<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended January 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to _______
Commission File No. 33-98644
MCA FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-3014001
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
23999 NORTHWESTERN HWY.
SOUTHFIELD, MICHIGAN 48075
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (810) 358-5555
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the registrant's outstanding voting stock held by
non-affiliates as of April 1, 1997, computed by reference to the book value of
the Company's common stock as of January 31, 1997 (because there is no market
for the Registrant's common stock) was $1,314,870.
At April 1, 1997, there were outstanding 523,283 shares of the registrant's
common stock (including shares subject to forfeiture).
Documents Incorporated By Reference: None.
<PAGE> 2
This amendment is the first amendment to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1997, and is being
filed to correct errors in Items 1 and 6 and in the Registrant's Consolidated
Statements of Operations and in Note 15 of the Notes to Consolidated Financial
Statements. Specifically, the amounts of delinquent loans shown for fiscal
1997 in Table 7 were incorrect, the per share earnings (loss) amounts shown in
the Selected Financial Data (Item 6), on the Consolidated Statements of
Operations and in Note 15 were incorrect. Corrected information is filed
herewith.
ITEM 1. BUSINESS.
GENERAL
MCA Financial Corp. ("MCAFC" or the "Company") 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.
MCAFC is a Michigan corporation which was formed in 1989 and was inactive until
1991 when it became a holding company for its principal subsidiaries.
Currently, MCAFC 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 MCAFC 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.
MCAFC has two other subsidiaries, Complete Financial Corporation and
Securities Corporation of America, both Michigan corporations, which are
currently inactive. Unless otherwise indicated, MCAFC and its subsidiaries are
hereinafter collectively referred to as the "Company."
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
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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 table sets 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.
<TABLE>
<CAPTION>
TABLE 1
Year State $ Amount of Retail Loans Percentage of Retail Loans
- ---- ----- ------------------------ --------------------------
<S> <C> <C> <C>
1997 Michigan $ 247 million 40%
Indiana 72 million 12%
Florida 103 million 17%
Ohio 35 million 6%
Illinois 82 million 13%
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%
</TABLE>
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.
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The following table sets 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.
<TABLE>
<CAPTION>
TABLE 2
Year State $ Amount of Wholesale Loans Percentage of Wholesale Loans
- ---- ----- --------------------------- -----------------------------
<S> <C> <C> <C>
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 12%
Oregon 9 million 7%
</TABLE>
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 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.
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The following table sets forth for the periods indicated the number,
dollar volume and percentage of total volume of the Company's loan production:
TABLE 3
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
--------------------------------
1997 1996 1995
---- ---- ----
(DOLLARS IN THOUSANDS EXCEPT AVERAGE LOAN BALANCES)
<S> <C> <C> <C>
RETAIL LOANS
- ------------
Conventional Loans:
Number of Loans. . . . . . . . . . . . . 3,076 2,715 2,241
Volume of Loans. . . . . . . . . . . . . $ 272,943 $ 243,154 $ 186,452
Percent of Total Volume . . . . . . . . . 33.71% 38.47% 33.04%
FHA/VA Loans:
Number of Loans. . . . . . . . . . . . . 3,765 2,669 2,681
Volume of Loans. . . . . . . . . . . . . $ 291,601 $ 202,803 $ 186,136
Percent of Total Volume . . . . . . . . 36.01% 32.07% 32.99%
Non-Conforming Loans:
Number of Loans . . . . . . . . . . . . 418 581 1,425
Volume of Loans . . . . . . . . . . . . $ 32,012 $ 34,133 $ 42,301
Percent of Total Volume . . . . . . . . 3.96% 5.40% 7.50%
Jumbo Loans
Number of Loans . . . . . . . . . . . . 68 40 41
Volume of Loans . . . . . . . . . . . . 17,491 $ 11,478 $ 11,397
Percent of Total Volume . . . . . . . . 2.16% 1.81% 2.02%
Average Loan Balance . . . . . . . . . . . . $ 83,806 $ 81,860 $ 66,732
Total Volume of Loans . . . . . . . . . . . . $ 614,047 $ 491,568 $ 426,286
WHOLESALE LOANS(1)
- ---------------
Conventional Loans:
Number of Loans . . . . . . . . . . . . 546 617 655
Volume of Loans . . . . . . . . . . . . $ 48,048 $ 60,590 $ 54,740
Percent of Total Volume . . . . . . . . 5.93% 9.58% 9.70%
FHA/VA Loans:
Number of Loans . . . . . . . . . . . . 427 309 1,059
Volume of Loans . . . . . . . . . . . . $ 37,904 $ 27,158 $ 73,746
Percent of Total Volume . . . . . . . . 4.68% 4.30% 13.07%
Non-Conforming Loans:
Number of Loans . . . . . . . . . . . . 1,803 995 122
Volume of Loans . . . . . . . . . . . . $ 108,928 $ 52,485 $ 9,463
Percent of Total Volume . . . . . . . . 13.45% 8.30% 1.68%
Jumbo Loans
Number of Loans . . . . . . . . . . . . 4 2 *
Volume of Loans . . . . . . . . . . . . $ 829 $ 480 *
Percent of Total Volume . . . . . . . . 10% 07% *
Average Loan Balance . . . . . . . . . . . . $ 70,400 $ 73,174 $ 75,136
Total Volume of Loans(1) . . . . . . . . . . $ 195,709 $ 140,713 $ 137,949
TOTAL LOANS
- -----------
Number of Loans . . . . . . . . . . . . . . . 10,107 7,928 8,224
Volume of Loans . . . . . . . . . . . . . . . $ 809,756 $ 632,281 $ 564,235
Average Loan Balance . . . . . . . . . . . . $ 80,118 $ 79,753 $ 68,608
- -------------
</TABLE>
*Indicates that these types of loans were not originated by the Company during
the applicable period. (1) During fiscal 1997, no single company was
responsible for greater 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.
At January 31, 1997, the Company had applications in process for
approximately 2,022 mortgage loans, aggregating approximately $154 million. At
January 31, 1996, the Company had applications in process for approximately
1,947 mortgage loans, aggregating approximately $186 million. Based on
experience, the Company anticipates that 75% to 80% of the loan applications
will close within 45 to 90 days.
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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 Item 7, "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),
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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.
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 4
<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 1,953 678
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 . . . . . . 0 $ 5,225 $ 6,154 $ 3,121 $ 3,408
Percent of Total Volume . . 0% 0.82% 1.09% 0.45% 1.68%
Balloon Payment:
Number of Loans . . . . . 1743 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. 84.13% 83.8% 90.5% 94.5% n/a*
</TABLE>
- -------------------------------------
*n/a = not available for this period.
(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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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 5
<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-Unit and 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 Ginnie Mae receives an annual fee, up to 0.50% of the declining
principal amount of the loan
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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 and 1995, the Company made $809.8 million, $632.3 million and $564.2
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
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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 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 significantly 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 purchased servicing with respect to approximately $830 million of
mortgage loans and has sold servicing with respect to 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
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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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The following table sets forth information about the Company's retail
and wholesale loan origination and servicing activities:
TABLE 6
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE LOAN BALANCE)
<S> <C> <C> <C> <C> <C>
Beginning loan servicing
portfolio . . . . . . . . . . . . . $ 2,206,460 $ 1,303,628 $ 1,105,534 $ 234,743 $ 44,380
Add:
Loans purchased and
originated by the
Company for resale . . . . . . . . 727,007 632,281 536,881 687,484 203,087
Loans purchased by the
Company 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)
Prepayments 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 7
<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 . . . . . . . . 684 227 359 259 157
Percent of total loans . . . . . 3.22% 0.83% 2.19% 1.87% 3.86%
60 days:
Number of loans . . . . . . . . 188 49 97 77 26
Percent of total loans . . . . . 0.88% 0.18% 0.59% 0.56% 0.64%
90 days or more:
Number of loans . . . . . . . . 339 75 143 43 45
Percent of total loans . . . . . 1.60% 0.27% 0.87% 0.31% 1.11%
Total delinquencies:
Number of loans . . . . . . . . 1,211 351 599 379 228
Percent of total loans . . . . . 5.70% 1.28% 3.65% 2.74% 5.61%
Foreclosed Properties:
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>
12
<PAGE> 13
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 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 master pooling and servicing agreement relating to the pools, 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 totaled 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.
13
<PAGE> 14
The following table shows the growth of the Company's originations and
purchases of loans for syndication in pass-through pools during the fiscal
years indicated:
TABLE 8
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of Land Contracts
purchased for syndication . . . . . 855 933 1,002 798 308
Average balance . . . . . . . . . . . $ 24,418 $ 23,485 $ 22,453 $ 17,759 $ 31,413
Total amount of Land
Contracts purchased for
syndication . . . . . . . . . . . . $ 20,877,360 $ 21,911,707 $ 22,498,079 $ 14,172,104 $ 9,675,388
Number of Mortgage Notes
purchased for syndication . . . . . 46 78 212 344 260
Average loan balance. . . . . . . . . $ 62,930 $ 47,246 $ 22,906 $ 14,580 $ 26,152
Total amount of Mortgage
Notes purchased for
syndication . . . . . . . . . . . . $ 2,894,797 $ 3,685,207 $ 4,856,239 $ 5,015,723 $ 6,799,612
Total number of loans
purchased for syndication . . . . . 901 1,011 1,214 1,142 568
Average loan balance . . . . . . . . $ 6,384 $ 25,318 $ 22,513 $ 16,802 $ 29,005
Total amount purchased for
syndication . . . . . . . . . . . . $ 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, and 1994,
the Company acquired and sold 723, 735, and 415 single-family homes for total
gains of $7.3 million, $7.4 million, and $4.9 million, respectively, of which
$6.5 million, $7.3 million and $4.8 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
14
<PAGE> 15
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
contract receivables are dependent upon the ability of these partnerships to
generate rental income.
Other. During fiscal 1996, the Company made a common stock investment
of approximately $1.0 million in a Delaware Limited Liability Company. This
start-up company participates in the used vehicle retail industry through
providing floor plan financing and joint venture activities with existing
dealers. The Company's 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
shareholders.
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
15
<PAGE> 16
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.
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.
ITEM 6. SELECTED 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. 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 Annual Report on Form 10-K. This table
should be read in conjunction with the audited consolidated financial
statements of the Company and the notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
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 . . . . . . . . . . . . . . . . . . . 481 478 241 177 482
-------- --------- --------- --------- ---------
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
-------- --------- --------- --------- ---------
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C> <C>
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 over fixed
charges (2) . . . . . . . . . . . . . . . . 1.11x 1.13x n/a 1.20x 1.82x
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(3) . . . . . . . . . . . . . $ 83,975 $ 86,598 $ 44,843 $ 54,549 $ 13,824
11% Subordinated Debentures
due 1997, 2000 and 2002 . . . . . . . . 15,542 9,174 4,938 4,938 3,171
10% Subordinated Notes Payable . . . . . . 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(4) . . . . . . . . 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, 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) See Note 3 of Notes to Consolidated Financial Statements.
(4) See Note 5 of Notes to Consolidated Financial Statements
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K.
(a) Financial Statements, Schedules and Exhibits
The financial statements and related information filed with this amendment are
listed on page F-1, immediately following this page.
17
<PAGE> 18
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<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> 19
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 Doeren Mayhew, P.C. Grant Thornton LLP
Troy, Michigan Detroit, Michigan
April 28, 1997
(except for earnings per share
data as discussed in Note 1, as
to which the date is May 14, 1997)
F-2
<PAGE> 20
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> 21
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> 22
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> 23
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 (23,576,629) (32,044,294) 19,406,510
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 24
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> 25
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> 26
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> 27
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> 28
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> 29
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> 30
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> 31
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> 32
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> 33
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> 34
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. 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.
Previously reported earnings (loss) per share amounts have been
adjusted to give effect to the preferred stock dividends. The effect
of this adjustment was to decrease earnings per share by $1.02, $1.14
and $1.11 for the years ended January 31, 1997, 1996 and 1995,
respectively. This change had no effect on reported net income
(loss) for any of the years presented.
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> 35
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> 36
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> 37
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> 38
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> 39
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> 40
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> 41
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> 42
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> 43
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> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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 stockholder 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> 51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed by the
undersigned, thereunto duly authorized.
MCA FINANCIAL CORP.
By: /S/ KEITH D. PIETILA
-----------------------------------------
Keith D. Pietila
Executive Vice President and
Chief Financial Officer
Dated: May 20, 1997
S-1
