UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
For the quarterly period ended: March 31, 2000 Commission file number: 001-11981
MUNICIPAL MORTGAGE & EQUITY, LLC
(Exact Name of Registrant as Specified in Its Charter)
Delaware 52-1449733
(State of Organization) (I.R.S. Employer Identification No.)
218 North Charles Street, Suite 500, Baltimore, Maryland 21201
(Address of Principal Executive Offices)(Zip Code)
Registrant's Telephone Number, Including Area Code:(410) 962-8044
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 ____
The Company had 17,435,029 Common Shares outstanding as of May 4, 2000, the
latest practicable date.
MUNICIPAL MORTGAGE & EQUITY, LLC
INDEX TO FORM 10-Q
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Part II - OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) (unaudited)
March 31, December 31,
2000 1999
--------------- ---------------
ASSETS
Cash and cash equivalents $ 35,250 $ 54,417
Interest receivable 7,555 8,118
Investment in mortgage revenue bonds, net (Note 5) 405,560 391,544
Investment in other bond related investments (Note 6) 8,880 8,338
Loans receivable (Note 7) 292,169 286,489
Restricted assets 15,502 15,833
Other assets 6,581 8,246
Property and equipment 900 894
Goodwill (Note 2) 27,509 27,867
--------------- ---------------
Total assets $ 799,906 $ 801,746
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable (Note 8) $ 264,854 $ 261,956
Accounts payable, accrued expenses and other liabilities 16,263 19,327
Investment in other bond related investments (Note 6) 11,052 8,249
Distributions payable 1,444 1,444
Long-term debt (Note 4) 67,000 67,000
--------------- ---------------
Total liabilities 360,613 357,976
--------------- ---------------
Commitments and contingencies - -
Preferred shareholders' equity in a subsidiary company 80,060 80,159
Shareholders' equity:
Preferred shares:
Series I (14,933 shares issued and outstanding) 9,561 10,105
Series II (7,226 shares issued and outstanding) 4,760 5,720
Preferred capital distribution shares:
Series I (7,798 shares issued and outstanding) 3,475 3,756
Series II (3,164 shares issued and outstanding) 1,218 1,632
Term growth shares (2,000 shares issued and outstanding) 167 165
Common shares (17,539,927 shares, including 17,528,011 issued, and 11,916
deferred shares at March 31, 2000 and 17,538,140 shares, including
17,528,011 issued, and 10,129 deferred shares at December 31, 1999) 325,358 324,443
Less common shares held in treasury at cost (105,177 shares
and 146,076, respectively) (1,762) (2,481)
Less unearned compensation - deferred shares (4,896) (3,468)
Accumulated other comprehensive income 21,352 23,739
--------------- ---------------
Total shareholders' equity 359,233 363,611
--------------- ---------------
Total liabilities and shareholders' equity $ 799,906 $ 801,746
=============== ===============
The accompanying notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
(unaudited)
For the three months ended
March 31,
-----------------------------
2000 1999
-------------- --------------
INCOME:
Interest on mortgage revenue bonds and other bond related investments $ 9,927 $ 7,314
Interest on loans 6,833 648
Loan origination and brokerage fees 616 70
Loan servicing fees 1,962 258
Interest on short-term investments 1,072 243
Other income 835 88
Net gain on sales - 1,463
-------------- --------------
Total income 21,245 10,084
-------------- --------------
EXPENSES:
Salaries and benefits 3,332 885
Operating expenses 1,776 207
Goodwill and other intangibles amortization 358 -
Interest expense 6,727 46
-------------- --------------
Total expenses 12,193 1,138
-------------- --------------
Net income before income allocated to preferred shareholders
in a subsidiary company and income taxes 9,052 8,946
Income allocable to preferred shareholders in a subsidiary company 1,444 -
-------------- --------------
Net income before income taxes 7,608 8,946
Income taxes (9) -
-------------- --------------
Net income $ 7,617 $ 8,946
============== ==============
Net income allocated to:
Preferred shares:
Series I $ 223 $ 355
============== ==============
Series II 92 184
============== ==============
Preferred capital distribution shares:
Series I $ 90 $ 160
============== ==============
Series II 26 63
============== ==============
Term growth shares $ 167 $ 128
============== ==============
Common shares $ 7,019 $ 8,056
============== ==============
Basic net income per share:
Preferred shares:
Series I $ 14.94 $ 23.78
============== ==============
Series II 12.80 25.51
============== ==============
Preferred capital distribution shares:
Series I $ 11.54 $ 20.54
============== ==============
Series II 8.31 19.74
============== ==============
Common shares $ 0.40 $ 0.48
============== ==============
Weighted average common shares outstanding 17,426,523 16,809,142
Diluted net income per share:
Common shares $ 0.40 $ 0.47
============== ==============
Weighted average common shares outstanding 17,761,236 17,031,327
The accompany notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands) (unaudited)
For the three months ended
March 31,
-------------------------------
2000 1999
-------------- --------------
Net income $ 7,617 $ 8,946
-------------- --------------
Other comprehensive income:
Unrealized losses on investments:
Unrealized holding losses arising during the period (2,387) (1,476)
Reclassification adjustment for losses
included in net income - 787
-------------- --------------
Other comprehensive loss (2,387) (689)
-------------- --------------
Comprehensive income $ 5,230 $ 8,257
============== ==============
The accompanying notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except share data) (unaudited)
Accumulated
Preferred Capital Other
Preferred Shares Distribution Shares Term Growth Common Treasury Unearned Comprehensive
-------------------- -------------------
Series I Series II Series I Series II Shares Shares Shares Compensation Income (Loss) Total
--------- ---------- -------- --------- ------------ ------- -------- ------------ -------------- --------
Balance, January 1, 2000 $ 10,105 $ 5,720 $ 3,756 $ 1,632 $ 165 $ 324,443 $ (2,481) $ (3,468) $ 23,739 $ 363,611
Net income 223 92 90 26 167 7,019 - - - 7,617
Unrealized losses on
investments, net of
reclassifications - - - - - - - - (2,387) (2,387)
Distributions (767) (1,052) (371) (440) (165) (7,100) - - - (9,895)
Reissuance of treasury
shares - - - - - (716) 719 - - 3
Deferred shares issued
under the Non-Employee
Directors' Share Plans - - - - - 34 - - - 34
Deferred share grants - - - - - 1,678 - (1,678) - -
Amortization of deferred
compensation - - - - - - - 250 - 250
-------- --------- -------- --------- ------------ -------- -------- ------------ ------------ ----------
Balance, March 31, 2000 $ 9,561 $ 4,760 $ 3,475 $ 1,218 $ 167 $ 325,358 $ (1,762) $ (4,896) $ 21,352 $ 359,233
======== ========= ======== ========= ============ ======== ======== ============ ============ ==========
Preferred Capital
Preferred Shares Distribution Shares Term Growth Common Treasury
------------------ -------------------
SHARE ACTIVITY: Series I Series II Series I Series II Shares Shares Shares
--------- -------- -------- -------- ------------ -------- --------
Balance, January 1, 2000 14,933 7,226 7,798 3,164 2,000 17,392,064 146,076
Reissuance of treasury
shares - - - - - 40,899 (40,899)
Deferred shares issued
under the Non-Employee
Directors' Share Plans - - - - - 1,787 -
------- --------- ------- --------- ------------ -------- --------
Balance, March 31, 2000 14,933 7,226 7,798 3,164 2,000 17,434,750 105,177
======= ========== ======= ========= ============ ======== ========
The accompanying notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE & EQUITY, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
For the three months ended
March 31,
------------------------------------
2000 1999
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,617 $ 8,946
Adjustments to reconcile net income to net cash provided by operating activities:
Income allocated to preferred shareholders in a subsidiary company 1,444 -
Decrease in valuation allowance on parity working capital loans - (462)
Net gain on sales - (1,463)
Net amortization of premiums, discounts and fees on investments 82 79
Depreciation and amortization 417 13
Deferred share compensation expense 250 153
Deferred shares issued under the Non-Employee Directors' Share Plans 34 15
Director fees paid and share awards made by reissuance of treasury shares 3 6
Decrease in interest receivable 563 452
(Increase) decrease in other assets 1,665 (454)
Decrease in accounts payable, accrued expenses and other liabilities (3,064) (456)
---------------- ----------------
Net cash provided by operating activities 9,011 6,829
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of mortgage revenue bonds, other bond related investments
and loan originations (63,580) (22,833)
Principal payments received 43,676 175
Net proceeds from sales of investments - 39,857
Purchases of property and equipment (65) (41)
Net reduction in restricted assets 331 695
---------------- ----------------
Net cash provided by (used in) investing activities (19,638) 17,853
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from credit facilities 96,305 -
Repayment of credit facilities (93,407) -
Retirement of preferred shares - (927)
Purchase of treasury shares - (289)
Distributions (9,895) (7,761)
Distributions to preferred shares in a subsidiary company (1,543) -
---------------- ----------------
Net cash used in financing activities (8,540) (8,977)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents (19,167) 15,705
Cash and cash equivalents at beginning of period 54,417 23,164
---------------- ----------------
Cash and cash equivalents at end of period $ 35,250 $ 38,869
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 7,267 $ -
================ ================
Income taxes paid $ 239 $ -
================ ================
DISCLOSURE OF NON-CASH ACTIVITIES:
Investments and long-term debt recorded under SFAS No. 125 upon conversion
of P-FLOATS to Term Securitization Facility (see Note 4) $ - $ 67,000
================ ================
The accompany notes are an integral part of these financial statements.
MUNICIPAL MORTGAGE & EQUITY, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
Municipal Mortgage & Equity, LLC ("MuniMae") and its subsidiaries
(together with MuniMae, the "Company") are principally engaged in originating,
investing in and servicing investments in multifamily housing debt and equity.
The Company primarily holds a portfolio of tax-exempt mortgage revenue bonds
issued by state and local government authorities to finance multifamily housing
developments secured by nonrecourse mortgage loans on the underlying properties.
On October 20, 1999, the Company acquired Midland Financial Holdings,
Inc. ("Midland") for approximately $45 million (see Note 2). The consolidated
earnings of Midland are included in the Company's results of operations from the
date of the Company's acquisition of Midland.
The assets of MuniMae TE Bond Subsidiary, LLC and its subsidiaries
(collectively, "TE Bond Sub"), a majority owned subsidiary of MuniMae, are
solely those of TE Bond Sub and are not available to creditors of MuniMae. The
equity interest in TE Bond Sub held by MuniMae is subject to the claims of
creditors of the Company and in certain circumstances could be foreclosed upon.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission and in the opinion of management contain all adjustments
(consisting of only normal recurring accruals) necessary to present a fair
statement of the results for the periods presented. These results have been
determined on the basis of accounting principles and policies discussed in Note
1 to the Company's 1999 Annual Report on Form 10-K, as amended (the "Company's
1999 Form 10-K"). Certain information and footnote disclosures normally included
in financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. The accompanying financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's 1999 Form 10-K. Certain 1999 amounts have been
reclassified to conform to the 2000 presentation.
NOTE 2 - MIDLAND ACQUISITION
On October 20, 1999, the Company acquired Midland Financial Holdings,
Inc. for approximately $45 million. Of this amount, the Company paid
approximately $23 million in cash and approximately $12 million in Common Shares
at the closing of the transaction. In addition, $3.3 million in MuniMae Common
Shares is payable annually over a three year period if Midland meets certain
performance targets, including minimum annual contributions to cash available
for distribution.
The acquisition is being accounted for as a purchase. The total
purchase price incurred during 1999 was $35.9 million, which includes
acquisition costs but excludes contingently issuable MuniMae Common Shares over
the next three years. The results of operations of Midland are included in the
consolidated financial statements of the Company subsequent to October 19, 1999.
The cost of the acquisition was allocated on the basis of the estimated fair
value of the assets acquired and liabilities assumed. See Note 2 to the
Company's 1999 Annual Report on Form 10-K.
NOTE 3 - PREFERRED SHAREHOLDERS' EQUITY IN SUBSIDIARY
On May 27, 1999, TE Bond Sub sold to institutional investors 42 shares
of $2,000,000 par-value 6 7/8 % Series A Cumulative Preferred Shares (the
"Series A Preferred Shares" or the "Preferred Share Offering"). The Series A
Preferred Shares bear interest at 6.875% per annum or, if lower, the aggregate
net income of the issuing company, TE Bond Sub. The Series A Preferred Shares
have a senior claim to the income derived from the investments owned by TE Bond
Sub. Any income from TE Bond Sub available after payment of the cumulative
distributions of the Series A Preferred Shares is allocated to the Company. Cash
distributions on the Series A Preferred Shares will be paid quarterly on each
January 31, April 30, July 31 and October 31. The Series A Preferred Shares are
subject to remarketing on June 30, 2009. On the remarketing date, the
remarketing agent will seek to remarket the shares at the lowest distribution
rate that would result in a resale of the Series A Preferred Shares at a price
equal to par plus all accrued but unpaid distributions. The Series A Preferred
Shares will be subject to mandatory tender on June 30, 2009 and on all
subsequent remarketing dates at a price equal to par plus all accrued but unpaid
distributions. The Series A Preferred Shares must be redeemed no later than June
30, 2049.
The assets of TE Bond Sub and its subsidiaries, while indirectly
controlled by MuniMae and thus included in the consolidated financial statements
of the Company, are legally owned by TE Bond Sub and are not available to the
creditors of the Company. The assets owned by TE Bond Sub and its subsidiaries
are identified in footnotes to the Investment in Mortgage Revenue Bonds table in
Note 5 and in footnotes to the Other Bond Related Investments table in Note 6.
The fair value of such assets aggregated $371.6 million at March 31, 2000.
NOTE 4 - TERM SECURITIZATION FACILITY
In March 1999, a transaction was consummated with an affiliate of
Merrill Lynch, Pierce, Fenner, & Smith Incorporated ("Merrill Lynch") whereby
two classes of certificates were sold out of a Term Securitization Facility:
Class A and Class B trust certificates. The $67.0 million par-value Class A
certificates, which are senior to the Class B certificates, were sold to
qualified third party investors and bear interest at a fixed rate of 4.95% per
annum through the remarketing date, August 15, 2005. The interest rate will be
reset on the remarketing date to the lowest rate that would result in the sale
of the Class A certificates at par plus any appreciation in the value of the
underlying bonds attributable to the Class A certificates. The $0.8 million
par-value Class B certificates were purchased by TE Bond Sub. The Class B
certificates receive the residual interest from the Term Securitization Facility
after payment of (1) trustee fees and expenses, (2) all interest and any
principal due on the Class A certificates in accordance with the terms of the
documents and (3) servicing fees. The Term Securitization Facility is subject to
optional liquidation in whole, but not in part, on each February 15, May 15,
August 15 or November 15, commencing February 15, 2000, at the direction of a
majority of the Class B certificate holders. The Class A certificates are
subject to mandatory tender on the remarketing date. The Term Securitization
Facility terminates on August 1, 2008.
This transaction was accounted for using the concepts outlined in
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS No.
125"). As a result of certain call provisions available to the Class B
certificate holders, TE Bond Sub has accounted for this transaction as a
borrowing. Accordingly, the Class A certificates were recorded as long-term debt
and the Gannon-Dade and Gannon-Whispering Palm bonds are included in investments
in mortgage revenue bonds. In conjunction with the recording of the $67.0
million in long-term debt, TE Bond Sub capitalized $500,000 in debt issue costs.
These debt issue costs are being amortized over the life of the Term
Securitization Facility, based on the amount of outstanding debt, using the
effective interest method.
NOTE 5 - INVESTMENTS IN MORTGAGE REVENUE BONDS
The Company holds a portfolio of tax-exempt mortgage revenue bonds and
certificates of participation in grantor trusts holding tax-exempt mortgage
revenue bonds ("COPs"). The tax-exempt mortgage revenue bonds are issued by
state and local government authorities to finance multifamily housing
developments secured by nonrecourse mortgage loans on the underlying properties.
The COPs represent a pro rata interest in a trust that holds a tax-exempt
mortgage revenue bond. The Company's rights and the specific terms of the bonds
are defined by the various loan documents which were negotiated at the time of
settlement. The basic terms and structure of each bond are described in Note 5
to the Company's 1999 Form 10-K.
The following table provides certain information with respect to the
bonds held by the Company at March 31, 2000 and December 31, 1999.
March 31, 2000 December 31, 1999
----------------------------------- -------------------------------------
Base Face Amortized Unrealized Fair Face Amortized Unrealized Fair
Investment in Mortgage Year Interest Maturity Amount Cost Gain (Loss) Value Amount Cost Gain (Loss) Value
Revenue Bonds Acquired Rate (12) Date (000s) (000s) (000s) (000s) (000s) (000s) (000s) (000s)
- --------------------------- --------- --------- ------- ------ --------- ---------- -------- ------ --------- ---------- --------
Participating Bonds (1):
Alban Place (2),(4),(5) 1986 7.875 Oct. 2008 $10,065 $10,065 $ 586 $10,651 $10,065 $10,065 $209 $10,274
Cobblestone (4),(10) 1999 7.125 Aug. 2039 6,800 6,732 (54) 6,678 6,800 6,732 - 6,732
Creekside Village(2),(4),(5) 1987 7.500 Nov. 2009 11,760 7,396 393 7,789 11,760 7,396 422 7,818
Crossings (4),(10) 1997 8.000 Jul. 2007 6,893 6,800 629 7,429 6,910 6,817 637 7,454
Emerald Hills (2),(4),(5) 1988 7.750 Apr. 2008 6,725 6,725 1,828 8,553 6,725 6,725 1,655 8,380
Lakeview Garden (2),(4),(5) 1987 7.750 Aug. 2007 9,003 4,919 622 5,541 9,003 4,919 612 5,531
Mountain View
(Willowgreen) (2),(4),(5) 1986 8.000 Dec. 2010 9,275 6,769 1,057 7,826 9,275 6,769 1,038 7,807
Newport-on-Seven (2),(5),(6) 1986 8.125 Aug. 2008 10,125 7,898 3,031 10,929 10,125 7,898 2,964 10,862
North Pointe (2),(4),(5) 1986 7.875 Aug. 2006 25,185 12,739 7,408 20,147 25,185 12,739 7,329 20,068
Northridge Park (2),(4),(5) 1987 7.500 Jun. 2012 8,815 8,815 174 8,989 8,815 8,815 6 8,821
Southfork Village (2),(7) 1988 7.875 Jan. 2009 10,375 10,375 3,562 13,937 10,375 10,375 2,800 13,175
Stone Mountain (8) 1997 7.875 Oct. 2027 33,900 34,094 (533) 33,561 33,900 34,108 (208) 33,900
Villas at
LaRiveria (4),(10) 1999 7.125 Jun. 2034 8,850 8,744 (147) 8,597 8,850 8,744 (115) 8,629
--------- -------- -------- --------- ---------- ----------
Subtotal participating bonds 132,071 18,556 150,627 132,102 17,349 149,451
--------- -------- -------- --------- ---------- ----------
Non-Participating Bonds:
Charter House 1996 7.450 Jul. 2026 30 30 - 30 30 30 - 30
Cielo Vista (4),(10) 1999 7.125 Sep. 2034 9,530 9,457 (189) 9,268 9,540 9,467 (165) 9,302
Country Club (10) 1999 7.250 Aug. 2029 2,490 2,459 (97) 2,362 2,490 2,459 (93) 2,366
Delta Village (4),(10) 1999 7.125 Jun. 2035 2,012 1,977 (99) 1,878 2,011 1,977 (94) 1,883
Gannon - Cedar Run (4),(10) 1998 7.125 Dec. 2025 13,200 13,238 (461) 12,777 13,200 13,238 (434) 12,804
Gannon - Dade (9) 1998 7.125 Dec. 2029 55,050 55,329 (1,931) 53,398 55,050 55,329 (1,793) 53,536
Gannon - Whispering
Palms (9) 1998 7.125 Dec. 2029 12,750 12,810 (468) 12,342 12,750 12,810 (443) 12,367
Gannon Bond (4),(10) 1998 7.125 Dec. 2029 3,500 3,500 (105) 3,395 3,500 3,500 (96) 3,404
Hidden Valley (10) 1996 8.250 Jan. 2026 1,650 1,650 36 1,686 1,660 1,660 45 1,705
Lake Piedmont (4),(10) 1998 7.725 Apr. 2034 19,128 19,034 (4,552) 14,482 19,134 19,040 (3,403) 15,637
Oakbrook (10) 1996 8.200 Jul. 2026 3,120 3,149 87 3,236 3,135 3,164 101 3,265
Oakmont/Towne Oaks (4),(10) 1998 7.200 Jan. 2034 11,269 11,247 (1,094) 10,153 11,275 11,253 (711) 10,542
Orangevale (10) 1998 7.000 Oct. 2013 2,409 2,409 (121) 2,288 2,435 2,435 (116) 2,319
Paola (10) 1999 7.250 Aug. 2029 1,050 1,037 (41) 996 1,050 1,037 (39) 998
Parkwood (4),(10) 1999 7.125 Jun. 2035 3,910 3,842 (127) 3,715 3,910 3,842 (113) 3,729
Riverset Phase II 1996 9.500 Oct. 2019 110 105 8 113 110 105 8 113
Sahuarita (10) 1999 7.125 Jun. 2029 831 819 (90) 729 51 39 6 45
Shadowbrook (4),(10) 1999 6.850 Jun. 2029 5,780 5,767 (16) 5,751 5,780 5,767 13 5,780
Torries Chase (10) 1996 8.150 Jan. 2026 2,020 2,020 67 2,087 2,030 2,030 75 2,105
University Courtyard (10) 2000 7.250 Mar. 2040 9,850 9,749 (76) 9,673 - - - -
Villa Hialeah -
refunde (4),(5) 1999 6.000 Aug. 2019 10,250 8,005 982 8,987 10,250 8,005 1,015 9,020
Western Hills (10) 1998 7.000 Dec. 2029 3,038 3,038 (245) 2,793 3,040 3,040 (243) 2,797
Wheeler Creek (10) 1998 (13) Jan. 2003 4,072 3,960 - 3,960 373 261 - 261
Woodmark (10) 1999 7.125 Jun. 2039 10,200 10,073 (536) 9,537 10,200 10,073 (485) 9,588
--------- -------- -------- --------- ----------- ----------
Subtotal non-participating bonds 184,704 (9,068) 175,636 170,561 (6,965) 163,596
--------- -------- -------- --------- ----------- ----------
Participating Subordinate Bonds (1):
Barkley Place (3),(4),(10) 1995 16.000 Jan. 2030 3,480 2,445 3,853 6,298 3,480 2,445 3,775 6,220
Gilman Meadows (3),(4),(10) 1995 3.000 Jan. 2030 2,875 2,530 1,968 4,498 2,875 2,530 1,903 4,433
Hamilton Chase (3),(4),(10) 1995 3.000 Jan. 2030 6,250 4,140 49 4,189 6,250 4,140 (6) 4,134
Mallard Cove I (3),(4),(10) 1995 3.000 Jan. 2030 1,670 798 325 1,123 1,670 798 316 1,114
Mallard Cove II (3),(4),(10) 1995 3.000 Jan. 2030 3,750 2,429 992 3,421 3,750 2,429 951 3,380
Meadows (3),(4),(10) 1995 16.000 Jan. 2030 3,635 3,716 356 4,072 3,635 3,716 110 3,826
Montclair (3),(4),(10) 1995 3.000 Jan. 2030 6,840 1,691 2,493 4,184 6,840 1,691 2,511 4,202
Newport Village (3),(4),(10) 1995 3.000 Jan. 2030 4,175 2,973 1,456 4,429 4,175 2,973 1,323 4,296
Nicollet Ridge (3),(4),(10) 1995 3.000 Jan. 2030 12,415 6,075 2,473 8,548 12,415 6,075 2,605 8,680
Riverset Phase II 1996 10.000 Oct. 2019 1,489 - 1,335 1,335 1,489 - 1,294 1,294
Steeplechase (3),(4),(10) 1995 16.000 Jan. 2030 5,300 4,224 (242) 3,982 5,300 4,224 (323) 3,901
Whispering Lake (3),(4),(10) 1995 3.000 Jan. 2030 8,500 4,779 4,636 9,415 8,500 4,779 4,540 9,319
Winter Oaks B bond (10) 1999 7.500 Jul. 2022 2,184 2,133 (60) 2,073 2,184 2,133 (58) 2,075
Winter Oaks C bond (10) 1999 10.000 Jul. 2022 2,141 1,654 242 1,896 2,141 1,654 251 1,905
--------- -------- -------- --------- ----------- ----------
Subtotal participating subordinate bonds 39,587 19,876 59,463 39,587 19,192 58,779
--------- -------- -------- --------- ----------- ----------
Non-Participating Subordinate Bonds:
CapReit portfolio 1999 9.000 Sept. 2004 13,000 12,870 - 12,870 13,000 12,870 - 12,870
Cinnamon Ridge 1999 5.000 Jan. 2015 1,832 1,218 74 1,292 1,899 1,285 (145) 1,140
Farmington Meadows (10) 1999 8.000 Aug. 2039 1,997 1,952 37 1,989 1,999 1,954 45 1,999
Independence Ridge (10) 1996 12.500 Dec. 2015 1,045 1,045 55 1,100 1,045 1,045 52 1,097
Locarno (10) 1996 12.500 Dec. 2015 675 675 82 757 675 675 81 756
Olde English Manor (11) 1998 14.000 Nov. 2033 1,273 1,268 (173) 1,095 1,273 1,268 (160) 1,108
Rillito Village 1999 10.000 Dec. 2033 860 856 (125) 731 860 856 (108) 748
--------- -------- -------- --------- ----------- ---------
Subtotal non-participating subordinate bonds 19,884 (50) 19,834 19,953 (235) 19,718
--------- -------- -------- --------- ---------- ----------
Total investment in mortgage revenue bonds $376,246 $29,314 $405,560 $362,203 $29,341 $391,544
========= ========= ======== ========= =========== ==========
(1) These bonds also contain additional interest features contingent on available cash flow.
(2) One of the original 22 bonds.
(3) Series B Bonds derived from original 22 bonds.
(4) These assets were pledged as collateral as of March 31, 2000.
(5) TE Bond Sub owns an 87% interest in these investments.
(6) The 13% interest in these bonds was pledged as collateral as of March 31, 2000.
(7) The original bond was traunched into two smaller bonds with 87% ownership to TE Bond Sub. The 87% bond owned by TE Bond
Sub was pledged as collateral at March 31, 2000.
(8) The underlying bond is held in a trust; TE Bond Sub owns the principal and base interest trust certificate which was
pledged as collateral at March 31, 2000.
(9) The underlying bonds are held in a trust; TE Bond Sub owns a certificate in the trust which represents the residual cash
flows generated on the underlying bonds. (See Note 4 to the consolidated financial statements.)
(10) Investments held by TE Bond Sub or its subsidiaries. (See Note 3 to the consolidated financial statements.)
(11) The underlying bonds are held in a trust; TE Bond Sub owns an 81% senior interest in the trust.
(12) The base interest rate represents the permanent base interest rate on the investment as of March 31, 2000.
(13) The permanent interest rate resets monthly based on 90% of the 30 day treasury bill.
In the first quarter the Company originated a $9.9 million mortgage
revenue bond collateralized by a to-be-built 96 unit student housing facility
known as University Courtyard, located in Florida. The permanent interest rate
on the bond is 7.25% per annum and the bond matures in March 2040. The Company
received $0.2 million in construction administration and origination fees
related to these transactions. These fees are recognized into income over the
life of the investment or of the services provided.
In order to facilitate the securitization of certain assets at higher
leverage ratios than otherwise available to the Company without the posting of
additional collateral, the Company has pledged additional bonds to a pool that
acts as collateral for the senior interests in certain P-FLOATs(sm) trusts.
Additionally, the Company pledged investments as collateral for the Term
Securitization Facility discussed in Note 4. At March 31, 2000 the total
carrying amount of the mortgage revenue bonds pledged as collateral was $263.9
million.
NOTE 6 - OTHER BOND RELATED INVESTMENTS AND FINANCIAL RISK MANAGEMENT
The Company's other bond related investments are primarily investments
in Residual Interest Tax-Exempt Securities Receipts ("RITES(sm)"), a security
offered by Merrill Lynch through its RITES(sm)/Puttable Floating Option
Tax-Exempt Receipts ("P-FLOATs(sm)") Program. The RITES(sm) are part of a
program under which a bond is placed into a trust and two types of securities
are sold by the trust, P-FLOATs(sm) and RITES(sm). The P-FLOATs(sm) are the
senior security and bear interest at a rate that is reset weekly by the
Remarketing Agent, Merrill Lynch, to result in the sale of the P-FLOATs(sm) at
par. The RITES(sm) are the subordinate security and receive the residual
interest. The residual interest is the remaining interest on the bond after
payment of all fees and the P-FLOATs(sm) interest. In conjunction with the
purchase of the RITES(sm) with respect to fixed rate bonds, the Company enters
into interest rate swap contracts to hedge against interest rate exposure on the
Company's investment in the RITES(sm). In order to facilitate the securitization
of certain assets at higher leverage ratios than otherwise available, the
Company has pledged additional bonds to a pool that acts as collateral for the
senior interests in certain P-FLOATs(sm) trusts. The following table provides
certain information with respect to the other bond related investments held by
the Company at March 31, 2000 and December 31, 1999.
March 31, 2000 December 31, 1999
-------------------------------------------------- ------------------------------------------------
Face Amortized Unrealized Fair Value Face Amortized Unrealized Fair Value
Other Bond Related Year Amount Cost Gain (Loss) Assests Liabilities (4) Amount Cost Gain (Loss) Assests Liabilities (4)
Investments: Acquired (000s) (000s) (000s) (000s) (000s) (000s) (000s) (000s) (000s) (000s)
- -------------------- --------- ------ -------- ----------- ----------------------- ------ ---- ---------- -------------------------
Investment in RITES (1):
Briarwood 1999 $ 135 $ 104 $ (1,002) $ - $ (898) $ 135 $ 104 $ (762) $ - $ (658)
Charter House 1996 80 273 (237) 36 - 80 283 (203) 80 -
Coleman Senior 1999 165 4 (161) - (157) 165 4 (121) - (117)
Gannon 1998 - - - - - - - - - -
Indian Lakes 1997 3,250 3,373 (475) 2,898 - 3,270 3,398 (423) 2,975 -
Italian Gardens 1999 160 - (160) - (160) 160 - (120) - (120)
LaPaloma 1999 8 8 (350) - (342) 8 7 (372) - (365)
Meridan at
Bridgewater 1999 5 47 (156) - (109) 5 48 (43) 5 -
Oklahoma City 1998 195 244 (3,135) - (2,891) 195 247 (2,255) - (2,008)
Olde English Manor 1999 76 96 (381) - (285) 76 97 (181) - (84)
Palisades Park 1999 100 95 (698) - (603) 100 96 (576) - (480)
Pavillion 1999 5 5 (408) - (403) 5 5 (433) - (428)
Queen Anne IV 1998 65 64 (293) - (229) 65 65 (250) - (185)
Rillito Village 1999 65 64 (611) - (547) 65 64 (501) - (437)
Riverset Phase I 2000 5 62 921 983 - - - - - -
Riverset Phase II 1996 75 298 (53) 245 - 75 333 (33) 300 -
Silver Spring 2000 5 35 (112) - (77) - - - - -
Southgate Crossings 1997 93 552 (346) 206 - 96 571 (311) 260 -
Southwood 1997 440 303 (1,127) - (824) 440 298 (983) - (685)
Village Green 2000 5 26 (29) - (3) - - - - -
Villas at Sonterra 1998 5 34 (763) - (729) 5 34 (712) - (678)
Woodglen 1999 5 36 (118) - (82) 5 37 (32) 5 -
-------- ----------- ----------------------- ----- --------- ------------------------
Subtotal investment in RITES 5,723 (9,694) 4,368 (8,339) 5,691 (8,311) 3,625 (6,245)
-------- ----------- ----------------------- ----- --------- -----------------------
-------- ---------- ------------------------ ----- --------- -----------------------
Interest rate agreements (2) Various 67 3,975 4,512 (470) - 4,638 4,713 (75)
-------- ---------- ------------------------ ----- --------- ------------------------
Investment in total return
swaps (3):
Club West (3/30/99 -
9/30/00) 1999 7,960 - (843) - (843) 7,960 - (753) - (753)
Honey Creek (10/1/99 -
6/30/00) 1999 19,865 - (25) - (25) 19,865 - (25) - (25)
Willow Key (3/30/99 -
9/30/00) 1999 17,440 - (1,375) - (1,375) 17,440 - (1,151) - (1,151)
-------- ---------- ------------------------ ----- --------- ------------------------
Total investment in total return swaps - (2,243) - (2,243) - (1,929) - (1,929)
-------- ---------- ------------------------ ----- --------- ------------------------
Total other bond related investments $ 5,790 $ (7,962) $ 8,880 $ (11,052) $ 5,691 $ (5,602)$ 8,338 $ (8,249)
======== ========== ======================== ======= ========= ========================
(1) Investment held by a wholly owned subsidiary of TE Bond Sub.
(2) The Company enters into interest rate swap and cap contracts to hedge against interest rate exposure on the Company's investment
in RITES. The amounts disclosed represent the net fair values of all the Company's swaps at the reporting date.
(3) Face amount represents notional amount of swap agreements and the (dates) represent the effective date and the termination date
of the swap.
(4) The aggregate negative fair value of the investments is included in liabilities for financial reporting purposes.
The negative fair value of these investments is considered temporary and is not indicative of the future earnings on these
investments.
In the first quarter, the Company purchased three RITES(sm) investments
($15,000 par value) for $124,000.
NOTE 7 - LOANS RECEIVABLE
The Company's loans receivable primarily consist of construction loans,
taxable loans and other loans. The Company's rights and the specific terms
of the loans are defined by the various loan documents which were negotiated at
the time of settlement. The basic terms and structure of the loans are described
in Note 9 to the Company's 1999 Form 10-K. The following table summarizes
loans receivable by loan type at March 31, 2000 and December 31, 1999.
(000s) March 31, December 31,
Loan Type 2000 1999
---------- -----------
Taxable construction loans $ 275,656 $ 271,492
Taxable loans 10,632 10,795
Other loans 6,237 4,558
---------- ----------
292,525 286,845
Allowance for loan losses (356) (356)
---------- ----------
Total $ 292,169 $ 286,489
========== =========
NOTE 8 - NOTES PAYABLE
The Company's notes payable primarily consist of notes payable and
advances under line of credit arrangements. The notes payable are borrowings by
Midland used to finance construction lending and working capital needs. The
general terms of the Company's notes payable are discussed in Note 11 to the
Company's 1999 Form 10-K and are summarized as follows:
March 31, December 31,
(000s) 2000 1999
--------- -----------
Notes payable $ 225,128 $ 229,847
Group Trust Warehouse Facility 2,104 28,641
Residential Funding Warehouse Facility 37,622 468
Bank Line of Credit - 3,000
--------- -----------
$ 264,854 $ 261,956
========== ===========
NOTE 9 - EARNINGS PER SHARE
The following table reconciles the numerators and denominators in the
basic and diluted EPS calculations for Common Shares for the three months ended
March 31, 2000 and 1999.
Reconciliation of Basic and Diluted EPS
For the three months ended March 31, 2000 For the three months ended March 31, 1999
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ---------------- ---------- ------------ ---------------- ------------
(in thousands, except share and per share data)
Basic EPS
Income allocable to common shares $ 7,019 17,426,523 $0.40 $ 8,056 16,809,142 $ 0.48
========== ===========
Effect of Dilutive Securities
Options and deferred shares - 334,713 - 222,185
Convertible preferred shares
to the extent dilutive - - - -
----------- --------------- ------------ ---------------
Diluted EPS
Income allocable to common shares
plus assumed conversions $ 7,019 17,761,236 $0.40 $ 8,056 17,031,327 $ 0.47
=========== =============== ========== ============ =============== ===========
NOTE 10 - DISTRIBUTIONS
On April 20, 2000, the Board of Directors declared distributions for
the three months ended March 31, 2000 for shareholders of record on May 1, 2000.
The payment date is May 12, 2000. The per share distributions are shown in the
following table:
Preferred Capital
Common Preferred Shares Distribution Shares
------------------------------- ------------------------------
Shares Series I Series II Series I Series II
------------ -------------- -------------- -------------- --------------
Distributions paid on May 12, 2000
to holders of record on May 1, 2000:
For the three months ended
March 31, 2000 $ 0.4125 $ 13.00 $ 12.50 $ 10.00 $ 7.50
NOTE 11 - BUSINESS SEGMENT REPORTING
In the fourth quarter of 1999, the Company adopted Financial Accounting
Standards Board Statement No. 131, "Disclosures About Segments of an Enterprise
and Related Information," which establishes standards for reporting information
about a company's operating segments. In October 1999, as a result of the
Midland acquisition, the Company restructured its operations into two business
segments: (1) an operating segment consisting of Midland and other subsidiaries
that primarily generate taxable fee income by providing loan servicing, loan
origination and other related services and (2) an investing segment consisting
primarily of subsidiaries holding investments producing tax-exempt interest
income. The accounting policies of the segments are the same as those described
in Note 1 to the Company's 1999 Form 10-K. A complete description of the
Company's reporting segments is described in Note 21 to the Company's 1999 Form
10-K.
The following table reflects the results of the Company's segments for
the three months ended March 31, 2000.
Municipal Mortgage & Equity, LLC
Segment Reporting for the three months ended March 31, 2000
(in thousands)
Total
Investing Operating Adjustments Consolidated
------------ ------------- -------------- --------------
Interest on mortgage revenue bonds and
other bond related investments $ 9,467 $ 460 $ - $ 9,927
Interest on loans 304 6,529 - 6,833
Loan origination and brokerage fees - 816 (200) (1) 616
Loan servicing fees - 1,962 - 1,962
Short-term investment income 657 415 - 1,072
Other fee income - 835 - 835
------------ ------------- -------------- --------------
Total income 10,428 11,017 (200) 21,245
------------ ------------- -------------- --------------
Salaries and benefits 332 3,000 - 3,332
Operating expenses 336 1,440 - 1,776
Goodwill amortization - 358 - 358
Interest expense 846 5,881 - 6,727
------------ ------------- -------------- --------------
Total expenses 1,514 10,679 - 12,193
------------ ------------- -------------- --------------
Net income before allocations to preferred
shareholders in a subsidiary company 8,914 338 (200) 9,052
Allocations to preferred shareholders 1,444 - - 1,444
------------ ------------- -------------- --------------
Net income before income taxes 7,470 338 (200) 7,608
Income taxes - (9) - (9)
------------ ------------- -------------- --------------
Net income $ 7,470 $ 347 $ (200) $ 7,617
============ ============= ============== ==============
Notes:
(1) Adjustments represent origination fees on purchased investments which are deferred and amortized
into income over the life of the investment.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General Business
Municipal Mortgage & Equity, LLC (the "Company") is in the business of
originating, investing in and servicing investments in multifamily housing debt
and equity. The Company is a limited liability company that, as a result of a
merger effective August 1, 1996 (the "Merger"), is the successor to the business
of SCA Tax Exempt Fund Limited Partnership (the "Partnership").
On October 20, 1999, the Company acquired Midland Financial Holdings,
Inc. ("Midland") for approximately $45 million (see Note 2 to the consolidated
financial statements). The consolidated earnings of Midland are included in the
Company's results of operations from the date of the Company's acquisition of
Midland.
Results of Operations
Quarterly Results Analysis
Total income for the three months ended March 31, 2000 increased by
approximately $11.2 million over the same period last year due primarily to
increased collections of interest on bonds, other bond related investments and
loans of $8.8 million and an increase in loan servicing fees and other income of
$2.4 million due primarily to Midland. This increase was partially offset by the
one time gain on sale of demand notes recorded in March 1999.
Salary, benefits and operating expenses for the three months ended
March 31, 2000 increased by approximately $4 million over the same period last
year due primarily to salary and operating expenses generated by Midland of $2.9
million and increased costs associated with growing the company. The Company
also recorded amortization of goodwill and intangibles of $0.4 million
associated with the October 1999 acquisition of Midland.
The Company incurred interest expense of $6.7 million for the three
months ended March 31, 2000 as a result of interest expense from short-term
borrowings associated with construction lending activity at Midland of $5.9
million and the term debt financing completed in March 1999 of $0.8 million (see
Note 4 to the consolidated financial statements).
The Company recorded income allocable to preferred shareholders of a
subsidiary company of $1.4 million for the three months ended March 31, 2000 as
a result of the May 1999 Preferred Equity Offering (see Note 3 to the
consolidated financial statements).
Liquidity and Capital Resources
The Company's primary objective is to maximize shareholder value
through increases in CAD per Common Share and appreciation in the value of its
Common Shares. The Company seeks to achieve its growth objectives by growing its
investing and operating business segments. The Company grows its investment
segment by acquiring, servicing and managing diversified portfolios of mortgage
bonds and other bond related investments. Growth in the operating segment is
derived from increasing levels of fees generated by affordable housing equity
syndications, loan servicing and origination and brokerage services. In order to
facilitate this growth strategy, the Company will require additional capital in
order to pursue acquisition opportunities. The Company expects to finance its
acquisitions through a financing strategy that (1) takes advantage of attractive
financing available in the tax-exempt securities markets; (2) minimizes exposure
to fluctuations of interest rates; and (3) maintains maximum flexibility to
manage the Company's short-term cash needs. To date, the Company has primarily
used two sources, securitizations and Common Share or Preferred Share equity
offerings, to finance its acquisitions. Through Midland's management of capital
for others, including Fannie Mae, the Company has expanded its access to
capital.
In March 1999, the Company converted a portion of its investment in the
Merrill Lynch P-FLOATs(sm) program into a longer term securitization facility
(see Note 4 to the consolidated financial statements). Going forward, the
Company intends to use a combination of this longer term securitization facility
and the Merrill Lynch P-FLOATs(sm) securitization program. The P-FLOATs(sm)
program allows the Company to securitize bonds relatively quickly and allows the
Company to purchase interests in bonds it has previously securitized. A longer
term securitization facility allows the Company to reduce its exposure to credit
and annual renewal risks associated with the liquidity and credit enhancement
features of the P-FLOATs(sm) trusts and allows the Company to reduce its
reliance on interest rate swaps. The combination of these two vehicles allows
the Company the flexibility it needs to finance acquisitions.
In the first quarter, the Company participated in $16.6 million of
investment transactions. Of this amount, $10.1 million were bond or loan
transactions retained by the Company.
Through the use of securitizations, the Company expects to employ
leverage and maintain overall leverage ratios in the 40% to 55% range, with
certain assets at significantly higher ratios, approximately 99%, while not
leveraging other assets at all. The Company calculates leverage by dividing the
total amount of on-balance sheet debt plus the total amount of senior interests
in its investments, which it considers the equivalent of off-balance sheet
financing, by the sum of total assets owned by the Company plus senior interests
owned by others adjusted for reserves equal to the net assets of the operating
segment. Under this method, the Company's leverage ratio at March 31, 2000 was
approximately 51%.
In order to facilitate the securitization of certain assets at higher
leverage ratios, the Company has pledged additional bonds to the pool that acts
as collateral for the senior interests in the trust.
Cash Flow
At March 31, 2000, the Company had cash and cash equivalents of
approximately $35.3 million.
Cash flow from operating activities was $9.0 million and $6.8 million
for the three months ended March 31, 2000 and 1999, respectively. The increase
in cash flow for 2000 versus 1999 is due primarily to an increase in income from
new investments.
The Company is required to distribute to the holders of Preferred
Shares and Preferred Capital Distribution Shares ("Preferred CD Shares") cash
flow attributable to such shares (as defined in the Company's Amended and
Restated Certificate of Formation and Operating Agreement). The Company is
required to distribute 2.0% of the net cash flow to the holders of Term Growth
Shares. The balance of the Company's net cash flow is available for distribution
to the Common Shares and the Company's current policy is to distribute to Common
Shareholders at least 80% of the annual cash available for distributions ("CAD")
to Common Shares. This payout ratio approximated 93% and 86% of CAD for the
three months ended March 31, 2000 and 1999, respectively.
Certain of the bonds held by the Company are participating bonds that
provide for payment of contingent interest in addition to base interest at a
fixed rate. Additionally, the mortgage loans underlying all of the bonds and
certain bond related investments held by the Company are nonrecourse. As a
result of these two factors, all debt service on the bonds, and therefore, cash
flow available for distribution to all shareholders, is dependent upon the
performance of the underlying properties.
The Company uses CAD as the primary measure of its dividend paying
ability. CAD differs from net income because of slight variations between
generally accepted accounting principles ("GAAP") income and actual cash
received. There are several differences between CAD and GAAP income. The first
is the treatment of loan origination fees, which for CAD purposes are recognized
as income when received but for GAAP purposes are amortized into income over the
life of the associated investment. The other significant differences are noncash
gains and losses associated with bond valuations and sales for GAAP purposes and
amortization of goodwill and intangibles, which are not included in the
calculation of CAD.
For the three months ended March 31, 2000 and 1999, cash available for
distribution to Common Shares was $7.7 million and $7.8 million, or $6.8 million
from recurring CAD for 1999, respectively. Recurring CAD for 1999 excludes the
one time gain on sale of demand notes recorded in March 1999. Regular cash
distributions to common shareholders attributable to the three months ended
March 31, 2000 and 1999 were $7.2 million and $6.7 million, respectively. The
Company's Common Share dividend for the three months ended March 31, 2000 of
$0.4125 represents a payout ratio of 93% of CAD. The Company's Common Share
dividend for the three months ended March 31, 1999 of $0.395 represents a payout
ratio of 86% of total CAD or 98% of recurring CAD for 1999.
The Company expects to meet its cash needs in the short term, which
consist primarily of funding new investments, operating expenses and dividends
on the Common Shares and other equity, from cash on hand, operating cash flow
and securitization proceeds. The Company's business plan includes making
additional investments during 2000. In order to achieve its plan, the Company
will be required to obtain additional financing of approximately $60 million
during 2000. The Company currently has no commitments or understandings with
respect to such financings, and there can be no assurance that any such
financings will be available when needed.
Income Tax Considerations
MuniMae is organized as a limited liability company and as a result, no
recognition of income taxes is made. Instead, the distributive share of
MuniMae's income, deductions and credits is included in each shareholder's
income tax return. The Company records cash dividends received from subsidiaries
organized as corporations as dividend income for tax purposes.
However, as a result of the Midland acquisition, in October 1999, the
Company restructured its operations into two segments, an operating segment and
an investing segment (see Note 11 to the consolidated financial statements). The
operating segment, which is directly or indirectly wholly owned by MuniMae,
consists primarily of entities subject to income taxes. The Company provides for
income taxes in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial statement carrying
amounts and the tax basis of assets and liabilities.
The Company has elected under Section 754 of the Internal Revenue Code
to adjust the basis of the Company's property on the transfer of shares to
reflect the price each shareholder paid for their shares. While the bulk of the
Company's recurring income is tax-exempt, from time to time, the Company may
sell or securitize various assets, which may result in capital gains and losses
for tax purposes. Since the Company is taxed as a partnership, these capital
gains and losses are passed through to shareholders and are reported on each
shareholder's Schedule K-1. The capital gain and loss allocated from the Company
may be different to each shareholder due to the Company's 754 election and is a
function of, among other things, the timing of the shareholder's purchase of
shares and the timing of transactions which generate gains or losses for the
Company. This means that for assets purchased by the Company prior to a
shareholder's purchase of shares, the shareholder's basis in the assets may be
significantly different than the Company's basis in those same assets. Although
the procedure for allocating the basis adjustment is complex, the result of the
election is that each share is homogeneous, while each shareholder's basis in
the assets of the Company may be different. Consequently, the capital gains and
losses allocated to shareholders may be significantly different than the capital
gains and losses recorded by the Company.
A portion of the Company's interest income is derived from private
activity bonds that for income tax purposes, are considered tax preference items
for purposes of alternative minimum tax ("AMT"). AMT is a mechanism within the
Internal Revenue Code to ensure that all taxpayers pay at least a minimum amount
of taxes. All taxpayers are subject to the AMT calculation requirements although
the vast majority of taxpayers will not actually pay AMT. As a result of AMT,
the percentage of the Company's income that is exempt from federal income tax
may be different for each shareholder depending on that shareholder's individual
tax situation.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Since December 31, 1999 there has been no material change to the
information included in Item 7A of the Company's 1999 Form 10-K.
PART II. OTHER INFORMATION
Item 5. Other Information
On January 24, 2000, the Company filed on Form S-3 a registration
statement to register 589,565 Common Shares issued to Messrs. Robert J. Banks,
Keith J. Gloeckl and Ray F. Mathis in connection with the Company's October 20,
1999 acquisition of Midland Financial Holdings, Inc. as reported on Form 8-K
filed with the Securities and Exchange Commission on November 2, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Amendment No. 1 to the Amended and Restated
Certificate of Formation and Operating Agreement
of the Company (filed as Item 6 (a) Exhibit 3.1 to
the Company's report on Form 10-Q, filed with the
Commission on May 14, 1998 and incorporated by
reference herein).
3.2 By-laws of the Company (filed as Item 16 Exhibit 4.2
to the Company's Registration Statement on Form S-3/A
- Amendment #1, File No. 333-56049, filed with the
Commission on June 29, 1998 and incorporated by
reference herein).
27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the quarter ended
March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MUNICIPAL MORTGAGE & EQUITY, LLC
(Registrant)
By: /s/ Mark K. Joseph
Mark K. Joseph
Chairman of the Board, Chief Executive Officer
(Principal Executive Officer), and Director
By: /s/ Gary Mentesana
Gary Mentesana
Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
DATED: May 5, 2000
5/3/00
16
INDEX TO EXHIBITS
Exhibit
Number
Document
10.10 Employment Agreement between the Registrant and Mark K. Joseph
10.11 Employment Agreement between the Registrant and Michael L. Falcone
10.12 Employment Agreement between the Registrant and Gary A. Mentesana
27 Financial Data Schedule