1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
_____________________
__
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1996 OR
__
/ / 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 2-94289
PRESIDENTIAL MORTGAGE COMPANY
(Exact name of Registrant as specified in its charter)
California 95-3611304
(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification Number)
21031 Ventura Boulevard
Woodland Hills, California 91364
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (818) 992-8999
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 .
2
PRESIDENTIAL MORTGAGE COMPANY
(A California Limited Partnership)
AND SUBSIDIARIES
Consolidated Balance Sheets
Unaudited
December 31, 1995 and March 31, 1996
MARCH 31, DECEMBER 31,
1996 1995
Assets
Cash & cash equivalents $10,158,000 $10,489,000
Accounts receivable, net 15,917,000 3,337,000
Interest receivable 931,000 903,000
Loans receivable, net (Note 2) 45,276,000 43,908,000
Loans held for sale 11,361,000 12,577,000
Receivable from related party 333,000 347,000
Excess yield receivable 2,467,000 2,725,000
Real estate acquired in settlement of loans 3,259,000 3,156,000
Property and equipment, net 1,542,000 1,398,000
Goodwill 1,778,000 1,808,000
Other assets 2,008,000 1,909,000
----------- -----------
$95,030,000 $82,557,000
=========== ===========
Liabilities and Partners' Capital
Thrift certificates payable
Full-paid certificates 37,814,000 35,881,000
Installment certificates 34,967,000 24,275,000
----------- -----------
Total thrift certificates payable 72,781,000 60,156,000
Accounts payable and accrued expenses 3,399,000 4,018,000
Accrued interest payable 306,000 273,000
Payable to related party 665,000 281,000
Mortgage notes payable 653,000 611,000
Note payable 6,500,000 6,771,000
Note payable to related party 600,000 600,000
Partnership withdrawals payable 1,120,000 1,120,000
----------- -----------
$86,024,000 $73,830,000
----------- -----------
Partners' capital 9,006,000 8,727,000
----------- -----------
$95,030,000 $82,557,000
=========== ===========
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
3
PRESIDENTIAL MORTGAGE COMPANY
(A California Limited Partnership)
AND SUBSIDIARIES
Consolidated Statements of Income
Unaudited
THREE MONTHS ENDED
March 31, March 31,
1996 1995
Interest Income:
Interest and fees on loans receivable 2,278,000 2,386,000
Interest on investments 130,000 226,000
---------- ----------
Total interest income 2,408,000 2,612,000
Interest Expense:
Interest on thrift certificates greater than $100,000 0 4,000
Interest on other thrift certificates 1,010,000 976,000
Interest on notes payable 217,000 425,000
---------- ----------
Total interest expense 1,227,000 1,405,000
---------- ----------
Net interest income 1,181,000 1,207,000
Provision for loan losses 725,000 446,000
---------- ----------
Net interest income afer provision for loan losses 456,000 761,000
Noninterest income:
Trustee and reconveyance fees 857,000 785,000
Other income 238,000 308,000
Gain on sale of loans 4,712,000 1,515,000
---------- ----------
5,807,000 2,608,000
Noninterest expense:
General and administrative 2,085,000 1,413,000
Salaries, employee benefits and personnel services 2,781,000 1,623,000
Amortization of organization costs 26,000 28,000
Related party fees 472,000 174,000
Depreciation and amortization 107,000 116,000
Expenses on real estate acquired in settlement of loans 60,000 161,000
Net loss on sales of real estate acquired
in settlement of loans 105,000 77,000
---------- ----------
5,636,000 3,592,000
---------- ----------
Net income (loss) before tax provision 627,000 (223,000)
---------- ----------
Tax provision (benefit) 348,000 (430,000)
---------- ----------
Net income 279,000 207,000
========== ==========
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
4
PRESIDENTIAL MORTGAGE COMPANY
(A California Limited Partnership)
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 1996 and 1995
Three Months Three Months
Ended Ended
3-31-96 3-31-95
Cash flows from operating activities:
Adjustments to reconcile net income to
net cash used in operating
activities:
Net income 279,000 207,000
Depreciation and amortization 133,000 144,000
Provision for loan losses 725,000 446,000
Net (gain) loss on sales of real estate
acquired in settlement of loans 105,000 77,000
(Increase) decrease in asset accounts:
Accounts Receivable (12,566,000) (6,203,000)
Interest receivable (28,000) 472,000
Excess yield receivable 258,000 362,000
Goodwill 30,000 73,000
Other assets (125,000) 270,000
Increase (decrease) in liability accounts:
Accounts payable and accrued expenses
and interest payable (202,000) (312,000)
----------- -----------
Net cash used in operating
activities (11,391,000) (4,464,000)
----------- -----------
Cash flows from investing activities:
(Increase) decrease in loans receivable (877,000) 5,331,000
(Increase) in property & equipment (251,000) (307,000)
Increase (decrease) in mortgages payable
on other real estate 42,000 (511,000)
(Increase) decrease in other real estate (208,000) 40,000
----------- -----------
Net cash provided by (used in) investing (1,294,000) 4,553,000
activities
----------- -----------
Cash flow from financing activities:
Increase (decrease) in thrift certificates 12,625,000 (469,000)
(Decrease) in line of credit (271,000) (969,000)
----------- -----------
Net cash provided by (used in) financing 12,354,000 (1,438,000)
activities
----------- -----------
Net decrease in cash and cash equivalents (331,000) (1,349,000)
Cash and cash equivalents at year end 10,489,000 19,628,000
----------- -----------
Cash and cash equivalents at March 31, 10,158,000 18,279,000
=========== ===========
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
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PRESIDENTIAL MORTGAGE COMPANY
(A California Limited Partnership)
AND SUBSIDIARIES
Notes to Combined Financial Statements
1) The unaudited financial information furnished herein, in the
opinion of management, reflects all adjustments (all of which are of a normal
recurring nature) which are necessary to fairly state the Partnership's
financial position, its cash flows and the results of its operations. The
Partnership presumes that users of the interim financial information herein
have read or have access to the audited financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations for
the preceding fiscal year and that the adequacy of additional disclosure needed
for a fair presentation, except in regard to material contingencies, may be
determined in that context. Accordingly, footnote and other disclosures which
would substantially duplicate the disclosure contained in the Partnership's
most recent annual report has been omitted. The interim financial information
herein is not necessarily representative of operations for a full year for
various reasons including changes in interest rates, volume of loans originated
and loans paid off.
2) Loans Receivable
The following is a summary of Loans Receivable:
@ 3-31-96 @ 12-31-95
----------- -----------
Interest bearing loans $50,846,000 $49,023,000
Deferred loan fees, net (845,000) (886,000)
Allowance for loan losses (4,725,000) (4,229,000)
----------- -----------
Total $45,276,000 $43,908,000
=========== ===========
The following is a summary of Allowance for Loan Losses:
Balance at 12-31-95 $4,229,000
Additions to reserve 725,000
Charge offs/recoveries (229,000)
----------
Balance at 3-31-96 $4,725,000
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
Total consolidated assets of Presidential Mortgage Company (referred to
herein as the "Partnership" with respect to consolidated information, and as
"Presidential" with respect to the unconsolidated operations of Presidential
Mortgage Company) increased $12.5 million (15.2%) to $95.0 million at March 31,
1996 from $82.5 million at December 31, 1995. The increase resulted primarily
from a $12.6 million increase (381.8%) in accounts receivable, to $15.9 million
at March 31, 1996 from $3.3 million at December 31, 1995, due to loan sales made
in March, for which payment was received in April 1996. The increase in accounts
receivable was offset by a decrease in loans held for sale, which decreased by
$1.2 million (9.5%), to $11.4 million at March 31, 1996 from $12.6 million at
December 31, 1995. Loans receivable increased by $1.4 million (3.2%), to $45.3
million at March 31, 1996 from $43.9 million at December 31, 1995, reflecting an
increase in origination of portfolio loans by Pacific Thrift and Loan Company
("Pacific Thrift"), the Partnership's primary operating subsidiary. Excess yield
receivable decreased $.2 million (7.4%) to $2.5 million from $2.7 million. Real
estate acquired in settlement of loans ("OREO") increased by $.1 million (3.1%),
to $3.3 million at March 31, 1996, from $3.2 million at December 31, 1995.
Total liabilities increased $12.2 million (16.5%) to $86.0 million at
March 31, 1996 from $73.8 at December 31, 1995. The increase resulted primarily
from a $12.6 million (20.9%) increase in thrift certificates payable, to $72.8
million at March 31, 1996 from $60.2 million at December 31, 1995. Payables to
related party increased by $.4 million (133.3%) to $.7 million at March 31, 1996
from $.3 million at December 31, 1995 due to the accrual of fees payable to the
Partnership's general partner which may not be paid under the terms of the
Partnership's bank loan without the bank's consent.
Total partnership capital increased by $.3 million (3.4%) to $9.0
million at March 31, 1996 from $8.7 million at December 31, 1995, due to net
income of $.3 million reported for the quarter ended March 31, 1996.
RESULTS OF OPERATIONS
GENERAL
The Partnership reported net income of $.3 million for the three months
ended March 31, 1996, after an income tax expense of $.3 million. For the three
months ended March 31, 1995, the Partnership reported net income of $.2 million,
after recognizing a tax benefit of $.4 million from net operating loss
carryforwards of Pacific Thrift. The Partnership has a deferred tax asset of $.9
million at March 31, 1996, which management believes is more likely than not to
be utilized in 1996.
INTEREST INCOME
Total interest income decreased by $.2 million (7.7%), to $2.4 million
for the quarter ended March 31, 1996 compared to $2.6 million for the quarter
ended March 31, 1995. This resulted from a shorter holding period on loans
originated for sale, which reduced the yield on loans held for sale pending the
sale date of such loans. Interest on investments also declined by $.1 million
(50.0%), to $.1 million from $.2 million, due to a decrease in investments.
Total interest expense decreased by $.2 million (14.3%), to $1.2 million for the
quarter ended March 31, 1996 from $1.4 million for the quarter ended March 31,
1995, due primarily to a decrease of $.2 million (50.0%) in interest payments on
the bank loan, to $.2 million from $.4 million. Net interest income before
provision for loan losses remained substantially unchanged at $1.2 million for
the quarter ended March 31, 1996 compared to the quarter ended March 31, 1995.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased by $.3 million (75.0%), to $.7
million for the quarter ended March 31, 1996, from $.4 million for the quarter
ended March 31, 1995. The total allowance for loan losses was $4.7 million at
March 31, 1996, compared to $4.2 at December 31, 1995.
The adequacy of the allowance for loan losses is based on a variety of
factors, including loan classifications and underlying loan collateral values,
and is not directly proportional to the level of nonperforming loans. The ratio
of nonaccrual loans past due 90 days or more to total loans was 1.4% at March
31, 1996, compared to 1.6% at December 31, 1995.
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NONINTEREST INCOME
Total noninterest income increased by $3.2 million (123.1%), to $5.8
million for the quarter ended March 31, 1996 from $2.6 million for the quarter
ended March 31, 1995. The increase is due primarily to an increase of $3.2
million (213.3%) in gains on loans originated for sale, to $4.7 million for the
quarter ended March 31, 1996 from $1.5 million for the quarter ended March 31,
1995, reflecting a substantial increase in the volume of loans sold that were
originated for sale. During the quarter ended March 31, 1996, the Partnership
originated $60.9 million and sold $61.8 million of loans originated for sale,
compared to originations of $25.9 million and sales of $29.5 million for the
quarter ended March 31, 1995. Trustee and reconveyance fees increased by $.1
million (12.5%), to $.9 million for the quarter ended March 31, 1996 compared to
$.8 million for the quarter ended March 31, 1995. Other income declined by $.1
million for the quarter, to $.2 million from $.3 million.
NONINTEREST EXPENSE
Noninterest expense increased by $2.0 million (55.6%), to $5.6 million
for the quarter ended March 31, 1996, from $3.6 million for the quarter ended
March 31, 1995. The increase primarily reflects an increase in salaries,
employee benefits and personnel services of $1.2 million (75.0%), due to the
increase in loan volume and related loan representative commissions, and hiring
of additional support personnel to handle the increased loan volume. In
addition, general and administrative expenses increased by $.7 million (50.0%),
to $2.1 million for the quarter ended March 31, 1996 from $1.4 million for the
quarter ended March 31, 1995, due to additional expenses related to the increase
in loan originations. Related party fees increased by $.3 million (150.0%),
reflecting an increase in fees payable to the general partner due to increased
loan volume and fees based on net income.
LIQUIDITY AND CAPITAL RESOURCES
Presidential does not maintain significant cash and cash equivalent
assets on its own behalf, and uses substantially all of its cash flow to pay
down the bank debt on a monthly basis. The primary source of Pacific Thrift's
liquidity is the cash and cash equivalents maintained by Pacific Thrift in
connection with its deposit-taking and lending activities. At March 31, 1996,
cash and cash equivalent assets totalled $10.2 million, compared with $10.5
million at December 31, 1995. However, this did not reflect accounts receivable
of $12.1 million for loans sold as of March 31, 1996 which was paid in April
1996.
Pacific Thrift is subject to certain leverage and risk-based capital
adequacy standards applicable to FDIC- insured institutions. At March 31, 1996,
Pacific Thrift met the FDIC regulatory definition of "well capitalized."
However, because Pacific Thrift is currently subject to a Memorandum of
Understanding requiring it to maintain a certain capital level (which it
currently meets), Pacific Thrift is classified by the FDIC as "adequately
capitalized." See Annual Report on Form 10-K for the year ended December 31,
1995, Item 1. "Business - Supervision and Regulation -- Regulatory Actions."
At March 31, 1996, the Partnership had no material outstanding
commitments to fund loans. Certificates of deposit which are scheduled to mature
in one year or less from March 31, 1996 totalled $35.8 million. Based upon
historical experience, management believes that a significant portion of such
deposits will be renewed and will remain with Pacific Thrift.
As indicated in the Statements of Cash Flows, the Partnership used
$11.4 million in cash from operating activities from January 1, 1996 through
March 31, 1996. This includes a deduction from cash for the $12.6 million
increase in accounts receivable, which was primarily due to loans sold at March
31, 1996, and which was paid in April 1996.
The Partnership used $1.3 million in investing activities for the three
months ended March 31, 1996, primarily due to a net increase of $.9 million in
loans receivable and loans held for sale.
The Partnership realized $12.4 million from financing activities for
the three months ended March 31, 1996, primarily reflecting an increase of $12.6
million in thrift certificates and a decrease of $.3 million in the bank debt.
No distributions or withdrawal payments were made to limited partners in
accordance with the restrictions on such payments under the bank loan agreement.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There has been no change in the legal actions described in the Annual
Report on Form 10-K, except as follows:
On April 23, 1996, Consolidated Reconveyance Company ("CRC") was served
with a complaint by seven individuals suing both individually and on behalf of
the general public in a purported class action filed in the Superior Court of
Los Angeles County, California. The complaint names over 50 defendants,
including numerous title insurance companies and trust deed services companies,
generally alleging that the title insurance companies did not make certain
refunds of certain trustee sale guarantee (TSGs) fees which they were required
to make under the terms of a settlement of a previous case (in which CRC was not
named), and that the trust deed services companies failed to purchase less
costly alternative products, to request and remit refunds in the cost of TSGs or
to advise the members of the class of their right to a refund from the title
insurance companies. The complaint seeks restitution of all excess charges, an
injunction against the practices cited and attorneys fees. The case is still in
the pleading stage, discovery has not yet commenced and the purported class of
plaintiffs has not yet been certified.
Management believes that CRC has charged TSG fees in compliance with
applicable law, and that this action will not have a material adverse effect
on the earnings or financial condition of the Partnership.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the vote of security holders during the
quarter ended March 31, 1996.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Partnership has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, on May 14, 1996.
PRESIDENTIAL MORTGAGE COMPANY
(Registrant)
May 14, 1996 JOEL R. SCHULTZ
---------------
Joel R. Schultz,
Chief Managing Officer of
Registrant; President of
Presidential Services Corporation
("PSC"), general partner of
Presidential Management Company, a
California limited partnership,
general partner of the Registrant
May 14, 1996 CHARLES J. SIEGEL
-----------------
Charles J. Siegel,
Chief Financial and Accounting
Officer of the Registrant