> 76
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is party to financial instruments with off-balance sheet
risk in the normal course of business through the production and sale
of mortgage loans and the management of interest rate risk. These
financial instruments include commitments to extend credit and forward
contracts to deliver and sell loans to investors.
The Company is exposed to credit loss in the event of nonperformance
by the counter-parties to the various agreements. However, the Company
does not anticipate nonperformance by the counter-parties. The
Company's exposure to credit risk with respect to commitments to
extend credit are limited due to the non-recourse nature of the loans
upon sale to investors. At January 31, 1997 and 1996, respectively,
the Company has approved loans that had not yet closed amounting to
approximately $40,081,000 and $74,259,000. The Company manages credit
risk with respect to forward contracts by entering into agreements
only with investors meeting certain requirements. In the event of
default by the counter-party the Company's exposure to credit risk is
the difference between the contract price and the current market
price.
NOTE 10 - LEASE COMMITMENTS
The Company leases office space and equipment under long-term capital
and operating leases with varying terms which expire through 2002.
Rent expense on operating leases approximated $2,282,000, $1,803,000
and $1,251,000 for the years ended January 31, 1997, 1996 and 1995,
respectively, and is included in the caption "General and
Administrative" expense in the Consolidated Statements of Operations.
F-27
<PAGE> 77
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 10 -- LEASE COMMITMENTS - CONTINUED
As of January 31, 1997, approximate future minimum lease payments under
capital leases and future minimum lease payments under operating leases
that have initial or remaining noncancelable terms in excess of one year
as of follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ----------
<S> <C> <C>
1998 $536,145 $1,314,462
1999 164,757 990,970
2000 1,555 645,592
2001 -- 32,679
2002 -- 15,000
-------- ----------
Total minimum lease payments 702,457 $2,998,703
==========
Less: amount representing interest 66,159
--------
Present value of minimum lease
payments $636,298
========
</TABLE>
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
In accordance with the terms of the investor Pass-through Trust
Participation Agreements, the Company is obligated to purchase all
outstanding participation certificates held by investors at such time as
the aggregate net receivable balances of each Trust is less than 10% of
the original face amount of the Trust. At January 31, 1997 and 1996, the
maximum amount of these future purchase commitments totaled
approximately $9,381,000 and $8,011,000.
Although the Company is approved as a correspondent with numerous
mortgage investors, three investors purchased substantially all of the
Company's mortgage loans originated during fiscal 1997, 1996 and 1995.
Management believes that the loss of these investors would have a
material adverse effect on the Company.
The Company is a party to various routine legal proceedings arising out
of the ordinary course of its business. Management believes that none of
these actions, individually or in the aggregate, will have a material
adverse affect on the financial condition or results of operations of
the Company.
F-28
<PAGE> 78
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 12 -- EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan covering substantially all its
employees. The Company has the option of making an annual
discretionary profit sharing contribution and is matching each
employee's contribution up to a predetermined limit.
The Company's combined contribution to the plan amounted to $86,000,
$22,000 and $17,000 for the years ended January 31, 1997, 1996 and
1995.
NOTE 13 -- RESTRICTED STOCK AWARDS
At the discretion of the Board of Directors, shares may be issued to
employees and non-employees as incentives for performance. The number
of shares awarded, and the terms under which such shares become
vested (nonforfeitable), are determined on an individual basis. The
Company recognizes the issuance of restricted shares when they become
vested.
As of January 31, 1997, a total of 20,002 shares have been awarded
and remain unvested. The aggregate number of shares and the years in
which they become vested in each of the periods succeeding January
31, 1997 are as follows:
1998 $12,168
1999 7,834
F-29
<PAGE> 79
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 14 - SEGMENT INFORMATION
The Company and its subsidiaries operate primarily in two business
segments. Operations in mortgage banking involve the origination and
purchase of mortgage loans in the secondary mortgage market, servicing
of mortgage loans, and the purchase and sale of mortgage servicing
rights. Operations in the real estate industry consist of the purchase
and resale and the securitization and syndication of real estate
interests. The following is a summary of selected consolidated segment
information for the mortgage banking and real estate industry segments
for the years ended:
<TABLE>
<CAPTION>
JANUARY 31,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUE
Mortgage banking $ 46,512,944 $ 31,051,952 $22,512,856
Real estate 12,413,396 10,899,058 10,858,825
------------ ------------ -----------
Total $ 58,926,340 $ 41,951,010 $33,371,681
============ ============ ===========
INCOME (LOSS) BEFORE INCOME TAXES
Mortgage banking $ 824,964 $ (1,195,323) $(3,057,212)
Real estate 579,374 2,322,853 2,882,050
------------ ------------ -----------
Total $ 1,404,338 $ 1,127,530 $ (175,162)
============ ============ ===========
IDENTIFIABLE ASSETS
Mortgage banking $115,310,484 $104,990,975 $46,523,533
Real estate 19,256,062 27,147,572 23,238,535
Other 10,425,267 3,052,094 7,349,452
------------ ------------ -----------
Total $144,991,813 $135,190,641 $77,111,520
============ ============ ===========
</TABLE>
F-30
<PAGE> 80
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 15 -- BUSINESS ACQUISITION
On July 19, 1994, the Company purchased substantially all of the
revenue producing activities of Liberty National Mortgage Corporation
(Liberty) in a transaction accounted for using the purchase method.
These assets included certain furniture and equipment located in
Liberty branch offices in Michigan, Maryland, West Virginia and
Illinois and the right-to-process and close certain mortgage loans in
process originated by Liberty. The purchase price of the furniture
and equipment was determined by independent appraisal and payable
within 45 days of this agreement. The appraised value was $85,000. At
the closing of this agreement a down payment of $350,000 was made as
an advance against amounts due as a result of future Liberty branch
loan closings. This down payment is included in deferred charges and
other assets in the accompanying consolidated balance sheet. Liberty
was paid based on a negotiated formula tied to loan closings at
Liberty branches over an eighteen month period. The total purchase
price, was $885,000. This consists of the $85,000 referred to above
which was capitalized and amortized as furniture and equipment,
approximately $200,000 for loans-in-process, which upon closing were
capitalized and amortized as a cost of the loan origination, and
$500,000 for future branch loan closings, $150,000 of which was paid
during July and August, 1994 and $350,000, which was paid at the
closing. The benefits to be derived from the acquisition of these
production offices will extend beyond the eighteen month earn-out
period, and, accordingly have been capitalized as goodwill (included
in deferred charges and other assets on the balance sheet) and
amortized over a five year period, subject to periodic re-evaluation.
In connection with the acquisition, the Company acquired
approximately $4,000,000 of loans held-for-resale which were funded
by the Company's warehouse credit facilities and subsequently
purchased by outside investors under terms similar to any Company
originated loan.
The following unaudited pro-forma summary presents the consolidated
results of operations as if the acquisition had occurred at February
1, 1993, after giving effect to certain adjustments. These pro-forma
results have been prepared for comparative purposes and do not
purport to be indicative of what would have occurred had the
acquisition been made as of those dates or of results which may occur
in the future.
F-31
<PAGE> 81
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 15 - BUSINESS ACQUISITION - CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1995
---------------------------
MCAFC PRO-FORMA MCAFC
(HISTORICAL) ADJUSTMENTS (PRO-FORMA)
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES
Gain on sale of land contracts $ 2,983,022 $ - $ 2,983,022
Gain on sale of real estate 7,365,199 - 7,365,199
Gain on bulk sales of servicing
rights 7,475,444 1) 1,737,609 9,213,053
Mortgage origination fees 5,584,454 1) 1,862,821 7,447,275
Servicing fees 4,616,738 1) 429,081 5,045,819
Interest income 5,106,041 1) 245,634 5,351,675
Other income 240,783 128,035 368,818
----------- ---------- ----------
Total revenues 33,371,681 4,403,180 37,774,861
----------- ---------- ----------
EXPENSES
Payroll 10,985,576 1) 1,705,338 12,690,914
Interest 6,018,518 1) 171,221 6,189,739
Commissions 4,591,079 1) 836,669 5,427,748
Professional services 1,511,215 1) 80,798 1,592,013
Depreciation 351,964 1) 49,275 401,239
Amortization 1,924,872 1)2) 110,000 2,034,872
General administrative 8,163,619 843,557 9,007,176
----------- ---------- ----------
Total expenses 33,546,843 3,796,858 37,343,701
----------- ---------- ----------
INCOME (LOSS) BEFORE FEDERAL
INCOME TAXES (175,162) 606,322 431,160
Provision (credit) for
Federal income taxes 102,384 3) 206,149 308,533
----------- ---------- ----------
NET INCOME (LOSS) $ (277,546) $ 400,173 $ 122,627
=========== ========== ==========
Loss per share $ (1.80) $ (0.12) $ (0.80)
=========== ========== ==========
</TABLE>
Summary of Pro-Forma Adjustments:
1) To include historical operating results of the Liberty National
Mortgage Corporation for the year ended December 31, 1993 and the
period ended May 31, 1994. (Certain amounts have been reclassified to
conform to the MCAFC historical presentation.)
2) Amortization of $500,000 of goodwill over five years.
3) Estimated Federal income tax accrual.
F-32
<PAGE> 82
MCA FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997, 1996 AND 1995
NOTE 15 - BUSINESS ACQUISITION - CONTINUED
On January 31, 1995, the Company acquired all of the issued and
outstanding common stock of RIMCO Realty & Mortgage from RIMCO Financial
Corporation (an entity owned by three stockholders of the Company) in
exchange for a $945,117 reduction in amounts due the Company. Amounts
assigned in the accompanying consolidated balance sheet to assets
purchased and liabilities assumed were based on the seller's historical
cost which is less than fair value.
F-33
<PAGE> 83
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SERIES 1996 DEBENTURES OFFERED
BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF ANY OFFER TO BUY SERIES 1996 DEBENTURES BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFEROR SOLICITATION IS NOT AUTHORIZED TO DO SO, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
Page
----
Statement of Available Information i
Prospectus Summary 1
Risk Factors 5
The Company 11
Use of Proceeds 11
Capitalization 12
Selected Consolidated Financial Data 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Business 19
Management 33
Compensation Committee Interlocks and
Insider Participation 36
Principal Stockholders 38
Description of Series 1996 Debentures 39
Description of Common Stock 44
Plan of Distribution 44
Legal Matters 45
Experts 45
Index to Consolidated Financial Statements F-1
MCA FINANCIAL CORP.
$6,000,000
11% SUBORDINATED DEBENTURES,
SERIES 1996,
DUE JUNE 30, 2002
-----------------
Prospectus
June __, 1997
-----------------
<PAGE> 84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the costs and expenses to be incurred in
connection with the issuance and distribution of the securities to be
registered. Each amount, except for SEC and NASD fees, is estimated.
SEC registration fee. ................... $ 2,069
NASD fee ................................ 1,100
Blue Sky fees (excluding legal fees) .... 2,500
Accounting fees and expenses ............ 20,000
Legal fees and expenses ................. 45,000
Printing, engraving and miscellaneous ... 15,800
-------
Total ............................ $86,469
=======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 561 through 571 of the Michigan Business Corporation Act (the
"MBCA"), and Article IX of the Company's Restated Articles of Incorporation
relate to the Indemnification of the Company's directors and officers, among
others, in a variety of circumstances against liabilities arising in connection
with the performance of their duties.
The MBCA provides for indemnification of directors and officers acting in
good faith and in a manner they reasonably believe to be in or not opposed to
the best interest of the Company or its stockholders (and, with respect to a
criminal proceeding, if they have no reasonable cause to believe their conduct
to be unlawful) against (i) expenses (including attorney's fees) judgments,
penalties, fines and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending, or completed action, suit,
or proceeding (other than an action by, or in the right of the Company) arising
out of a position with the Company (or with some other entity at the Company's
request) and (ii) expenses (including attorney's fees) and amounts paid in
settlement actually and reasonably incurred in connection with threatened,
pending, or completed action or suit by or in the right of the Company, unless
the director or officer is found liable to the Company and an appropriate court
does not determine that he or she is nevertheless fairly and reasonably
entitled to indemnification. The MBCA requires indemnification for expenses to
the extent that a director or officer is successful in defending against any
such action, suit or proceeding, and otherwise requires in general that the
indemnification provided for in (i) and (ii) above be made only on a
determination by a majority vote of a quorum of the Board of Directors who were
not parties to or threatened to be made parties to the action, suit or
proceeding. In certain circumstances, the MBCA further permits advances to
cover such expenses before a final determination that indemnification is
permissible, upon receipt of a written affirmation by the directors or officers
of their good faith belief that they have met the applicable standard of
conduct set forth in the MBCA, receipt of a written undertaking by or on behalf
of the directors or officers to repay such amounts unless it shall ultimately
be determined that they are entitled to indemnification and a determination
that the facts then known to those making the advances would not preclude
indemnification.
II-1
<PAGE> 85
Indemnification under the MBCA is not exclusive of other rights to
indemnification to which a person may be entitled under the Company's Restated
Articles of Incorporation, Bylaws, or a contractual agreement. The MBCA
permits the Company to purchase insurance on behalf of its directors and
officers against liabilities arising out of their positions with the Company
whether or not such liabilities would be within the foregoing indemnification
provisions. To date, the Company has not maintained such insurance. The
indemnification provisions in the Company's Restated Articles of Incorporation
incorporate all of those found in the MBCA.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, the Registrant has sold securities in
transactions not registered under the Securities Act of 1933 as follows:
(a) On February 8, 1994, September 20, 1994, and October 17, 1994, the
Registrant issued 38,000, 12,131, and 1,600 shares of common stock to a total
of 16 employees of the Registrant, who received such shares in recognition of
their service to the Registrant with certain shares to be earned on a
prospective basis contingent upon continued employment and/or performance.
(b) On April 28, 1995, the Registrant issued 20,000 shares of common stock
to the Janet Wells Revocable Living Trust for promissory notes in the total
principal sum of $600,000.
(c) On May 31, 1996, the Registrant issued 14,133 shares of common stock
to a total of 28 employees of the Registrant, who received such shares in
recognition of their service to the Registrant with certain shares to be earned
on a prospective basis contingent upon continued employment and/or performance.
(d) On May 31, 1996, 2,000 shares of common stock were transferred from
Patrick D. Quinlan and Cheryl Quinlan, Tenants by the Entireties (Patrick
Quinlan is the Chairman and a majority stockholder of MCA Financial Corp.), to
Holly Quinlan Kubek (1,000 shares) and Patrick Quinlan Jr. (1,000 shares).
(e) On July 31, 1996, the Registrant issued 30,009 redeemable shares of
common stock to the Detroit Policemen and Firemen Retirement System, pursuant to
a condition in the loan agreement dated July 18, 1996.
(f) On August 31, 1996, the Registrant issued 310 shares of common stock
to 2 employees of the Registrant, who received such shares in recognition of
their service to the Registrant.
(g) On January 31, 1997, the Registrant issued 188 redeemable shares of
common stock to the Detroit Policemen and Firemen Retirement System, pursuant to
a condition in the loan agreement dated July 18, 1996.
Each issuance of shares described in (a) through (g) above is claimed to
be exempt from the registration requirements of the Securities Act by reason of
the provisions of Section 4(2) of such Act.
The shares issued on February 8, 1994, September 20, 1994, and October 17,
1994 as disclosed in subsection (a) above, represent the entire amount of
shares issued to employees during fiscal 1995. Of these shares, 38,0000 shares
issued in fiscal 1995 represent shares that are to be earned by the applicable
recipient on a prospective basis contingent upon continued employment and/or
performance. In addition, 12,131 shares issued on September 20, 1994 and 1,600
shares issued on October 17, 1994 are to be earned on a prospective basis.
Compensation expense and the accounting for shares are recognized when
vesting and employment requirements are met by the employee. The 2,567 shares
vested during fiscal 1995, as described on page F-8 of the Financial Statements
included with this registration statement, represent shares issued in prior
periods which vested in fiscal 1995, and the 24,410 shares vested during fiscal
1996, as described on page F-8, represent shares issued in prior periods which
vested in fiscal 1996. The 24,467 shares vested in fiscal 1997, as described
on page F-8, represent shares issued in prior periods which vested in fiscal
1997.
II-2
<PAGE> 86
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
Exhibit
Number Description of Exhibit
- ------- ----------------------
1.1 Form of Selling Agreement (previously filed as Exhibit 4.1 to
Registrant's Registration Statement on Form S-1, File No. 333-4837, and
incorporated herein by reference).
3.1 Restated Articles of Incorporation, as amended (previously filed as
Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-QSB for the
period ended April 30, 1993, and incorporated herein by reference).
3.2 Bylaws, as amended (previously filed as Exhibit 3.2 to Amendment No. 1
to the Registrant's Registration Statement on Form SB-2, File No.
33-79190, and incorporated herein by reference).
4.1 Indenture, between Registrant and First Union National Bank, relating
to Registrant's 11% Subordinated Debentures, Series 1996, Due 2002
(previously filed as Exhibit 4.1 to Registrant's Registration
Statement on Form S-1, File No. 333-4837, and incorporated herein by
reference).
5 Opinion of Dykema Gossett PLLC as to the legality of the securities
being registered (previously filed as Exhibit 5 to Registrant's
Registration Statement on Form S-1, File No. 333-4837, and
incorporated herein by reference).
10.1 Indenture between the Registrant and First Fidelity Bank, N.A., as
Trustee, relating to the Registrant's 11% Asset-Backed Subordinated
Debentures Due June 30, 2000 (previously filed as Exhibit 4.1 to
Registrant's Registration Statement on Form S-1, File No. 33-98644, and
incorporated herein by reference).
10.2 First Supplemental Indenture between the Registrant and First Fidelity
Bank, N.A. (previously filed as Exhibit 4.2 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1996, and
incorporated herein by reference).
10.3 Lease Agreement, dated April 1, 1991, between Mortgage Corporation of
America and Multi-City Investment Company, as amended by First
Amendment (previously filed as Exhibit 10.15 to the Post-Effective
Amendment No. 1 to the Registrant's Registration Statement on Form
S-18, File No. 33-43765C, and incorporated herein by reference).
10.4 Second, Third, Fourth, Fifth and Sixth Amendments to Exhibit 10.1
(previously filed as Exhibit 10.12 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and
incorporated herein by reference).
10.5 Revolving Credit Loan Agreement, dated April 30, 1993, by and among the
Registrant, MCA Mortgage Corporation, First American Mortgage
Associates, Inc., Complete Financial Corporation, Securities
Corporation of America and Comerica Bank (previously filed as
II-3
<PAGE> 87
Exhibit 10.17 to the Registrant's Registration Statement on Form SB-2,
File No. 33-63206C, and incorporated herein by reference).
10.6 First Amendment to Revolving Credit Loan Agreement, dated December 27,
1993, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank, amending Exhibit 10.4
(previously filed as Exhibit 10.18 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.7 Second Amendment to Revolving Credit Loan Agreement, dated February 25,
1994, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank, amending Exhibit 10.4
(previously filed as Exhibit 10.19 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.8 Credit Enhancement Umbrella Agreement, dated April 30, 1993, by and among
the Registrant, MCA Mortgage Corporation, First American Mortgage
Associates, Inc. and The Board of Trustees of the Policemen and Firemen
Retirement System of the City of Detroit (previously filed as Exhibit
10.18 to the Registrant's Registration Statement on Form SB-2, File No.
33-63206C, and incorporated herein by reference).
10.9 First Amendment to Credit Enhancement Umbrella Agreement, dated December
27, 1993, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America and the Board of Trustees of the Policemen and
Firemen Pension Fund of the City of Detroit, amending Exhibit No. 10.7
(previously filed as Exhibit 10.21 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.10 Piggyback Rights Agreement, dated April 30, 1993, between the Registrant
and The Board of Trustees of the Policemen and Firemen Retirement System
of the City of Detroit (previously filed as Exhibit 10.19 to the
Registrant's Registration Statement on Form SB-2, File No. 33-63206C, and
incorporated herein by reference).
10.11 Mortgage Loan Participation Agreement, dated May 19, 1993, between MCA
Mortgage Corporation and Paine Webber Real Estate Securities Inc.
(previously filed as Exhibit 10.26 to the Registrant's Annual Report on
Form 10-KSB for the fiscal year ended January 31, 1994, and incorporated
herein by reference).
10.12 Conforming Mortgage Loan Participation Agreement, dated May 19, 1993,
between MCA Mortgage Corporation and Paine Webber Real Estate Securities
Inc. (previously filed as Exhibit 10.27 to the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended January 31, 1994, and
incorporated herein by reference).
10.13 Third Amendment to Revolving Credit Loan Agreement, dated May 26, 1994,
by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank,
II-4
<PAGE> 88
amending Exhibit 10.4 (previously filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-QSB for the period ended April
30, 1994, and incorporated herein by reference).0
10.14 Fourth Amendment to Revolving Credit Loan Agreement, dated September 30,
1994, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America, Complete Financial Corporation, Securities
Corporation of America and Comerica Bank, amending Exhibit 10.4
(previously filed as Exhibit 10.29 to Amendment No. 2 to the Registrant's
Registration Statement on Form SB-2, File No. 33-79190, and incorporated
herein by reference).
10.15 Second Amendment to Credit Enhancement Umbrella Agreement, dated May 26,
1994, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America and the Board of Trustees of the Policemen and
Firemen Pension Fund of the City of Detroit, amending Exhibit No. 10.7
(previously filed as Exhibit 10.2 to the Registrant's Quarterly Report on
Form 10-QSB for the period ended April 30, 1994, and incorporated herein
by reference).
10.16 Third Amendment to Credit Enhancement Umbrella Agreement, dated September
8, 1994, by and among the Registrant, MCA Mortgage Corporation, Mortgage
Corporation of America and the Board of Trustees of the Policemen and
Firemen Pension Fund of the City of Detroit, amending Exhibit No. 10.7
(previously filed as Exhibit 10.31 to Amendment No. 2 to the Registrant's
Registration Statement on Form SB-2, File No. 33-79190, and incorporated
herein by reference).
10.17 Stock Purchase Agreement, dated January 31, 1995, between the Registrant
and Rimco Financial Corp. (previously filed as Exhibit 10.33 to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
January 31, 1995, and incorporated herein by reference).
10.18 Line of Credit Agreement, dated March 17, 1995, among MCA Financial
Corp., RIMCO Realty & Mortgage Co. and Comerica Bank (previously filed as
Exhibit 10.01 to the Registrants Quarterly Report on Form 10-Q for the
period ended April 30, 1995, and incorporated herein by reference)
10.19 Seventh and Eighth Amendments to Exhibit 10.1 (previously filed as
Exhibit 10.27 to Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1996, and incorporated herein by reference).
10.20 Mortgage Loan Repurchase Agreement, dated November 1, 1995, between MCA
Mortgage Corporation, Mortgage Corporation of America and Paine Webber
Real Estate Securities Inc. (previously filed as Exhibit 10.28 to
Registrant's Annual Report on Form 10-K for the fiscal year ended January
31, 1996, and incorporated herein by reference).
10.21 Loan and Financing Agreement, dated July 18, 1996, by and among the
Company and its subsidiaries and the Board of Trustees of the Policemen
and Firemen Retirement System of the City of Detroit (previously filed
as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q, and
incorporated herein by reference).
II-5
<PAGE> 89
10.22 Subordinated Promissory Note, dated July 18, 1996, by and among the
Company and its subsidiaries, and the Board of Trustees of the Policemen
and Firemen Retirement System of the City of Detroit (previously filed
as Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q, and
incorporated herein by reference).
10.23 Piggyback Rights Agreement, dated July 18, 1996, by and among the Company
and the Board of Trustees of the Policemen and Firemen Retirement System
of the City of Detroit (previously filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q, and incorporated herein by
reference).
10.24 Put Agreement, dated July 18, 1996, by and among the Company and the
Board of Trustees of the Policemen and Firemen Retirement System of the
City of Detroit (previously filed as Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q, and incorporated herein by reference).
10.25 Escrow Agreement, dated July 18, 1996, by and among the Company and its
subsidiaries, the Board of Trustees of the Policemen and Firemen
Retirement System of the City of Detroit (previously filed as Exhibit
10.5 to the Registrant's Quarterly Report on Form 10-Q, and incorporated
herein by reference).
10.26 Loan Agreement, dated September 3, 1996, by and among the Company, MCA
Mortgage Corporation, Mortgage Corporation of America and Texas Commerce
Bank National Association (previously filed as Exhibit 10.6 to the
Registrant's Quarterly Report on Form 10-Q, and incorporated herein by
reference).
10.27 Securitization Access Agreement, dated November 1, 1996, by and among MCA
Financial Corp., MCA Mortgage Corporation, Mortgage Corporation of
America, Advanta Mortgage Conduit Services, Inc. and Advanta Mortgage
Corp. USA (previously filed as Exhibit 10.35 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1997, and
incorporated herein by reference).
10.28 Amended and Restated Securitization Access Agreement, amended as of
February 21, 1997, by and among MCA Financial Corp., MCA Mortgage
Corporation, Mortgage Corporation of America, Advanta Mortgage Conduit
Services Inc. and Advanta Mortgage Corp. USA (previously filed as Exhibit
10.36 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended January 31, 1997, and incorporated herein by reference).
12 Computation of Ratio of Earnings to Fixed Charges (filed herewith)
21 Subsidiaries of the Registrant (previously filed as Exhibit 21 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended January
31, 1997, and incorporated herein by reference)
23.1 Consent of Moore Stephens Doeren Mayhew, P.C./GrantThornton LLP (filed
herewith)
II-6
<PAGE> 90
23.2 Consent of Dykema Gossett PLLC (contained in its opinion previously filed
as Exhibit 5 and incorporated herein by reference).
24 Power of Attorney (contained on signature page)
25 Form T-1 with respect to the eligibility of First Union National Bank, as
trustee under the Indenture (previously filed as Exhibit 25 to
Registrant's Registration Statement on Form S-1, File No. 333-4837, and
incorporated herein by reference).
(b) Financial Statements Schedules:
There are no Schedules required to be filed herewith.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total value of securities
offered would not exceed that which was registered) and any deviation from
the low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregage, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and (iii) To include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised 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. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-7
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment to Registration Statement No.
333-4837 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Southfield, State of Michigan, on May 15, 1997.
MCA FINANCIAL CORP.
By:/s/ Patrick D. Quinlan
--------------------------
Patrick D. Quinlan, Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to Registration Statement No. 333-4837 has been signed
by the following persons in the capacities indicated on May 15, 1997.
Signature Title
- ---------- -----
/s/ Patrick D. Quinlan Chairman and Director
- ---------------------- (Principal executive officer)
Patrick D. Quinlan
/s/ Keith D. Pietila Executive Vice President and Director
- ---------------------- (Principal financial and accounting officer)
Keith D. Pietila
/s/ Lee P. Wells President and Director
- ----------------------
Lee P. Wells
* Director
- ----------------------
C. Thompson Wells
* Director
- ----------------------
James B. Quinlan
* Director
- ----------------------
Thomas P. Cronin
* Director
- ----------------------
D. Michael Jehle
Executed on behalf of the indicated person by the undersigned, pursuant to a
power of attorney previously filed and incorporated herein by reference.
By: /s/ Keith D. Pietila
-------------------------------------
Keith D. Pietila, Attorney-in-fact
II-8
<PAGE> 92
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------- ---------------------------------------------------------------
12 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Moore Stephens Doeren Mayhew, P.C./GrantThornton LLP
<PAGE> 1
EXHIBIT 12
MCA FINANCIAL CORP.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year ended January 31,
1997 --------------------------------------------------------------------
Pro-forma 1997 1996 1995 1994 1993
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income (Loss) Before Federal
Income Taxes.............. $ 656,338 $ 1,404,338 $1,127,530 $ (175,162) $ 972,185 $ 915,602
Add:
Portion of Rents
Representative of
the Interest Factor....... 273,840 273,840 216,360 134,075 72,234 57,265
Interest on Indebtedness... 12,086,082 11,426,082 7,565,044 6,018,518 4,428,925 962,439
Amortization of
Debt Expense............ 1,045,956 957,956 687,390 421,189 286,009 102,675
---------- ----------- ---------- ---------- ---------- ----------
$14,062,216 $14,062,216 $9,596,324 $6,398,620 $5,759,353 $2,037,981
=========== =========== ========== ========== ========== ==========
Fixed Charges:
Portion of Rents
Representative of
the Interest Factor....... $ 273,840 $ 273,840 $ 216,360 $ 134,075 $ 72,234 $ 57,265
Interest on Indebtedness... 12,086,082 11,426,082 7,565,044 6,018,518 4,428,925 962,439
Amortization of
Debt Expense............. 1,045,956 957,956 687,390 421,189 286,009 102,675
----------- ----------- ---------- ---------- ---------- ----------
$13,405,878 $12,657,878 $8,468,794 $6,573,782 $4,787,168 $1,122,379
=========== =========== ========== ========== ========== ==========
Ratio of Earnings
to Fixed Charges.......... 1.05x 1.11x 1.13x n/a 1.20x 1.82x
Deficiency of Earnings
over Fixed Charges........ $ -- $ -- $ -- $ (175,162) $ -- $ --
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
MCA Financial Corp.
23999 Northwestern Highway
Southfield, Michigan
We have issued our report dated April 28, 1997, accompanying the consolidated
financial statements of MCA Financial Corp. (the "Company") contained in
Post-Effective Amendment No. 1 to Registration Statement on Form S-1 (Reg. No.
333-4837). We consent to the use of the aforementioned report in the
Registration Statement and accompanying Prospectus, and to the use of our name
as it appears under the caption "Experts".
/S/ MOORE STEPHENS DOEREN MAYHEW, P.C. /S/ GRANT THORTON LLP
Moor Stephens Doeren Mayhew, P.C. Grant Thornton LLP
Troy, Michigan Troy, Michigan
May 16, 1997 May 16, 1997
