Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
for the Quarterly Period ended April 30, 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 Number 33-98644
MCA FINANCIAL CORP.
(Exact name of Registrant as specified in its charter)
Michigan 38-3014001
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23999 Northwestern Hwy., Southfield, MI 48075
(Address of principal executive offices)
(810) 358-5555
(Registrant's Telephone Number, including area code)
N/A
(Former Name, Former Address, and Former Fiscal
Year, if Changed Since Last Report)
Check 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 the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date: As of April 30, 1997,
there were outstanding 525,283 shares of the Issuer's common stock
(including shares subject to forfeiture).
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MCA FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
April 30, 1997 January 31,
(Unaudited) 1997
------------ ------------
ASSETS
Cash $ 1,463,691 $ 3,096,993
Land contracts held for resale 15,149,291 10,351,425
Mortgages held for resale 79,265,334 54,430,155
Accounts receivable-mortgages sold 17,634,211 15,489,908
Accounts receivable 8,823,590 16,997,311
Accounts receivable - related parties 7,089,419 6,827,285
Mortgage servicing rights, net 15,583,119 16,324,263
Excess interest spread receivable 15,338,027 7,907,053
Investments 2,616,750 2,571,750
Property and office equipment, net 5,765,542 5,582,612
Deferred charges and other assets 5,112,220 5,333,058
---------- ----------
Total assets $ 173,841,194 $ 144,991,813
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 116,043,786 $ 83,975,834
Subordinated debentures 12,746,000 15,542,000
Subordinated notes payable 15,000,000 15,000,000
Accounts payable 15,348,460 15,705,913
Accounts payable-related parties 408,786 1,043,842
Accrued interest and other expenses 2,715,532 2,419,048
Deferred federal income tax 400,000 400,000
----------- -----------
Total liabilities 162,662,564 134,086,637
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
REDEEMABLE COMMON STOCK 341,873 256,373
--------- ---------
STOCKHOLDERS' EQUITY
Common Stock-
Authorized 3,750,000 shares, no par;
stated value $.01 each; issued and
outstanding: 505,281 shares at
January 31, 1997, and 505,281 shares
at April 30, 1997 5,033 5,033
Preferred Stock (Series A)-
Authorized 500,000 shares, $10 stated
value; issued and outstanding 203,022
shares at January 31, 1997, and April
30, 1997 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 April
30, 1997 3,366,190 3,366,190
Additional paid-in capital 3,664,976 3,664,976
Retained earnings 1,770,338 1,582,384
---------- ----------
Total stockholders' equity 10,836,757 10,648,803
----------- -----------
Total liabilities and
stockholders' equity $173,841,194 $144,991,813
=========== ===========
See notes to consolidated financial statements
<PAGE>
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months
Ended Ended
April 30, 1997 April 30, 1996
-------------- --------------
REVENUES
Gain on sale of land contracts $ 533,006 $ 600,104
Gain on sale of real estate 185,745 351,701
Gain on sale of real estate-related parties 959,930 1,690,000
Gain on bulk sales of servicing rights 1,327,868 1,915,486
Mortgage origination fees and gain on
sale of mortgages 9,455,573 3,212,184
Servicing fees 1,661,398 1,700,919
Interest income 2,377,365 1,661,405
Other income 536,609 286,536
---------- ----------
Total revenues 17,037,494 11,418,335
EXPENSES
Payroll 4,907,286 3,727,558
Interest 3,034,937 2,278,810
Commissions 2,442,399 1,667,349
Professional services 956,272 415,293
Depreciation 165,944 150,091
Amortization 1,075,226 1,125,709
General and administrative 3,946,057 3,039,049
---------- ----------
Total expenses 16,528,121 12,403,859
---------- ----------
INCOME (LOSS) BEFORE FEDERAL INCOME TAXES 509,373 (985,524)
(Provision) credit for federal income taxes (200,000) 300,000
-------- --------
NET INCOME (LOSS) $309,373 $(685,524)
======= =======
Earning (loss) per share $0.37 $(1.80)
==== ====
Weighted average number of
shares outstanding 505,281 448,617
See notes to consolidated financial statements
<PAGE>
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN
COMPONENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Three Months Ended April 30, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Common Preferred Paid-In Retained
Stock Stock Capital Earnings Total
------ --------- ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 31, 1996 $ 4,486 $ 5,396,410 $ 3,457,251 $1,302,713 $10,160,860
Net loss -- -- -- (685,524) (685,524)
Issuance of common stock -- -- -- -- --
Preferred stock dividends -- -- -- (121,411) (121,411)
------ --------- --------- --------- ----------
Balance, April 30, 1996 $ 4,486 $ 5,396,410 $ 3,457,251 $ 495,778 $ 9,353,925
====== ========= ========= ========= ==========
Balance, January 31, 1997 $ 5,033 $ 5,396,410 $ 3,664,976 $1,582,384 $10,648,803
Net income -- -- -- 309,373 309,373
Issuance of common stock -- -- -- -- --
Preferred stock dividends -- -- -- (121,419) (121,419)
------ ---------- --------- --------- ----------
Balance, April 30, 1997 $ 5,033 $ 5,396,410 $ 3,664,976 $1,770,338 $10,836,757
See notes to consolidated financial statements
</TABLE>
<PAGE>
MCA FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Three Months
Ended Ended
April 30, 1997 April 30, 1996
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 309,373 $ (685,524)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 1,241,170 1,275,800
(Increase) decrease in land contracts
held for resale (4,797,866) 1,969,267
Increase in mortgages held for resale (24,835,179) (11,636,003)
Decrease in mortgages sold (2,144,303) --
Decrease in accounts receivable 8,173,721 1,198,325
(Increase) decrease in accounts
receivable - related parties (262,134) (607,042)
Decrease in interest spread receivable (7,350,974) --
(Increase) decrease in deferred charges
and other assets (78,130) (121,313)
Decrease in accounts payable (357,453) (6,009,149)
(Increase) decrease in accounts payable -
related parties (635,056) 874,336
Increase (decrease) in accrued expenses 296,484 (920,314)
---------- ---------
Net cash used in operating activities (30,440,347) (14,661,617)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of purchased servicing rights (35,114) 3,601,249
Capital expenditures (348,874) (145,036)
(Increase) decrease in investments (45,000) 51,000
--------- ---------
Net cash provided by (used in)
investing activities (428,988) 3,507,213
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 219,316,430 222,399,737
Payments on notes payable (187,248,478) (214,220,028)
Net proceeds from subordinated
debentures (2,796,000) 1,327,000
Increase in redeemable common stock 85,500 --
Dividends on preferred stock (121,419) (121,411)
----------- -----------
Net cash provided by financing
activities 29,236,033 9,385,298
----------- -----------
Net decrease in cash (1,633,302) (1,769,106)
Cash at beginning of period 3,096,993 2,730,408
----------- -----------
Cash at end of period $ 1,463,691 $ 961,302
========= ========
See notes to consolidated financial statements
<PAGE>
MCA FINANCIAL CORP.
Notes to Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The consolidated balance sheet as of April 30, 1997 and the related
consolidated statements of operations, changes in components of
stockholders' equity and cash flows for the three months ended April 30,
1997 and 1996 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such financial statements have been
included. Such adjustments consisted only of normal recurring items.
Interim results are not necessarily indicative of results for a full year.
The financial statements as of April 30, 1997 and for the three months then
ended should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended January 31, 1997.
The accounting policies followed by the Company with respect to the
unaudited interim financial statements are consistent with those stated in
the 1997 MCA Financial Corp. Annual Report on Form 10-K.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
The Company's primary financing needs are for mortgage banking
activities, loan funding activities, operating cash flows and the purchase
of mortgage servicing rights.
Loan funding activities are primarily financed through the use of
mortgage warehouse lines of credit with commercial banks. The Company also
provides funding for loans by using a technique known as "table funding"
which is common in the mortgage banking industry. In this case, funds are
advanced directly to the title company for closing from a third party source
of funds, typically another mortgage bank or a financial institution. This
technique avoids the use of the Company's warehouse lines of credit, but
proves less profitable as a result of fees charged by the third party
provider of funds. For the past quarter, the Company financed approximately
95% of its mortgage originations using its warehouse lines of credit and
approximately 5% with table funding sources.
The Company currently has a $115 million loan agreement with Texas
Commerce Bank N.A. This revolving warehousing line of credit provides
financing for funding and originating a variety of residential mortgage
loans including, but not limited to, conforming mortgages, non-conforming
mortgages and land contracts. Interest on bank borrowings are based on
LIBOR plus 0.85% to 2.5% depending on the type of loan. Mortgage loans held
for resale are pledged as collateral. This facility is scheduled to expire
on September 3, 1997. The Company also has a $10 million warehousing line
of credit with Paine Webber Real Estate Securities, Inc. ("Paine Webber").
Interest on borrowings under this facility are based on LIBOR plus 1.5%.
This facility is scheduled to expire on November 1, 1997. The Company
expects to renew these warehousing lines of credit upon their respective
expirations. At April 30, 1997 a total of $90.8 million was outstanding
under these facilities.
The Company has a $15 million loan and financing agreement with the
Board of Trustees of the Detroit Policemen and Firemen Retirement System.
This subordinated term loan has been provided to expand the Company's non-
conforming lending business. Interest on this borrowing is 10% per annum
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 20, 2006. Under conditions of this
agreement, the lender was issued 30,197 shares of the Company's common
stock. This represented 6% of the outstanding unrestricted shares at July
18, 1996. As part of the agreement the lender has the right to "put" these
shares back to the Company on August 1, 2006 or upon default under a number
of different scenarios.
The Company utilizes mortgage loan repurchase agreements with Paine
Webber pursuant to which Paine Webber purchases mortgage loans until such
time as the loans are pooled for resale to an end investor at which time the
Company repurchases such loans. Such agreements provide for interest
payments based on the federal funds rate. These agreements can be
terminated on demand.
The Company utilizes a strategy of retaining servicing rights on a
portion of its loan originations in order to provide a steady stream of
servicing revenues and cash flow in future years and as a hedge against
inflation and rising interest rates. To help facilitate this strategy, the
company utilizes four funding sources; proceeds from a $4.9 million
debenture offering that was completed in July 1993, a bank credit facility,
which was first made available to the Company in April 1993, and proceeds
from two additional $10 million and $6 million debenture offerings. The
$4.9 million and the $10.0 million series of debentures, as well as the
credit facility are collateralized by certain of the Company's servicing
rights and rights to servicing income. The credit facility, which is
currently at $28.5 million, is with Comerica Bank and is enhanced by a
stand-by Note Purchase Agreement between Comerica Bank and the Detroit
Policemen and Firemen Retirement System (the "Fund") whereby the Fund has
agreed to provide payment to Comerica Bank upon the occurrence of certain
events of default by the Company. This credit enhancement permits the
Company to obtain a more favorable interest rate and collateralization terms
from the lending bank. In consideration for the credit enhancement
provided, the Company agreed to pay certain fees to the Fund and provide it
with an option to purchase up to 5% of the Company's outstanding common
stock, at 70% of the public offering price per share, if the Company
completes a firm commitment underwritten sale of its common stock prior to
April 3, 2000. At April 30 1997, $19.5 million was outstanding under the
Comerica Bank credit facility.
As in mortgage banking, the Company also has a need to finance loan
funding activities with respect to its land contract and mortgage
syndication until such time as the loans are packaged and sold to investors.
The principal sources of this financing are two limited partnerships which
have been established in order to provide up to $4 million for this purpose.
These partnerships will terminate in December 1997. The Company also has $4
million available as part of its $115 million facility with Texas Commerce
Bank. The Company is considering several alternatives to extend or replace
these financing sources at the time of their respective terminations. There
is no assurance that the Company will be successful in extending or
replacing these financing sources, however.
The Company has $1.0 million available under a credit facility with
a commercial bank for the acquisition and rehabilitation of residential real
property prior to resale. At April 30, 1997, $370,000 was outstanding under
this facility.
During the first quarter of fiscal 1998 the Company's operating
activities used $30.4 million. Of this, $24.8 million was used to fund the
increase in mortgages held for resale. The Company also used $7.4 million
and $4.8 million to increase interest spread receivable and land contracts
held for resale, respectively. The significant increase in mortgages and
land contracts held for resale during the quarter ended April 30, 1997,
compared to the quarter ended April 30, 1996, was primarily due to strong
loan orginations and the timing of funding from third party investors during
the month of April 1997. The $8.2 million decrease in accounts receivable
is attributable to the settlement of amounts owing under a large bulk sale
of servicing rights that took place in fiscal 1997 and was reflected as a
receivable January 31, 1997. The Company's investing activities in the
three months ended April 30, 1997 used $400,000. Cash flows from financing
activities provided $29.2 million. Proceeds in excess of payments on notes
payable provided $32.1 million. This was offset by a net $2.8 million
decrease in subordinated debentures. This resulted from the maturity of
$4.9 million of the Company's debentures due in March 1997 and the
additional issuance of $2.1 million principal amount of the Company's Series
1996 Debentures.
Results of Operations
Overview
The Company recognized $309,373 in net income for the three months
ended April 30, 1997 as compared to a net loss of $685,524 for the three
months ended April 30, 1996. While total origination volume decreased
during the first quarter of fiscal 1998, origination volume of non-
conforming mortgages increased significantly. The Company has committed
substantial resources to developing this business line and has 9 lending
centers specializing in these types of mortgages.
Revenues
For the three months ended April 30, 1997 as compared to three
months ended April 30, 1996 total revenues increased 49% to $17.0 million
from $11.4 million. Gains on sales of land contracts were consistent,
decreasing $67,098 to $533,006 from $600,104 for the quarters ending April
30, 1997 and 1996, respectively. Total gains on sale of real estate
decreased 44% to $1,145,675 for the quarter ended April 30, 1997 as compared
to $2,041,701 during quarter ended April 30, 1997. This directly results
from the decrease in homes sold from 200 in the first quarter of fiscal 1997
to 107 in the first quarter of fiscal 1998. The Company recognized
$1,327,868 in gains on bulk sales of servicing rights during the quarter
ended April 30, 1997, a $587,618 decrease from the $1,915,486 recognized for
the quarter ended April 30, 1996. This 31% decrease corresponds with the
decrease on conforming loan originations to $121 million from $214 million
during the first quarter of fiscal 1998 and 1997, respectively. A
significant portion of the conforming loan production in the first quarter
of fiscal 1997 were refinancings, resulting from the declining interest rate
environment that existed at the time. While overall mortgage production
decreased from $240 million in the first quarter of fiscal 1997 to $207
million in the first quarter of fiscal 1998, mortgage origination fees and
gains on sale of mortgages increased from $3,212,184 to $9,455,573 over the
same periods. This directly resulted from the increase in non-conforming
loan production of $60 million, from $26 million during the quarter ended
April 30, 1996 to $86 million during the quarter ended April 30, 1997. The
Company expects that the mix of loan production volume will continue to
shift to non-conforming loans which generate more revenues and higher
margins, as its sales force continues to become experienced in this type of
product. Servicing fees were consistent during the quarters ended April 30,
1997 and 1996, at $1,661,398 and $1,700,919, respectively. Interest income
increased 43%, or $715,960, from $1,661,405 during the first quarter of
fiscal 1997 to $2,377,365 during the first quarter of fiscal 1998. This
resulted primarily from increased production in non-conforming loans that
were held prior to resale. These loans typically carry interest rates that
are higher than rates on conforming loans.
Expenses
Payroll and commissions increased $1,954,778, or 36% to $7,349,685
from $5,394,907 for the quarters ended April 30, 1997 and 1996 respectively.
As a percentage of revenue, payroll and commissions dropped to 43% from 47%
for these periods. The decrease results from the change in the Company's
production mix and technological advancements. Interest expense increased
to $3,034,937 from $2,278,810 for the quarter ended April 30, 1997 and 1996,
respectively, resulting from a higher interest rate environment in general,
interest on the $15 million subordinated debt and the higher interest rate
the Company is required to pay its warehouse lenders on non-conforming
mortgages. Depreciation and amortization were consistent during the first
quarters of fiscal 1998 and 1997. General and administrative expenses were
$3,946,057 for the three months ended April 30, 1997 as compared to
$3,039,049 for the quarter ended April 30, 1996. As a percentage of
revenue, general and administrative expenses decreased to 23% from 27% over
the same periods. This resulted from a greater percentage of higher margin
non-conforming loans. As of April 30, 1997 the Company had mortgage
origination employees in 34 locations as compared to 35 locations at April
30, 1996.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits-- The following exhibit is filed with this report:
Ex. No. Description
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K:
The Company was not required to file any current reports on Form 8-K
during the quarter ended April 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MCA FINANCIAL CORP.
Date: June 13, 1997 By: /S/ PATRICK D. QUINLAN
Patrick D. Quinlan, Chairman
(Principal Executive Officer)
Date: June 13, 1997 By: /S/ KEITH D. PIETILA
Keith D. Pietila,
Executive Vice President
(Principal Financial and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND UNAUDITED
CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH UNAUDITED FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<PERIOD-START> FEB-01-1997
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1997
<CASH> 1,463
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 33,547
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,948
<DEPRECIATION> 2,182
<TOTAL-ASSETS> 173,841
<CURRENT-LIABILITIES> 0
<BONDS> 12,746
0
5,396
<COMMON> 5
<OTHER-SE> 5,436
<TOTAL-LIABILITY-AND-EQUITY> 173,841
<SALES> 0
<TOTAL-REVENUES> 17,037
<CGS> 0
<TOTAL-COSTS> 16,528
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,035
<INCOME-PRETAX> 509
<INCOME-TAX> 200
<INCOME-CONTINUING> 309
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 309
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
