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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
Commission file number: 0-23131
PEOPLE'S PREFERRED CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 95-4642529
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
221 S. Figueroa Street
Los Angeles, California 90012
(213) 443-1400
Indicate by check mark whether the registrant (1) has filed all reports 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.
Class Shares Outstanding June 30, 2002
----- --------------------------------
Common Stock, $0.01 par value 10,000
Series A Preferred Shares, $0.01 par value 1,426,000
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PEOPLE'S PREFERRED CAPITAL CORPORATION
JUNE 30, 2002 REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Statements of Financial Condition - June 30, 2002
and December 31, 2001 3
Statements of Earnings - For the three months and six months
ended June 30, 2002 and 2001 4
Statements of Cash Flows - For the six months ended June 30,
2002 and 2001 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II OTHER INFORMATION
Item 1: Legal Proceedings 16
Item 2: Changes in Securities and Use of Proceeds 16
Item 3: Defaults on Senior Securities 16
Item 4: Submission of Matters to a Vote of Security Holders 16
Item 5: Other Information 16
Item 6: Exhibits and Reports on Form 8-K 16
2
PEOPLE'S PREFERRED CAPITAL CORPORATION
STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(unaudited)
June 30, December 31,
2002 2001
------------ ------------
ASSETS:
Cash and cash equivalents........................................... $ 11,673 $ 2,946
Mortgage loans, net (Note 2)........................................ 62,319 71,245
Due from affiliate.................................................. -- 741
Accrued interest receivable......................................... 421 400
Other assets........................................................ 12 --
------------ ------------
Total assets.................................................... $ 74,425 $ 75,332
============ ============
LIABILITIES:
Accounts payable and accrued liabilities............................ 936 935
Accrued taxes payable............................................... 1,634 2,431
------------ ------------
Total liabilities............................................... 2,570 3,366
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share, 4,000,000 shares
authorized: Preferred stock series A, issued and outstanding
1,426,000 shares, liquidation value $ 35,650.................... 14 14
Common stock, par value $.01 per share, 4,000,000 shares authorized:
10,000 shares issued and outstanding............................ -- --
Additional paid-in capital.......................................... 72,075 72,075
Accumulated deficit................................................. (234) (123)
------------ ------------
Total stockholders' equity...................................... 71,855 71,966
------------ ------------
Total liabilities and stockholders' equity...................... $ 74,425 $ 75,332
============ ============
See accompanying notes to financial statements.
3
PEOPLE'S PREFERRED CAPITAL CORPORATION
STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
REVENUES:
Interest on mortgage loans....... $ 1,429 $ 1,175 $ 2,950 $ 2,598
Interest on cash equivalents..... 31 119 31 134
------------ ------------ ------------ ------------
Total revenues............... 1,460 1,294 2,981 2,732
------------ ------------ ------------ ------------
OTHER NON INTEREST INCOME:
Gain on Sale of Loans........... -- 457 -- 457
EXPENSES:
Servicing fees................... 42 35 82 80
Advisory fees.................... -- 50 -- 100
Professional fees................ 9 37 41 61
Other............................ 17 19 27 28
------------ ------------ ------------ ------------
Total expenses............... 68 141 150 269
------------ ------------ ------------ ------------
Net earnings before Provision for
Income Taxes..................... 1,392 1,610 2,831 2,920
Provision for Income Taxes....... 592 1,228 1,204 1,228
------------ ------------ ------------ ------------
Net Earnings................. $ 800 $ 382 $ 1,627 $ 1,692
============ ============ ============ ============
See accompanying notes to financial statements.
4
PEOPLE'S PREFERRED CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(unaudited)
Six Months Ended
June 30,
----------------------------
2002 2001
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings...................................................... $ 1,627 $ 1,692
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Increase in accrued interest receivable........................ (21) (32)
Decrease in due from affiliate................................. 741 486
Increase in other assets....................................... (12) (6)
(Increase)/decrease in accounts payable and accrued liabilities (796) 1,204
------------ ------------
Net cash provided by operating activities...................... 1,539 3,344
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan sale proceeds................................................ -- 60,028
Sale of accrued interest.......................................... -- 366
Gain on sale of loans............................................. -- (457)
Mortgage loan principal repayments................................ 8,926 4,546
------------ ------------
Net cash provided by investing activities......................... 8,926 64,483
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividends paid.................................... (1,738) (1,737)
Common stock dividends paid....................................... -- (700)
------------ ------------
Net cash used in financing activities............................. (1,738) (2,437)
------------ ------------
Net increase in cash and cash equivalents.............................. 8,727 65,390
Cash and cash equivalents at beginning of period....................... 2,946 304
------------ ------------
Cash and cash equivalents at end of period............................. $ 11,673 $ 65,694
============ ============
See accompanying notes to financial statements.
5
PEOPLE'S PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
People's Preferred Capital Corporation (the "Company") was originally a
real estate investment trust ("REIT") that was formed in June 1997 in order to
acquire, hold and manage mortgage assets and other authorized investments. All
of our common stock is owned by California National Bank (the "Bank"). We expect
that all of our mortgage assets will be acquired from the Bank or purchased from
other companies that are not affiliated with us. To date, all of our mortgage
assets have been acquired from our parent.
On April 30, 2001, PBOC Holdings, Inc. ("PBOC"), the sole stockholder and
holding company of People's Bank of California, merged with FBOP Corporation
("FBOP"), a closely held bank and savings institution holding company that owns
banks in California, Illinois and Texas. FBOP merged People's Bank of California
and its subsidiaries, including the Company, into its wholly owned subsidiary,
California National Bank, on November 13, 2001.
WE HAVE FAILED TO CONTINUE TO QUALITY AS REIT. By virtue of the
Acquisition, we have determined that we have failed to qualify for taxation as a
REIT, retroactive to the beginning of 2001. Because FBOP is a privately owned
corporation, we no longer satisfy the "five or fewer test," which requires that
no more than 50% in value of our outstanding stock be owned, directly or
indirectly, by five or fewer individuals at any time during the last half of
each taxable year. Prior to consummation of the Acquisition, we were able to
attribute ownership indirectly to PBOC's public stockholders.
By failing to qualify for taxation as a REIT, we are subject to tax
(including any applicable alternative minimum tax) on our taxable income at
regular corporate rates, which reduces income that would otherwise be available
to our stockholders. The provision for income taxes was $1,204,000 for the six
months ended June 30, 2002. Distributions to stockholders are not deductible by
us nor are we required to make them. If made, all distributions to stockholders,
to the extent of current and accumulated earnings and profits, are taxable as
ordinary income and, subject to certain limitations of the Internal Revenue Code
of 1986 as amended, corporate distributees may be eligible for the dividends
received deduction. Unless entitled to relief under specific statute, we are
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost, and we are not permitted to requalify
unless we distribute any earnings and profits attributable to the period during
which we failed to qualify.
Distributions to stockholders in excess of current and accumulated earnings
and profits would represent a return of capital and generally would not be
taxable. For the fiscal year ending December 31, 2002, we expect the Company
to make distributions in excess of current and accumulated earnings and profits
such that the distributions to stockholders for the year would include a return
of capital component.
6
FBOP COULD REDEEM SERIES A SHARES. Under our Articles of Incorporation, the
Acquisition of PBOC Holdings and its subsidiaries, including People's Preferred
Capital Corporation, constitutes a change in control which permits FBOP to
redeem the Series A Preferred Shares earlier than would otherwise be permitted.
Following a change in control, the Series A Preferred Shares are redeemable
prior to October 15, 2002, in whole but not in part, at a redemption price per
share equal to (i) $25.00 or (ii) an amount equal to all authorized, declared
and unpaid dividends, if any, to the redemption date, without interest, and
without duplication, an additional amount equal to the amount of dividends that
would be payable on the Series A Preferred Shares from the first day of the
dividend period in which the redemption date occurs to the redemption date
(assuming such dividends are authorized and declared) plus (iii) the Applicable
Premium, as defined in our Articles of Incorporation. On or after October 15,
2002, the Series A Preferred Shares may be redeemed, in whole or in part, at any
time. We cannot offer an opinion or assurance on what FBOP will do with respect
to the Series A Preferred Shares in the future.
SERIES B PREFERRED SHARES. In September 1997, we completed the sale of
1,426,000 shares of 9.75% Noncumulative Exchangeable Preferred Stock, Series A
(our "Series A Preferred Shares") at an offering price of $25.00 per share.
Subsequently, our Board of Directors, including a majority of our independent
directors, authorized the filing of a Registration Statement with the Securities
and Exchange Commission ("SEC") for the issuance of Series B Preferred Shares
which, to the extent issued, will have parity with respect to the Series A
shares. The Registration Statement was filed on August 9, 1999. To date, the
Company has not issued any Series B Preferred Shares and, due to market
conditions, the Company has no immediate plans with respect to the issuance of
such securities.
The accompanying financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and with the instructions for meeting the
requirements of Regulation S-X, Article 10, and therefore do not include all
disclosures necessary for complete financial statements. In the opinion of
management, all adjustments have been made that are necessary for a fair
presentation of the financial position and results of operations and cash flows
for the periods presented. All such adjustments are of a normal recurring
nature. The results of operations for the six months ended June 30, 2002 are not
necessarily indicative of the results that may be expected for the entire fiscal
year or any other interim period.
The financial statements should be read in conjunction with the audited
financial statements and accompanying notes thereto as of December 31, 2001
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2001. All terms used but not defined elsewhere in this report have meanings
ascribed to them in the Annual Report on Form 10-K filed with the SEC on March
26, 2002.
7
NOTE 2 - MORTGAGE LOANS, NET
Mortgage loans, net, consisted of the following (in thousands):
June 30, December 31,
2002 2001
------------ ------------
1-4 unit residential mortgage loans $ 710 $ 735
Commercial real estate loans....... 61,814 70,702
------------ ------------
62,524 71,437
Net premiums/discounts on loans.... 48 61
Allowance for loan losses.......... (253) (253)
------------ ------------
Total mortgage loans, net..... $ 62,319 $ 71,245
============ ============
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
WHEN USED IN THIS FORM 10-Q OR FUTURE FILINGS BY THE COMPANY WITH THE SEC,
IN THE COMPANY'S PRESS RELEASES OR OTHER PUBLIC OR STOCKHOLDER COMMUNICATIONS,
OR IN ORAL STATEMENTS MADE WITH AN APPROVAL OF AN AUTHORIZED EXECUTIVE OFFICER,
THE WORDS OR PHRASES "WOULD BE", "WILL ALLOW", "INTENDS TO", "WILL LIKELY
RESULT", "ARE EXPECTED TO", "WILL CONTINUE", "IS ANTICIPATED", "ESTIMATE",
"PROJECT", OR SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE LITIGATION REFORM ACT OF 1995.
THE COMPANY WISHES TO CAUTION READERS NOT TO PLACE UNDUE RELIANCE ON ANY
SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE MADE, AND TO
ADVISE READERS THAT VARIOUS FACTORS, INCLUDING REGIONAL AND NATIONAL ECONOMIC
CONDITIONS, SUBSTANTIAL CHANGES IN MARKET INTEREST RATES, CREDIT AND OTHER RISKS
OF LENDING AND INVESTMENT ACTIVITIES AND COMPETITIVE AND REGULATORY FACTORS,
COULD AFFECT THE COMPANY'S FINANCIAL PERFORMANCE AND CAUSE THE COMPANY'S ACTUAL
RESULTS FOR FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED OR
PROJECTED. THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY DISCLAIMS ANY
OBLIGATION, TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT OCCURRENCES OR
UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.
INFORMATION RELATING TO THE IMPACT OF FBOP'S ACQUISITION OF THE COMPANY
WE HAVE FAILED TO CONTINUE TO QUALIFY AS A REIT. By virtue of the
Acquisition, we have determined that we have failed to qualify for taxation as a
REIT, which is retroactive to the beginning of 2001. Because FBOP is a privately
owned corporation, we no longer satisfy the "five or fewer test," which requires
that no more than 50% in value of our outstanding stock be owned, directly or
indirectly, by five or fewer individuals at any time during the last half of
each taxable year. Prior to consummation of the Acquisition, we were able to
attribute ownership indirectly to PBOC's public stockholders.
By failing to qualify for taxation as a REIT, we are subject to tax
(including any applicable alternative minimum tax) on our taxable income at
regular corporate rates, which reduces income that would otherwise be available
to our stockholders. The provision for income taxes was $1,204,000 for the six
months ended June 30, 2002, and $1,228,000 for the six months ended June 30,
2001. Distributions to stockholders are not deductible by us nor are we required
to make them. If distributions to stockholders are made, all distributions, to
the extent of current and accumulated earnings and profits, are taxable as
ordinary income and, subject to certain limitations of the Internal Revenue Code
of 1986 as amended, corporate distributees may be eligible for the dividends
received deduction. Unless entitled to relief under specific statute, we are
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost, and we are not permitted to requalify
unless we distribute any earnings and profits attributable to the period during
which we failed to qualify.
9
Distributions to stockholders in excess of current and accumulated earnings
and profits would represent a return of capital and generally would not be
taxable. For the fiscal year ending December 31, 2002 we expect the Company
to make distributions in excess of current and accumulated earnings and profits
such that the distributions to stockholders for the year would include a return
of capital component.
FBOP COULD REDEEM THE SERIES A PREFERRED SHARES. The Acquisition described
above constitutes a change in control which allows FBOP to redeem the Series A
Preferred Shares earlier than would otherwise be permitted. Following a change
in control, the Series A Preferred Shares are redeemable prior to October 15,
2002, in whole but not in part, at a redemption price per share equal to (i)
$25.00 or (ii) an amount equal to all authorized, declared and unpaid dividends,
if any, to the redemption date, without interest, and without duplication, an
additional amount equal to the amount of dividends that would be payable on the
Series A Preferred Shares from the first day of the dividend period in which the
redemption date occurs to the redemption date (assuming such dividends are
authorized and declared) plus (iii) the Applicable Premium, as defined in our
Articles of Incorporation. On or after October 15, 2002, the Series A Preferred
Shares may be redeemed, in whole or in part, at any time. We cannot offer an
opinion or assurance on what FBOP will do with respect to the Series A Preferred
Shares in the future.
OVERVIEW
Our principal business objective is to acquire, hold and manage mortgage
assets and other authorized investments that will generate net earnings for
distribution to our stockholders. At June 30, 2002, we had total assets of $74.4
million, total liabilities of $2.6 million and total stockholders' equity of
$71.8 million. As of June 30, 2002, $62.5 million or 84.1% of our assets were
comprised of mortgage loans. At June 30, 2002, our loan portfolio contained 2
residential mortgage loans, representing approximately 1.1% of the unpaid
principal balance of the mortgage loans contained in our portfolio, and 69
commercial mortgage loans, representing approximately 98.9% of the unpaid
principal balance of the mortgage loans contained in our portfolio. An aggregate
of $0.7 million of our mortgage loans at this date were secured by single-family
(one-to-four unit) residential properties with a weighted average yield of 6.82%
and $61.8 million of our mortgage loans were secured by multi-family residential
and non-residential properties with a weighted average yield of 8.46%. The
overall yield on our portfolio as of June 30, 2002 and December 31, 2001 was
8.44% and 8.76%, respectively.
Although we have the authority to acquire an unlimited number of mortgage
assets from unaffiliated third parties, all of our mortgage assets acquired
through June 30, 2002 have been acquired from our parent (although a portion of
our mortgage assets were acquired by the Bank from unaffiliated third parties).
We have no present plans to purchase mortgage assets from unaffiliated third
parties. From time to time we also may acquire mortgage-backed securities and a
limited amount of non-mortgage related securities.
10
Our board of directors is composed of eight members, five of whom are
employees of California National Bank or FBOP Corporation and three who are
independent directors. In addition, we currently have four officers, all of whom
are officers of California National Bank. We have no other employees and do not
anticipate that we will require additional employees.
A summary of Selected Financial Data for the Company is as follows (dollars in
thousands):
For the Six Months
Ended June 30,
---------------------------
2002 2001
------------ ------------
STATEMENTS OF EARNINGS:
Interest on mortgage loans........................ $ 2,950 $ 2,598
Total revenues.................................... 2,981 2,732
Net earnings...................................... 1,627 1,692
At June 30, At December 31,
2002 2001
----------- ---------------
STATEMENTS OF FINANCIAL CONDITION:
Mortgage loans, net............................... $ 62,319 $ 71,245
Total assets...................................... 74,425 75,332
Total stockholders' equity........................ 71,855 71,966
Weighted average yield on mortgage loans.......... 8.44% 8.76%
RESIDENTIAL MORTGAGE LOANS. The following table presents certain
information about each type of residential mortgage loan included in the
Company's portfolio as of June 30, 2002 (dollars in thousands):
TYPE OF RESIDENTIAL MORTGAGE LOAN PRODUCT
Average
Average Remaining Average
Principal Percentage Initial Term Net Note
Type Balance Of Portfolio LTV (in months) Rate
- ------------------------------------------------------------------------------------------------------------
Bi-weekly - fixed............. $ 662 93.2% 73.3 136 6.75%
30 year fixed rate............ 48 6.8 89.8 313 7.75
------------ ------------ ------------ ------------ ------------
$ 710 100.0% 74.4 148 6.82%
============ ============ ============ ============ ============
11
The residential mortgage loans included in our portfolio are both fixed
rate loans. These fixed-rate residential mortgage loans in our portfolio bear
interest at 6.75% and 7.75%, net of servicing fees. At June 30, 2002, the
weighted average net interest rate of our residential mortgage loans was 6.82%
per annum.
COMMERCIAL MORTGAGE LOANS. The following table sets forth as of June 30,
2002 certain information regarding each type of commercial real estate loan
included in the Company's portfolio (dollars in thousands):
TYPE OF COMMERCIAL MORTGAGE LOAN PRODUCT
Average
Average Remaining Average
Principal Percentage of Initial Term Net Note
Type Balance Portfolio LTV (in months) Rate
- ----------------------------------------------------------------------------------------------------------------
Non-residential fixed rate balloon $ 47,604 77.0% 59.0 75 8.44%
Non-residential fixed rate......... 1,819 2.9 71.0 103 9.09
Non-residential adjustable rate
balloon............................ 10,800 17.5 57.0 83 8.36
Multi-family fixed rate balloon.... 476 .8 26.0 55 8.25
Multi-family fixed rate............ 1,115 1.8 73.0 64 9.54
------------ ------------ ------------ ------------ ------------
$ 61,814 100.0% 57.0 79 8.46
==========================================================================
Of the commercial mortgage loans included in our portfolio, 41 or
approximately 59% are not fully amortizing and will have significant principal
balances (or "balloon payments") due upon maturity.
All but two of the commercial mortgage loans included in our portfolio at
June 30, 2002 bear interest at fixed rates. The interest rates of the fixed-rate
non-residential mortgage loans range from 8.00% per annum to 10.75% per annum.
The interest rates of the two adjustable rate commercial mortgage loans are
8.37% and 8.25% per annum. The weighted average net interest rate of the
commercial mortgage loans in our portfolio at June 30, 2002 was approximately
8.46% per annum.
ASSET QUALITY
There were no residential mortgage loans or commercial mortgage loans that
were 30 or more days past due at June 30, 2002 or December 31, 2001.
12
ALLOWANCE FOR LOAN LOSSES
We maintain an allowance for loan losses to absorb potential loan losses
from the entire loan portfolio. At June 30, 2002, the allowance for loan losses
amounted to $253,000 or 0.4% of total loans. We have not incurred any loan
losses since our inception. On an ongoing basis, we monitor the loan portfolio
and evaluate the adequacy of the allowance for loan losses. Based upon our
analysis, we believe that the allowance for loan losses as of June 30, 2002 is
sufficient to absorb any inherent losses that currently exist in the portfolio.
We will continue to review the loan portfolio to determine the extent to which
any changes in loss experience may require additional provisions in the future.
FINANCIAL CONDITION
At June 30, 2002 and December 31, 2001, we had total assets of $74.4
million and $75.3 million, respectively. As of June 30, 2002, $62.5 million or
84.1% of our assets was comprised of mortgage loans, gross of the allowance for
loan losses.
During the six months ended June 30, 2002, we did not purchase any
additional mortgage loans from the Bank or third parties. During the year ended
December 31, 2001, we purchased additional mortgage loans with an aggregate
principal balance of $69.6 million from the Bank. During the six months ended
June 30, 2002 and the year ended December 31, 2001, we sold loans totaling $0
and $316,000, respectively, back to the Bank. During the same periods, we sold
$0 and $60.0 million, respectively, of residential mortgage loans to an
unaffiliated third party. As of June 30, 2002, our portfolio of mortgage loans
was comprised of $0.7 million of residential mortgage loans and $61.8 million of
multi-family and non-residential mortgage loans. The residential mortgage loans
represent 1.1%, and the multi-family and non-residential mortgage loans comprise
98.9% of our total portfolio of mortgage loans. As of December 31, 2001, our
portfolio of mortgage loans was comprised of $0.7 million of residential
mortgage loans and $70.7 million of non-residential mortgage loans, or 1.0% and
99.0% of our total portfolio of mortgage loans, respectively. The weighted
average yield of our portfolio as of June 30, 2002 and December 31, 2001 was
8.44% and 8.76%, respectively. At June 30, 2002, amounts due from affiliates
totaled $0 compared to $741,000 at December 31, 2001. Accrued interest at June
30, 2002 amounted to $421,000 as compared to $400,000 at December 31, 2001. We
maintained an allowance for loan losses of $253,000 at both June 30, 2002 and
December 31, 2001.
At June 30, 2002, our total liabilities amounted to $2.6 million, as
compared to $3.4 million at December 31, 2001. This decrease was due to income
tax payments. At June 30, 2002, stockholders' equity amounted to $71.8 million,
after taking into consideration earnings of $1.6 million and aggregate dividend
payments on the Series A Preferred Shares of $1.7 million during the first six
months of 2002. There were no dividends paid on the common stock during the
first six months of the year. At December 31, 2001, stockholders' equity
amounted to $72.0 million.
13
RESULTS OF OPERATIONS
For the six months ended June 30 2002, we reported net earnings of $1.6
million compared to $1.7 million for the six months ended June 30, 2001. Total
revenues were $3.0 million for the six months ended June 30, 2002 compared to
$2.7 million for the six months ended June 30, 2001. This increase was due to an
increase in earning assets (loans).
Advisory fee payments to the Bank totaled $0 and $100,000 during the six
month periods ended June 30, 2002 and 2001, respectively. The Bank received
$82,000 and $60,000 for servicing our non-residential and residential mortgage
loans during the six months ended June 30, 2002 and 2001, respectively. TIMC, an
unaffiliated third party that serviced a portion of our residential mortgage
loans prior to July 2001, received $20,000 in servicing fees during the six
months ended June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all of our financial commitments and to capitalize
on opportunities for our business expansion. Our principal liquidity needs are
to maintain our current portfolio size through the acquisition of additional
mortgage loans as mortgage loans currently in the portfolio mature, are sold, or
prepay and to pay dividends on the Series A Preferred Shares. The acquisition of
additional mortgage loans is intended to be funded with the proceeds obtained
from repayment of principal balances by individual mortgagees and the possible
issuance of additional shares of capital stock. The Company has not had and does
not anticipate having any material capital expenditures.
To the extent that our Board of Directors determines that additional
funding is required, the Company may raise such funds through additional equity
offerings, debt financing, intercompany advances from the Bank, or retention of
cash flow, or a combination of these methods. Our organizational documents do
not contain any limitation on the amount or percentage of debt, funded or
otherwise, that we might incur. Notwithstanding the foregoing, we may not incur
debt in excess of 20% of our total stockholder's equity without the approval of
a majority of the Company's independent directors. Any such debt incurred,
however, may include intercompany advances made by the Bank to us.
We also may issue additional series of preferred stock. However, we may not
issue additional shares of preferred stock that is, or will be, senior to the
Series A Preferred Shares, without obtaining the prior consent of holders of at
least 66 2/3% of the shares of preferred stock outstanding at that time. We may
not issue additional shares of preferred stock having parity with the Series A
Preferred Shares without the prior approval of a majority of our independent
directors. Our Board of Directors, including a majority of our independent
directors, authorized the filing of a Registration Statement with the SEC for
the issuance of Series B Preferred Shares, which, if issued, will be parity
stock with respect to the Series A Preferred Shares. The Registration Statement
was filed on August 9, 1999. The Company currently has no plans to complete the
offering of Series B Preferred Shares.
14
INTEREST RATE RISK
Our interest rate risk is primarily related to loan prepayments and
payoffs. The average maturity of loans is substantially less than their average
contractual terms because of prepayments and due-on-sale clauses, which
generally give us the right to declare a loan immediately due and payable in the
event the borrower sells the real property subject to the mortgage and the loan
is not repaid, among other things. The average life of mortgage loans tends to
increase when the current mortgage loan rates are substantially higher than
rates on existing mortgage loans and, conversely, decrease when rates on
existing mortgages are substantially higher than current mortgage loan rates
(due to refinancings of adjustable rate and fixed rate loans at lower rates).
Since December 31, 2001 there have been no significant changes in our interest
rate risk. Over the last two quarters, overall interest rate risk has decreased
due to shorter loan maturities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Item 2. Management Discussion and Analysis of Financial Condition and
Results of Operations - Interest Rate Risk".
15
PEOPLE'S PREFERRED CAPITAL CORPORATION
PART II OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
No reports on Form 8-K have been filed during the quarter ended
June 30, 2002.
EXHIBIT INDEX
Exhibit Description
------- -----------
None
16
SIGNATURES
Pursuant to the requirements 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.
Dated: August 13, 2002 /s/ Gregory A. Mitchell
-----------------------
Gregory A. Mitchell
President and C.E.O.
Dated: August 13, 2002 /s/ Karen Schoenbaum
--------------------
Karen Schoenbaum
Chief Financial Officer
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CERTIFICATIONS
I, Gregory A. Mitchell, President and Chief Executive Officer of People's
Preferred Capital Corporation (the "Company"), do hereby certify in accordance
with 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge the foregoing Quarterly Report of the Company:
(1) fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934, 15 U.S.C. 78m or 78o(d), and,
(2) the information contained in the periodic report fairly presents, in all
material aspects, the financial condition of the Company.
Dated: August 13, 2002 /s/ Gregory A. Mitchell
------------------------
Gregory A. Mitchell
President and C.E.O.
I, Karen Schoenbaum, Executive Vice President and Chief Financial Officer of
People's Preferred Capital Corporation (the "Company"), do hereby certify in
accordance with 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley
Act of 2002, that to my knowledge the foregoing Quarterly Report of the Company:
(1) fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934, 15 U.S.C. 78m or 78o(d), and,
(2) the information contained in the periodic report fairly presents, in all
material aspects, the financial condition of the Company.
Dated: August 13, 2002 /s/ Karen Schoenbaum
------------------------
Karen Schoenbaum
Chief Financial Officer
18