SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-------
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-13237
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
---------------------------------------------
(Exact name of Registrant as specified in its Trust Agreement)
Delaware 13-3949418
------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
-------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------ ------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No
------ -------
PART I - FINANCIAL
Item 1. Financial Statements
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
============= ==============
June 30, December 31,
2003 2002
------------- --------------
(Unaudited)
ASSETS
Revenue bonds-at fair value $1,677,287 $1,579,590
Other investments 39,963 44,096
Mortgage servicing rights 34,220 35,595
Cash and cash equivalents 108,459 55,227
Cash and cash equivalents-restricted 5,603 5,257
Interest receivable - net 9,486 9,020
Promissory notes and mortgages receivable 12,449 53,278
Deferred costs - net of amortization of $10,588 and $8,451 52,494 48,693
Goodwill 4,857 4,793
Other intangible assets - net of amortization of
$1,985 and $1,750 11,080 11,316
Other assets 3,930 6,003
--------- ---------
Total assets $1,959,828 $1,852,868
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Financing arrangements $ 780,489 $ 671,659
Notes payable 63,108 68,556
Interest rate hedges 4,493 5,504
Accounts payable, accrued expenses and other liabilities 15,016 32,378
Deferred income 10,600 8,998
Due to Manager and affiliates 3,520 4,126
Deferred tax liability 8,770 10,790
Distributions payable 19,391 19,020
--------- ---------
Total liabilities 905,387 821,031
--------- ---------
Preferred shares of subsidiary (subject to mandatory
repurchase) 273,500 273,500
--------- ---------
Minority interest in consolidated subsidiary 5,459 4,822
--------- ---------
Commitments and contingencies
Shareholders' equity:
Beneficial owners' equity - convertible CRA share-
holders (3,835,002 shares, issued and
outstanding in 2003 and 2002, respectively) 58,510 58,174
Beneficial owner's equity-manager 1,128 1,126
Beneficial owners' equity-other common shareholders
(100,000,000 shares authorized; 41,303,661 issued
and 41,295,261 outstanding and 41,168,618
shares issued and 41,160,218 outstanding in
2003 and 2002, respectively) 609,643 604,496
Treasury shares of beneficial interest (8,400 shares) (103) (103)
Accumulated other comprehensive income 106,304 89,822
--------- ---------
Total shareholders' equity 775,482 753,515
--------- ---------
Total liabilities and shareholders' equity $1,959,828 $1,852,868
========= =========
See accompanying notes to consolidated financial statements.
2
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share amounts)
(Unaudited)
===================================== =================================
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------- ---------------------------------
2003 2002 2003 2002
------------------------------------- ---------------------------------
Revenues:
Interest income:
Revenue bonds $ 26,925 $ 22,025 $ 53,175 $ 44,945
Other interest income 819 1,423 1,656 3,048
Promissory notes 100 160 281 323
Mortgage banking fees 1,233 1,394 2,174 3,862
Mortgage servicing fees 2,240 2,009 4,366 3,050
Other income 1,891 1,049 3,477 1,635
------------ ----------- ----------- -----------
Total revenues 33,208 28,060 65,129 56,863
------------ ----------- ----------- -----------
Expenses:
Interest expense 4,887 3,014 8,703 7,005
Recurring fees - securitizations 1,019 751 1,982 1,478
Bond servicing 1,047 878 2,062 1,644
General and administrative 4,888 5,953 10,927 11,552
Depreciation and amortization 2,915 1,760 4,602 4,000
------------ ----------- ----------- -----------
Total expenses 14,756 12,356 28,276 25,679
------------ ----------- ----------- -----------
Income before gain on repayment of revenue
bonds, sale of loans and equity in earnings
of ARCap 18,452 15,704 36,853 31,184
Equity in earnings of ARCap 555 563 1,110 1,110
Gain on sales of loans 411 3,119 2,550 6,406
Gain on repayment of revenue bonds 2,652 222 2,240 3,979
------------ ----------- ----------- -----------
Income before allocation to preferred
shareholders of subsidiary and minority
interest 22,070 19,608 42,753 42,679
Income allocated to preferred shareholders
of subsidiary (4,725) (4,053) (9,449) (7,817)
Income (loss) allocated to minority interest 67 49 39 (253)
------------ ----------- ----------- -----------
Income before benefit (provision) for income
taxes 17,412 15,604 33,343 34,609
Benefit (provision) for income taxes 788 (1,457) 2,764 (1,638)
------------ ----------- ----------- -----------
Net income $ 18,200 $ 14,147 $ 36,107 $ 32,971
=========== =========== =========== ===========
Allocation of net income to:
Special distribution to Manager $ 1,459 $ 1,240 $ 2,870 $ 2,328
============ =========== =========== ===========
Manager $ 1 $ 129 $ 3 $ 306
============ =========== =========== ===========
Common shareholders $ 15,316 $ 12,234 $ 30,405 $ 28,941
Convertible CRA shareholders 1,424 544 2,829 1,396
------------ ----------- ----------- -----------
Total for shareholders $ 16,740 $ 12,778 $ 33,234 $ 30,337
============ =========== =========== ===========
Net income per share
Basic and diluted $ 0.37 $ 0.30 $ 0.74 $ 0.74
============ =========== =========== ============
Weighted average shares
outstanding:
Basic 45,090,477 43,035,102 45,054,096 40,920,033
========== ========== ========== ==========
Diluted 45,130,042 43,107,175 45,090,323 40,988,572
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
3
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
Beneficial Beneficial
Owners' Owner's Treasury Accumulated
Equity Beneficial Equity - Shares Other
- Convertible Owner's Other of Com- Com-
CRA Equity- Common Beneficial prehensive prehensive
Shareholders Manager Shareholders Interest Income Income Total
------------ ------- ------------ -------- ------ ------ -----
Balance at January 1, 2003 $ 58,174 $ 1,126 $ 604,496 $ (103) $ 89,822 $753,515
Comprehensive income:
Net income 2,829 2,873 30,405 $ 36,107 36,107
--------
Other comprehensive gain (loss):
Net unrealized gain on interest rate
derivatives 1,040
Net unrealized loss on revenue bonds:
Unrealized holding gain arising during
the period 17,682
Less: Reclassification adjustment for
net gain included in net income (2,240)
--------
Total other comprehensive income 16,482 16,482 16,482
--------
Total comprehensive income $ 52,589
========
Options exercised and issuance of
common shares 1,560 1,560
Distributions (2,493) (2,871) (26,818) (32,182)
-------- -------- --------- -------- -------- --------
Balance at June 30, 2003 $ 58,510 $ 1,128 $ 609,643 $ (103) $106,304 $775,482
======== ======== ========= ======== ======== ========
See accompanying notes to consolidated financial statements.
4
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
========================
Six Months Ended
June 30,
------------------------
2003 2002
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 36,107 $ 32,971
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on repayment of revenue bonds (2,240) (3,979)
Other amortization 1,220 472
Amortization of other intangible assets 236 237
Amortization of bond selection costs 1,222 1,845
Amortization of mortgage servicing rights 3,112 3,437
Income allocated to preferred shareholders
of subsidiary 9,449 7,817
Equity in earnings of ARCap, in excess of
distributions received -- (105)
Increase in mortgage servicing rights (1,737) (5,437)
Income allocated to minority interest (39) 253
Issuance of shares of subsidiary - compensation expense 676 498
Decrease in mortgages receivable 33,916 --
Changes in operating assets and liabilities:
Interest receivable (517) (1,506)
Goodwill (64) --
Other assets 2,073 (61)
Guaranteed investment contracts 14,354 (5,006)
Deferred income 1,621 --
Accounts payable, accrued expenses and
other liabilities (17,364) 782
Deferred tax liability (2,020) 1,165
Due to Manager and affiliates (785) 380
Fair value of interest rate cap 28 (216)
---------- ----------
Net cash provided by operating activities 79,248 33,547
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from repayments of revenue bonds 57,276 86,130
Periodic principal payments of revenue bonds 9,002 3,392
Proceeds from repayment of note -- 6,600
Purchase/advances to revenue bonds (146,036) (199,013)
Purchase of other investments (10,221) --
Increase in deferred bond selection costs (3,321) (5,397)
Increase in promissory notes -- (1,409)
Increase in cash and cash equivalents - restricted (346) (167)
Increase in notes receivable -- (8,287)
Loans made to properties (1,879) --
Principal payments received from loans
made to properties 8,793 1,643
---------- ----------
Net cash used in investing activities (86,732) (116,508)
See accompanying notes to consolidated financial statements.
5
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
========================
Six Months Ended
June 30,
------------------------
2003 2002
------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to the Manager and Common
shareholders (29,229) (25,321)
Distributions paid to preferred shareholders
of subsidiary (9,449) (7,457)
Distributions paid to Convertible CRA
shareholders (2,371) (1,148)
Proceeds from financing arrangements 109,421 54,500
Principal repayments of financing arrangements (591) (67,261)
(Decrease) increase in notes payable (5,447) 8,287
Increase in deferred costs relating to the
Private Label Tender Option Program (334) (298)
Issuance of common shares -- 92,539
Options exercised 1,530 --
Issuance of preferred stock of subsidiary -- 55,000
Increase in deferred costs relating to the
preferred shares offering -- (1,922)
Increase in other deferred costs (2,814) (423)
--------- ---------
Net cash provided by financing activities 60,716 106,496
--------- ---------
Net increase in cash and cash equivalents 53,232 23,535
Cash and cash equivalents at the
beginning of the period 55,227 105,364
--------- ---------
Cash and cash equivalents at the
end of the period $ 108,459 $ 128,899
========= =========
SUPPLEMENTAL INFORMATION:
Interest paid $ 8,394 $ 4,372
========= =========
Taxes paid $ 135 $ --
========= =========
See accompanying notes to consolidated financial statements.
6
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
NOTE 1 - General
Charter Municipal Mortgage Acceptance Company ("CharterMac"), along with its
consolidated subsidiaries (the "Company"), is a Delaware statutory trust
principally engaged in the acquisition and ownership (directly or indirectly) of
tax-exempt multi-family housing revenue bonds ("Revenue Bonds") and other
investments that produce tax-exempt income, issued by various state or local
governments, agencies, or authorities. The Company is also engaged in providing
credit enhancements and certain other guarantees, and originates loans for
multi-family housing through its subsidiary PW Funding Inc. ("PWF"). Revenue
Bonds are primarily secured by participating and non-participating first
mortgage loans on underlying properties ("Underlying Properties"). In some cases
the Company also acquires smaller taxable loans in conjunction with acquiring a
Revenue Bond.
The Company is governed by a board of trustees comprised of three independent
managing trustees and five managing trustees who are affiliated with Related
Capital Company ("Related"), a nationwide, fully integrated real estate
financial services firm. CharterMac, through CharterMac Corporation ("CM
Corp."), a wholly-owned subsidiary, has engaged Related Charter L.P. (the
"Manager"), an affiliate of Related, to manage its day-to-day affairs.
CharterMac has also directly engaged the Manager to provide additional
management services.
On December 18, 2002, the Company announced it had entered into an agreement to
acquire 100% of the ownership interests in and substantially all of the
businesses operated by Related (other than specific excluded interests which
will be retained by the principals of Related). The acquisition will enable the
Company to terminate its outside management agreement with the Manager and to
become an internally-managed company.
The consolidated financial statements include the accounts of CharterMac and
four subsidiary statutory trusts which it controls: CM Holding Trust, CharterMac
Equity Issuer Trust, CharterMac Origination Trust I and CharterMac Owner Trust
I, and one wholly-owned corporation, CM Corp. CM Corp. owns approximately 81% of
the economics of PW Funding Inc. ("PWF"), which is also included in the
consolidated financial statements. All intercompany accounts and transactions
have been eliminated in consolidation. Unless otherwise indicated, the
"Company", as hereinafter used, refers to Charter Municipal Mortgage Acceptance
Company and its consolidated subsidiaries.
The accompanying interim financial statements have been prepared without audit.
In the opinion of management, the financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial statements of the interim periods. However, the operating results
for the interim periods may not be indicative of the results for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") have been condensed or
omitted. It is suggested that these financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 2002.
The consolidated financial statements of the Company are prepared using the
accrual method of accounting in conformity with GAAP, which requires the Manager
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates in the financial statements include the
valuation of the Company's investments in Revenue Bonds, mortgage servicing
rights ("MSRs") and interest rate derivatives.
Certain amounts in the 2002 financial statements have been reclassified to
conform to the 2003 presentation.
7
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
Significant Accounting Policies
-------------------------------
Investment in Revenue Bonds
The Company accounts for its investments in Revenue Bonds as available-for-sale
debt securities under the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). Accordingly, the Revenue Bonds are carried at their
estimated fair values, with unrealized gains and losses reported in other
comprehensive income.
In most cases, the Company has a right to require redemption of the Revenue
Bonds prior to their maturity, although it can and may elect to hold them up to
their maturity dates unless otherwise modified. As such, SFAS 115 requires the
Company to classify these investments as "available-for-sale." Accordingly,
investments in Revenue Bonds are carried at their estimated fair values, with
unrealized gains and losses reported in other comprehensive income. Unrealized
gains or losses do not affect the cash flow generated from property operations,
distributions to shareholders, the characterization of the tax-exempt income
stream or the financial obligations under the Revenue Bonds.
If, in the judgment of the Manager, it is determined probable that the Company
will not receive all contractual payments required, when they are due, the
Revenue Bond is deemed impaired and is written down to its then estimated fair
value, with the amount of the write-down accounted for as a realized loss.
Because Revenue Bonds have a limited market, the Company estimates fair value
for each bond as the present value of its expected cash flows using a discount
rate for comparable tax-exempt investments. This process is based upon
projections of future economic events affecting the real estate collateralizing
the bonds, such as property occupancy rates, rental rates, operating cost
inflation, market capitalization rates and an appropriate market rate of
interest, all of which are based on good faith estimates and assumptions
developed by the Manager. Changes in market conditions and circumstances may
occur which would cause these estimates and assumptions to change; therefore,
actual results may vary from the estimates and the variance may be material.
Other Investments
Other investments include the following items:
Investment in ARCap - The Company's preferred equity investment in ARCap
Investors, L.L.C. ("ARCap") is accounted for using the equity method because
the Company has the ability to exercise significant influence, but not
control, over ARCap's operating and financial policies.
Guaranteed Investment Contracts - The Company, through PWF, is participating
in the Fannie Mae "Guaranteed Investment Agreement Rate Lock Loan Financing"
program for properties which are in the construction phase. Under this
program, Fannie Mae commits to a fixed interest rate on a permanent loan,
which will be closed at the completion of the construction phase of the
project. The rate lock forward commitment provided by Fannie Mae exists for a
maximum period of twenty-four months. Fannie Mae loans the Company the amount
of the future permanent loan, which is required to be deposited in a
guaranteed investment contract during the construction phase. In exchange for
such loan, the Company issues Fannie Mae a promissory note whose interest is
paid from the interest on the guaranteed investment contract and the negative
arbitrage paid by the borrower. The interest rate on the note is equivalent
to the fixed rate committed to on the permanent loan. At the close of the
construction phase, the Company unwinds the guaranteed investment contract to
repay the note to Fannie Mae. The Company originates the permanent loan to
the borrower at the rate locked amount, which is subsequently purchased from
the Company by Fannie Mae. The Company has commitments from Fannie Mae under
this program of approximately $5.3 million as of June 30, 2003.
8
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
Temporary Investments - Temporary investments may consist of puttable
floating option tax-exempt receipts, short-term senior securities which bear
interest at a floating rate that is reset weekly and other short-term
investments that generate tax-exempt and taxable interest income. These
investments are recorded at cost, which is equal to market value.
Cash and Cash Equivalents
Cash and cash equivalents includes cash in banks and investments in short-term
instruments with an original maturity of three months or less. Certain amounts
of cash and cash equivalents are restricted and serve as additional collateral
for borrowings under securitizations.
Mortgage Banking Activities
PWF is an approved seller/servicer of multifamily mortgage loans for Federal
National Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage
Corporation ("Freddie Mac") and the Government National Mortgage Association
("Ginnie Mae"). For Fannie Mae, PWF is approved under the Delegated Underwriting
and Servicing ("DUS") program. Under DUS, upon obtaining a commitment from
Fannie Mae with regard to a particular loan, Fannie Mae commits to acquire the
mortgage loan based upon PWF's underwriting and PWF agrees to bear a portion of
the risk of potential losses in the event of a default. Fannie Mae commitments
may be made to acquire the mortgage loan for cash or in exchange for a mortgage
backed security backed by the mortgage loan. As a Program Plus lender for
Freddie Mac, Freddie Mac agrees to acquire for cash from PWF loans for which PWF
has issued commitments. Ginnie Mae agrees to exchange FHA-insured mortgages
originated by PWF for Ginnie Mae securities.
Mortgage loans originated for Fannie Mae, Freddie Mac or Ginnie Mae are closed
in the name of PWF and PWF uses corporate cash obtained by borrowing from a
warehouse lender to fund the loans. Approximately a week to a month following
closing of a loan, loan documentation and an assignment are delivered Fannie
Mae, Freddie Mac or Ginnie Mae, or a document custodian on its behalf, and the
cash purchase price or mortgage backed security is delivered to PWF. Cash is
used to repay warehouse loans and mortgage backed securities are sold pursuant
to prior agreements for cash which is used to repay warehouse loans. PWF also
underwrites and originates multifamily and commercial mortgages for insurance
companies and banks.
PWF receives a fee ranging from 50bps to 100bps for its underwriting and
origination services, included in mortgage servicing fees in the Consolidated
Statements of Income. Neither the Company nor PWF retains any interest in any of
the mortgage loans, except for MSRs and certain liabilities under the
loss-sharing arrangement with Fannie Mae.
Mortgage Servicing Rights
The Company recognizes as assets the rights to service mortgage loans for
others, whether the MSRs are acquired through a separate purchase or through
loan origination, by allocating total costs incurred between the loan and the
MSRs retained based on their relative fair value. MSRs are being carried at
their adjusted cost basis. MSRs are amortized in proportion to, and over the
period of, estimated net servicing income.
The Company has two areas of loss exposure related to its lending activities.
First, while a loan is recorded on the balance sheet, there is exposure to
potential loss if a loan becomes impaired and defaults. Second, the Company has
exposure to loss due to its retention of a portion of credit risk within its
servicing contact under the Fannie Mae DUS program.
When a loan is owned by PWF and recorded on the balance sheet, PWF identifies
loans that are impaired and evaluates the allowance for loss on a specific loan
basis for losses believed to currently exist in the recorded loan portfolio. An
impaired loan is defined, as noted within accounting guidance, when contractual
payments are not made. PWF's primary tool for determining which loans are likely
to currently have a loss associated with them is to evaluate the debt service
coverage ratio based on PWF's historical experience of similar properties and
the
9
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
frequency of such losses. Loans that are impaired and specific loans that are
not impaired but have debt service coverage ratios below a certain threshold as
having a high likelihood of future foreclosure and currently have an existing
loss, are evaluated. The estimate of currently existing loss, includes the
estimated severity of the loss which would include any advances made or existing
property loss. Property maintenance costs (when foreclosure occurs) are expensed
when incurred and not included in the loss estimate. However, as most loans are
sold very quickly after origination, there typically is not a significant amount
of loan loss allowance recorded.
The Company has exposure to loss due to its retention of a portion of credit
risk within PWF's servicing contract under the Fannie Mae DUS program. For loans
which have been sold as commercial mortgage backed securities for which PWF
retains the servicing under Fannie Mae's DUS program, PWF's share of loss is
associated with the servicing contract and determined in accordance with the
loss sharing provisions under the program. Prior to the issuance of
Interpretation No. 45, "Guarantors' Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"),
because the loss sharing on these serviced loans was associated with the
servicing contract, they are valued within the servicing right and the
anticipated cash flows that are associated with such servicing activities. The
Company has determined that these potential losses are guarantees under the
definition of FIN 45 and therefore, for loans originated on January 1, 2003 and
thereafter, the Company will record an asset and a corresponding liability based
on the Company's estimate of the portion of the servicing cash flows deemed to
represent compensation to the Company for its guarantee. On an ongoing basis,
the Company will account for the asset by offsetting cash received for the
guarantee against the asset and crediting interest income for the change in
asset due to the passage of time. The portion of the liability representing an
accrual for probable losses under SFAS No. 5, "Accounting for Contingencies"
("FAS 5") will be adjusted as loss estimates change; the portion representing
the Company's willingness to stand by as guarantor will be amortized over the
expected life of the guarantee.
The components of the change in MSRs are as follows:
Servicing Assets (in millions)
--------------------------------- ----------------
Balance at December 31, 2002 $35.5
MSR's capitalized during the six
months ended June 30, 2003 3.3
Amortization (3.1)
Increase in reserves (1.5)
----
Balance at June 30, 2003 $34.2
====
Reserve for loan loss reserves of
Servicing Assets
---------------------------------
Balance at December 31, 2002 $ 4.3
Additions 1.5
Deletions -
-----
Balance at June 30, 2003 $ 5.8
=====
The estimated fair values of the MSRs were $37.6 million and $36.7 million, at
June 30, 2003 and December 31, 2002, respectively.
10
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
The significant assumptions used in estimating the fair value of the servicing
assets at June 30, 2003 were as follows:
Fannie Freddie
Mae FHA Mac
----------- ---------- ----------
Weighted average discount rate 17.01% 15.89% 17.00%
Weighted average pre-pay speed 15.05% 16.10% 15.30%
Weighted average lock out period 68 months 39 months 81 months
Cost to service loans $2,404 $1,250 $1,906
Acquisition cost (per loan) $1,500 $ 500 $1,500
Revenue Recognition
The Company derives its revenues from a variety of investments and guarantees,
summarized as follows:
Interest Income from Revenue Bonds - Interest income is recognized at the
stated rate as it accrues and when collectibility of future amounts is
reasonably assured. Participating interest is recognized when received.
Interest income from Revenue Bonds with modified terms or where the
collectibility of future amounts is uncertain is recognized based upon
expected cash receipts. Certain construction Revenue Bonds carry a higher
interest rate during the construction period, which declines to a lower rate
for the balance of the term. In these cases, the Company calculates the
effective yield on the Revenue Bond and uses that rate to recognize interest
over the life of the bond.
Interest Income from Promissory Notes and Mortgages Receivable - Interest on
mortgage loans and notes receivable is recognized on the accrual basis as it
becomes due. Deferred loan origination costs and fees are amortized over the
life of the applicable loan as an adjustment to interest income, using the
interest method. Interest which was accrued is reversed out of income if
deemed to be uncollectible.
Other Interest Income - Interest income from temporary investments, such as
cash in banks and short-term instruments, is recognized on the accrual basis
as it becomes due.
Equity in Earnings of ARCap - The Company's equity in the earnings of ARCap
Investors, LLC ("ARCap") is accrued at the preferred dividend rate of 12% on
the preferred shares held by the Company, unless ARCap does not have
earnings and cash flows adequate to meet this dividend requirement.
Construction Service Fees - The Company receives fees, in advance, from
borrowers for servicing Revenue Bonds during the construction period. These
fees are deferred and amortized into other income over the anticipated
construction period.
Credit Enhancement and Guarantee Fees - The Company receives fees for
providing credit enhancement and for backing up a primary guarantor's
obligation to guarantee an agreed upon internal rate of return to the
investor in a program sponsored by Related (see Note 5). The credit
enhancement fees are received monthly and recognized in other income when
received. The guarantee fees are deferred and recognized in other income on
a prorata basis over the guarantee period.
Mortgage Banking Fees - PWF fees earned for arranging financings under the
FNMA DUS product line as well as Freddie Mac, insurance and banking or other
programs are recorded at the point the financing commitment is accepted by
the mortgagor and the interest rate of the mortgage loan is fixed.
11
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
Mortgage Servicing Fees - PWF receives fees for servicing the loans it has
originated. This income is recognized on an accrual basis.
Deferred Costs
Fees paid to the Manager (see Note 5) for its activities performed to originate
Revenue Bonds, including their evaluation and selection, negotiation of mortgage
loan terms, coordination of property developers and government agencies, and
other direct expenditures of acquiring or investing in Revenue Bonds, are
capitalized and amortized as a reduction to interest income over the terms of
the Revenue Bonds. Direct costs relating to unsuccessful acquisitions and all
indirect costs relating to the Revenue Bonds are charged to operations.
Costs incurred in connection with the Company's Private Label Tender Option
Program ("TOP"), such as legal, accounting, documentation and other direct
costs, have been capitalized and are being amortized using the straight-line
method over 10 years, which approximates the average remaining term to maturity
of the Revenue Bonds in this program.
Costs incurred in connection with the issuance of cumulative preferred shares of
the Equity Issuer Trust subsidiary, such as legal, accounting, documentation and
other direct costs, have been capitalized and are being amortized using the
straight line method over the period to the mandatory repurchase date of the
shares, approximately 50 years. Costs incurred in connection with the issuance
of Convertible CRA Shares, such as legal, accounting, documentation and other
direct costs, have been accounted for as an offset to beneficial owners' equity
of such shares.
Financial Risk Management and Derivatives
The Company has entered into two interest rate swaps, an interest rate cap and
two forward commitments, all of which are accounted for under the Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", as amended and interpreted. The Company designated the
two interest rate swaps as cash flow hedges on the variable interest payments in
the floating rate financing. Accordingly, the interest rate swaps are recorded
at their respective fair market value each accounting period, with changes in
market value being recorded in other comprehensive income to the extent the
hedges are effective in achieving offsetting cash flows. These hedges have been
highly effective, so there has been no ineffectiveness included in earnings. The
interest rate cap, although designed to mitigate the Company's exposure to
rising interest rates, was not designated as a hedging derivative; therefore,
any change in fair market value flows through the Consolidated Statements of
Income, where it is included in interest income. The two forward commitments
(see Note 7) create derivative instruments under SFAS No. 133, which have been
designated as a cash flow hedge of the anticipated funding of the Revenue Bonds,
and will be recorded at fair value, with changes in fair value recorded in other
comprehensive income until the Revenue Bonds are funded.
Fair Value of Financial Instruments
As described above, the Company's investments in Revenue Bonds, its MSRs and its
liability under the interest rate derivatives are carried at estimated fair
values. The Company has determined that the fair value of its remaining
financial instruments, including its temporary investments, cash and cash
equivalents, promissory notes receivable, mortgage notes receivable and
borrowings approximate their carrying values at June 30, 2003 and December 31,
2002.
Income Taxes
Effective July 1, 2001, the Company began operation of a new wholly-owned,
taxable subsidiary -- CM Corp., which on December 31, 2001, purchased PWF. CM
Corp. will conduct most of the Company's taxable business, including any
fee-generating activities in which the Company may engage and provide management
services to CharterMac and its other subsidiaries. The Company provides for
income taxes in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). FAS 109 requires the recognition
of deferred tax assets
12
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
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.
New Pronouncements
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections".
SFAS No. 145, among other things, rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt", and accordingly, the reporting of gains or
losses from the early extinguishments of debt as extraordinary items will only
be required if they meet the specific criteria of extraordinary items included
in Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations". The revision of SFAS No. 4 became effective January 2003. The
implementation of SFAS No. 145 did not have a material impact on the Company's
consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities". SFAS No. 146 replaces current accounting
literature and requires the recognition of costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 became effective January 1,
2003. The implementation of SFAS No. 146 did not have a material impact on the
Company's consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantors' Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." The Interpretation elaborates on the disclosures to be
made by a guarantor in its financial statements about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. This Interpretation
does not prescribe a specific approach for subsequently measuring the
guarantor's recognized liability over the term of the related guarantee. The
initial recognition and initial measurement provisions of this Interpretation
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The Company has entered into one credit enhancement
transaction and two yield guarantee transactions. The fee for the credit
enhancement transaction is received monthly and recognized as income when due.
The fees for the yield guarantee transactions, received in advance, were
deferred and amortized over the guarantee periods. The Company believes that the
fees received approximate the fair value of the obligations undertaken in
issuing the guarantees; therefore, for any such similar transactions entered
into after December 31, 2002, the Company will record the fair market value of
the guarantee, when entered into.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure," an amendment of FASB statement No. 123.
This statement amends SFAS No. 123, "Accounting for Stock-Based Compensation" to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employer compensation. Because
the Company currently accounts for its share options using the fair value
method, implementation of this statement did not have an impact on the Company's
consolidated financial statements. The Company has adopted the provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation" for its share options
issued to non-employees. Accordingly, compensation cost is accrued based on the
estimated fair value of the options issued, and amortized over the vesting
period. Because vesting of the options is contingent upon the recipient
continuing to provide services to the Company until the vesting date, the
Company estimates the fair value of the non-employee options at each period-end
up to the vesting date, and adjusts expensed amounts accordingly. The fair value
of each option grant is estimated using the Black-Scholes option-pricing model.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This Interpretation clarifies the
application of existing accounting pronouncements to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
The provision of FIN 46 will be
13
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
immediately effective for all variable interests in variable interest entities
created after January 31, 2003, and the Company will need to apply its
provisions to any existing variable interests in variable interest entities by
no later than July 1, 2003. The Company does not believe that it has any
variable interests in variable interest entities requiring consolidation.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies
the accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 149 is
generally effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. The adoption of
SFAS No. 149 on July 1, 2003, as required, had no impact on the Company's
consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." This statement
requires that certain financial instruments that have the characteristics of
debt and equity be classified as debt. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. Pursuant to SFAS No. 150, the Company will be required to reclassify the
$273.5 million currently shown in the consolidated balance sheets as "preferred
shares of subsidiary subject to mandatory redemption" into liabilities as of
July 1, 2003, and the dividends paid on such shares (approximately $9.4 million
for the six months ended June 30, 2003) will be recorded as interest expense
from that date forward.
NOTE 2 - Revenue Bonds
Total interest income from Revenue Bonds, including participating interest, was
approximately $53,175,000 and $44,945,000, for the six months ended June 30,
2003 and 2002, which represents an average annual yield of 7.32% and 7.71% based
on weighted average face amounts of approximately $1,452,087,000 and
$1,165,370,000, respectively.
The amortized cost basis of the Company's portfolio of Revenue Bonds at June 30,
2003 and December 31, 2002 was $1,566,457,536 and $1,484,202,610, respectively.
The net unrealized gain on Revenue Bonds in the amount of $110,829,464 at June
30, 2003 consisted of gross unrealized gains and losses of $119,133,351 and
$8,303,887, respectively. The net unrealized gain on Revenue Bonds of
$95,387,390 at December 31, 2002 consisted of gross unrealized gains and losses
of $100,964,090 and $5,576,700, respectively.
The following is a table reflecting the maturity dates of the Company's Revenue
Bonds.
Outstanding Weighted Average
(Dollars in thousands) Bond Amount Fair Value Interest Rate
--------------------------------------------------------------------------------
Due in less than one year $ 3,118 $ 4,313 9.22%
Due between one and five years 30,682 27,967 6.78%
Due after five years 1,542,130 1,645,007 7.12%
--------------------------------------------------------------------------------
Total $1,575,930 $1,677,287 7.12%
--------------------------------------------------------------------------------
All of the Company's Revenue Bonds have fixed interest rates.
14
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
2003 Transactions
The following table summarizes the Company's acquisition activity for the six
months ended June 30, 2003.
Weighted Weighted
Average Average Number
Aggregate Construction Permanent of
(Dollars in Thousands) Purchase Interest Interest Revenue
Face Amount Price Rate Rate Bonds
----------------------------------------------------------------------------------------------
Non-participating Revenue Bonds
Construction/rehabilitation
properties $137,086 $139,943 6.47% 6.70% 21
During the six months ended June 30, 2003 the Company advanced additional funds
of approximately $8,950,000 to Revenue Bonds which were previously acquired.
During the six months ended June 30, 2003, eight Revenue Bonds were repaid. The
Company received net proceeds of approximately $57.3 million. The bonds had a
net carrying value of approximately $55.1 million, resulting in a gain of
approximately $2.2 million.
During the second quarter of 2001, the borrowers of Lexington Trails failed to
make the regular interest payments. As a result, the Company determined the bond
was impaired, and wrote down the bond to its estimated fair value of
approximately $5.5 million and took a loss on impairment of $400,000. During the
fourth quarter of 2001, the Company caused the trustee, for the benefit of the
Company, to foreclose on the underlying property. During the fourth quarter of
2002, the Company began marketing the underlying property for sale, and the
Company wrote this bond down to its estimated fair value of $4.5 million
resulting in a recorded loss of $932,000. The Company continues to actively
market this property.
NOTE 3 - Deferred Costs
The components of deferred costs are as follows:
(Dollars in Thousands)
June 30, December 31,
2003 2002
------------ --------------
Deferred bond selection costs (1) $ 37,600 $ 34,810
Deferred financing costs 8,364 8,030
Deferred costs relating to the issuance of preferred
shares of subsidiary 10,445 10,445
Deferred costs relating to acquisition of Related 3,762 2,483
Other deferred costs 2,911 1,376
-------- --------
63,082 57,144
Less: Accumulated amortization (10,588) (8,451)
-------- --------
$ 52,494 $ 48,693
======== ========
(1) This primarily represents the 2% bond selection fee paid to the Manager (see
Note 5).
NOTE 4 - Goodwill and Intangible Assets
The Company adopted SFAS 141 on July 1, 2001 and SFAS 142, on January 1, 2002.
The Company has determined that the amounts previously capitalized as goodwill
relating to the initial formation of the Company and to the merger of American
Tax Exempt Bond Trust, meet the criteria in SFAS 141 for recognition as
intangible assets apart from goodwill, and accordingly will continue to be
amortized over their remaining useful lives, subject to impairment testing.
15
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
During the quarter ended June 30, 2002, PWF engaged a third party valuation firm
to evaluate PWF's licenses with Fannie Mae, Freddie Mac, FHA, GNMA and various
private investors. As a result of this process approximately $8.6 million has
been reclassified from goodwill to intangible assets, representing the estimated
market value of PWF's licenses. These licenses have an indefinite life and, as a
result, are not being amortized.
During 2002 and the six months ended June 30, 2003, the Company, pursuant to the
original acquisition agreement, paid approximately $3.7 million in "true-up"
payments representing payments due to the original PWF stockholders which was
recorded as additional goodwill during the fourth quarter of 2002 and the first
six months of 2003. These true-up payments were based on i) the increase in the
value of MSRs due to certain loans closing, ii) positive changes between the
audited balance sheet used for the initial purchase price and the audited
balance sheet at December 31, 2001, iii) payments of certain servicing fees, and
iv) forward conversions of loans previously committed. The acquisition agreement
stipulates additional true-up payments to be made periodically for a period of
up to three years from the acquisition date.
The following table provides further information regarding the Company's
intangible assets:
(Dollars in Thousands)
Identifiable Other PWF
Intangible Assets Licenses Total
-----------------------------------------------
Balance at June 30, 2003 $ 4,426 $ 8,639 $13,065
Accumulated Amortization (1,985) - (1,985)
------- ------- ------
Net balance at June 30, 2003 $ 2,441 $ 8,639 $11,080
======= ======= ======
Amortization Expense for the six
months ended June 30, 2003
$ 237 $ - $ 237
======= ======= ======
Estimated amortization expense
per year for next five years
$ 474 $ - $ 474
======= ======= ======
The amortization is included as a reduction to Revenue Bond interest income.
The amount indicated as goodwill in the accompanying consolidated financial
statements as of June 30, 2003 is related to the acquisition, on December 31,
2001 of PWF. This amount represents goodwill under SFAS 142, and therefore, is
not being amortized. In accordance with SFAS 142, the Company tested this
goodwill for impairment during the fourth quarter of 2002 and determined there
was no impairment.
NOTE 5 - Related Party Transactions
The Manager is entitled to subcontract its obligations under the Management
Agreements to an affiliate. In accordance with the foregoing, the Manager has
assigned its rights and obligations to Related.
Pursuant to the terms of the Management Agreements, the Manager is entitled to
receive the fees and other compensation set forth below:
Fees/Compensation* Amount
------------------ ------
Bond Selection Fee 2.00% of the face amount of each asset
invested in or acquired by CharterMac
or its subsidiaries.
Special Distributions/Investment 0.375% per annum of the total invested
Management Fee assets of CharterMac or its
subsidiaries.
Loan Servicing Fee 0.25% per annum based on the
outstanding face amount of revenue
bonds and other investments owned by
CharterMac or its subsidiaries.
16
Operating Expense Reimbursement For direct expenses incurred by the
Manager in a amount not to exceed
$996,064 per annum (subject to
increase based on increases in
CharterMac's and its subsidiaries'
assets and to annual increases based
upon increases in the Consumer Price
Index).
Incentive Share Options The Manager may receive options to
acquire additional Common Shares
pursuant to the Share Option Plan only
if CharterMac's distributions in any
year exceed $0.9517 per Common Share
and the Compensation Committee of the
Board of Trustees determines to grant
such options.
Liquidation Fee 1.50% of the gross sales price of the
assets sold by CharterMac in connection
with a liquidation of CharterMac assets
supervised by the Manager.
* The Manager is also permitted to earn miscellaneous compensation which may
include, without limitation, construction fees, escrow interest, property
management fees, leasing commissions and insurance brokerage fees. The payment
of any such compensation is generally limited to the competitive rate for the
services being performed. A bond placement fee of 1.0% to 1.5% of the face
amount of each asset invested in or acquired by CharterMac or its subsidiaries
is payable to the Manager by the borrower, and not by CharterMac or its
subsidiaries.
The terms of each of the management agreements is one year. The management
agreements may be renewed, subject to evaluation of the performance of the
Manager by CharterMac's Board of Trustees. Both agreements may be terminated (i)
without cause by the Manager; or (ii) for cause by a majority of CharterMac's
Board of Trustees, in each case without penalty and each upon 60 days prior
written notice to the non-terminating party.
The costs, expenses and the special distributions incurred to the Manager and
its affiliates for the three and six months ended June 30, 2003 and 2002 were as
follows:
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
(Dollars in thousands) (Dollars in thousands)
---------------------- ----------------------
2003 2002 2003 2002
------- ------- ---------- ----------
Bond selection fees $ 2,604 $ 3,412 $ 2,604 $ 3,980
Special distribution/Investment
Management fee 1,539 1,240 3,022 2,328
Bond Servicing 1,047 878 2,062 1,644
Expense reimbursement 246 122 479 431
------- ------- -------- --------
$ 5,436 $ 5,652 $ 8,167 $ 8,383
======= ======= ======== ========
Certain of the Revenue Bonds held by the Company are supported by various
guarantees including, but not limited to, construction and operating guarantees
from affiliates of the Manager.
During the quarter ended September 30, 2002, the Company agreed to back up a
primary guarantor's obligation to guarantee an agreed-upon internal rate of
return to the investor in Related Capital Guaranteed Corporate Partners II, L.P.
("RCGCP"). RCGCP is a fund sponsored by Related, which is an affiliate of the
Manager. The Company is the beneficiary of a guarantee against losses associated
with construction and operating stabilization for each of the properties in
RCGCP, which is capped at $15 million. The guarantee has been provided by The
Related Companies, L.P. ("TRCLP"), an affiliate of Related. TRCLP has also
agreed, if needed, after construction completion and property stabilization, to
fund up to the first $2.5 million of operating deficits of the underlying
properties or any amounts required to pay the guaranteed IRR to the investor. If
the Company's acquisition of Related is completed, then this guarantee will no
longer be in force.
In connection with the refinancing of River Run, the general partners of which
are affiliates of the Manager, the Company entered into an agreement which
allows the Revenue Bond to be put to the Company should the owner of the
underlying property default on the bond. The Company, in
17
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
turn, entered into agreements which allow the Company to put the bond to the
general partners. The Company's put right is secured by collateral assignments
of the general partners' partnership interests in the limited partnership which
owns the underlying property.
The Company has entered into a credit enhancement transaction with Merrill Lynch
Capital Services ("MLCS"). TRCLP has provided the Company with an indemnity
covering 50% of any losses incurred by the Company.
Effective April 1, 2003, PWF took on the day-to-day responsibility of a $598
million portfolio of loans subserviced by CreditRe Mortgage Servicing Company,
L.L.C. ("CMC"), an affiliate of The Related Companies L.P.
NOTE 6 - Earnings Per Share
Net income per share is computed in accordance with SFAS No. 128, "Earnings Per
Share". Basic income per share is calculated by dividing income allocated to
Common and Convertible CRA Shareholders ("Shareholders") by the weighted average
number of Common and Convertible CRA Shares outstanding during the period. The
Convertible CRA Shares are included in the calculation of shares outstanding as
they share the same economic benefits as Common Shares, including payment of the
same dividends per share as Common Shares. Diluted income per share is
calculated using the weighted average number of shares outstanding during the
period plus the additional dilutive effect of common share equivalents. The
dilutive effect of outstanding share options is calculated using the treasury
stock method.
Pursuant to the Company's Trust Agreement and the Management Agreements with the
Manager, the Manager is entitled, in its capacity as the general partner of the
Company, to a special distribution equal to .375% per annum of the Company's
total invested assets (which equals the face amount of the Revenue Bonds and
other investments), payable quarterly. Income is allocated first to the Manager
in an amount equal to the special distribution. The net remaining profits or
losses, after a special allocation of .01% to the Manager, are then allocated to
shareholders in accordance with their percentage interests.
During the quarter ended September 30, 2002, the Company issued 40,000 options
at a strike price of $17.56. These options vest equally, in thirds, in September
2003, 2004 and 2005 and expire in 10 years. The dilutive effect of these
outstanding share options is calculated using the treasury stock method.
During the six months ended June 30, 2003, 127,943 of the Company's stock
options were exercised.
18
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
(Dollars in thousands) (Dollars in thousands)
Three Months Ended June 30, 2003 Six Months Ended June 30, 2003
------------------------------------- -----------------------------------------
Income Shares Per Share Income Shares Per Share
Numerator Denominator Amount Numerator Denominator Amount
----------- ----------- --------- --------- ----------- -----------
Net income allocable to share-
holders (Basic EPS) $ 16,740 45,090,477 $ .37 $ 33,234 45,054,096 $ .74
====== ======
Effect of dilutive securities
135,566 share options -- 39,565 -- 36,227
-------- ----------- -------- -----------
shareholders (Diluted EPS) $ 16,740 45,130,042 $ .37 $ 33,234 45,090,323 $ .74
======== =========== ====== ======== =========== ======
(Dollars in thousands) (Dollars in thousands)
Three Months Ended June 30, 2002 Six Months Ended June 30, 2002
------------------------------------- -----------------------------------------
Income Shares Per Share Income Shares Per Share
Numerator Denominator Amount Numerator Denominator Amount
----------- ----------- --------- --------- ----------- -----------
Net income allocable to share-
holders (Basic EPS) $ 12,778 43,035,102 $ .30 $ 30,337 40,920,033 $ .74
====== ======
Effect of dilutive securities
228,262 stock options -- 72,073 -- 68,539
-------- ----------- -------- -----------
Diluted net income allocable to
shareholders (Diluted EPS) $ 12,778 43,107,175 $ .30 $ 30,337 40,988,572 $ .74
======== =========== ====== ======== =========== ======
* Includes Common and Convertible CRA Shares.
19
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
NOTE 7 - Commitments and Contingencies
Litigation
The Company is subject to routine litigation and administrative proceedings
arising in the ordinary course of business. Management does not believe that
such matters will have a materially adverse impact on the Company's financial
position, results of operations or cash flows.
Mortgage Banking Activities
Through PWF, the Company originates and services multifamily mortgage loans for
Fannie Mae, Freddie Mac and FHA. PWF's mortgage lending business is subject to
various governmental and quasi-governmental regulation. PWF, collectively, is
licensed or approved to service and/or originate and sell loans under Fannie
Mae, Freddie Mac, Ginnie Mae and FHA programs. FHA and Ginnie Mae are agencies
of the Federal government and Fannie Mae and Freddie Mac are federally-chartered
investor-owned corporations. These agencies require PWF and its subsidiaries to
meet minimum net worth and capital requirements and to comply with other
requirements. Mortgage loans made under these programs are also required to meet
the requirements of these programs. In addition, under Fannie Mae's DUS program,
PWF has the authority to originate loans without a prior review by Fannie Mae
and is required to share in the losses on loans originated under this program.
The DUS program is Fannie Mae's principal loan program. Under the Fannie Mae DUS
Product Line, the Company, through PWF, originates, underwrites and services
mortgage loans on multifamily residential properties and sells the project loans
directly to Fannie Mae. The Company assumes responsibility for a portion of any
loss that may result from borrower defaults, based on the Fannie Mae loss
sharing formulas, Levels I, II or III. At June 30, 2003, all of the Company's
loans consisted of Level I loans. For such loans, the Company is responsible for
the first 5% of the unpaid principal balance and a portion of any additional
losses to a maximum of 20% of the original principal balance. Level II and Level
III loans carry a higher loss sharing percentage. Fannie Mae bears any remaining
loss.
Under the terms of the Master Loss Sharing Agreement between Fannie Mae and the
Company, the Company is responsible for funding 100% of mortgagor delinquency
(principal and interest) and servicing (taxes, insurance and foreclosure costs)
advances until the amounts advanced exceed 5% of the unpaid principal balance at
the date of default. Thereafter, for Level I loans, the Company may request
interim loss sharing adjustments which allow the Company to fund 25% of such
advances until final settlement under the Master Loss Sharing Agreement. No
interim loss sharing adjustments are available for Level II and Level III loans.
The Company maintains an accrued liability for probable losses under FAS 5 for
loans originated under the Fannie Mae DUS product line at a level that, in
management's judgment, is adequate to provide for estimated losses. At June 30,
2003, that liability was approximately $5.8 million, which the Company believes
represents its maximum liability at this time. Unlike loans originated for
Fannie Mae, The Company does not share the risk of loss for loans PWF originates
for Freddie Mac or FHA.
In connection with the PWF warehouse line, both CharterMac and CM Corp. have
entered into guarantees for the benefit of Fleet, guaranteeing the total
advances drawn under the line, up to the maximum of $100 million, together with
interest, fees, costs, and charges related to the PWF warehouse line.
PWF maintains, as of June 30, 2003, treasury notes of approximately $5.0 million
and a money market account of approximately $606,000, which is included in
restricted cash and securities in the consolidated balance sheet, to satisfy the
Fannie Mae collateral requirements of $5.6 million.
20
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
Due to the nature of PWF's mortgage banking activities, PWF is subject to
supervision by certain regulatory agencies. Among other things, these agencies
require PWF to meet certain minimum net worth requirements, as defined. PWF met
these requirements for all agencies, as applicable, as of June 30, 2003.
At June 30, 2003, PWF had commitments of approximately $28 million to four
borrowers.
Credit Enhancement Transaction
In December 2001, the Company completed a credit enhancement transaction with
Merrill Lynch Capital Services, Inc. ("MLCS"), as described above. Pursuant to
the terms of the transaction, CM Corp. assumed MLCS's $46.9 million first loss
position on a $351.9 million pool of tax-exempt weekly variable rate multifamily
mortgage loans. The Related Companies, L.P. has provided CM Corp. with an
indemnity covering 50% of any losses that are incurred by CM Corp. as part of
this transaction. As the loans mature or prepay, the first loss exposure and the
fees paid to CM Corp. will both be reduced. The latest maturity date on any loan
in the portfolio occurs in 2009. The remainder of the real estate exposure after
the $46.9 million first loss position has been assumed by Fannie Mae and Freddie
Mac. In connection with the transaction, CharterMac has guaranteed the
obligations of CM Corp., and has met its obligation to post collateral, in an
amount equal to 40% of the first loss amount. The Company's maximum exposure
under the terms of this transaction is approximately $23.5 million.
CM Corp. performed due diligence on each property in the pool, including an
examination of loan-to-value and debt service coverage both on a current and
"stressed" basis. CM Corp. analyzed the portfolio on a "stressed" basis by
increasing capitalization rates and assuming an increase in the low floater bond
rate. As of June 30, 2003, the credit enhanced pool of properties are performing
according to their contractual obligations and the Company does not anticipate
any losses to be incurred on its guaranty. Should the Company's analysis of risk
of loss change in the future, a provision for probable loss might be required;
such provision could be material.
Fees related to the credit enhancement transaction for the three and six months
ended June 30, 2003, included in other income, was approximately $311,905 and
$623,810, respectively. Income is recognized monthly as the fees are received.
Yield Guarantee Transaction
On July 18, 2002, the Company entered into two agreements with Merrill Lynch
(the "Primary Guarantor") to guarantee an agreed-upon internal rate of return
("IRR") for a pool of 11 multi-family properties owned by RCGCP.
The total potential liability to the Company pursuant to these guarantees is
approximately $44 million. The Company has analyzed the expected operations of
the underlying properties and believes there is no risk of loss at this time.
Should the Company's analysis of risk of loss change in the future, a provision
for probable losses might be required; such provision could be material.
In connection with the transaction, the Company posted $18.2 million of Revenue
Bonds as collateral to the Primary Guarantor, which will be reduced to $1.4
million over a period of up to 20 years as the properties reach certain
operating benchmarks. In addition, the Company agreed to subordinate 25% of each
of the bonds it acquired that are secured by the properties and to not use the
subordinated portion of such bonds as collateral in connection with any
borrowings.
To mitigate risk, the Company is the beneficiary of a guarantee against losses
associated with construction and operating stabilization for each of the
properties in RCGCP, which is capped at $15 million. The guarantee has been
provided by TRCLP. If the Company's acquisition of Related is completed, then
this guarantee will no longer be in force. As of December 31, 2002, TRCLP had a
GAAP net worth of approximately $175.0 million with liquid assets of
approximately $70.1 million. In addition, the developers of each of the
properties have also been required to give recourse completion, stabilization
and operating deficit guarantees. TRCLP has also agreed, if needed, after
21
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
construction completion and property stabilization, to fund up to the first $2.5
million of operating deficits of the underlying properties or any amounts
required to pay the guaranteed IRR to the investor.
Bond Forward Transactions
During December 2002, the Company entered into two transactions related to two
properties, Coventry Place and Canyon Springs. Pursuant to the terms of these
transactions, the Company will provide credit support to the construction lender
for project completion and Fannie Mae permanent loan conversion and acquire
subordinated bonds to the extent the construction period bonds do not fully
convert. Up until the point of completion, the Company will reimburse the
construction lender for any draw on its construction letter of credit up to 40%
of the stated amount of the letter of credit. Following completion, up until the
project loan converts to permanent loan status, the Company will, should the
need arise, reimburse the full amount of the letter of credit. The Company
closely monitors these two properties, and believes there is no need currently,
to provide for any potential loss. Should the Company's analysis of risk of loss
change in the future, a provision for loss might be required; such provision
could be material. The developer has also issued several guarantees to the
construction lender, each of which would be called upon before the Company's
guarantees, and each of which would be assigned to the Company should its
guarantees be called. Once the construction loans convert to permanent loans,
the Company is obligated to acquire subordinated loans for the amount by which
each construction loan exceeds the corresponding permanent loan, if any. The
subordinated bonds will bear interest at 10%. Under FNMA guidelines, the size of
the subordinated bonds will be limited to a 1.0x debt service coverage based on
75% of the cash flow after the senior debt.
The Company's maximum exposure, related to these two transactions, is 40% of the
stated amount of the letter of credit of approximately $27 million.
Also, during December 2002, the Company entered into two transactions related to
properties known as Auburn Glenn and Cottonwood. Pursuant to the terms of the
transactions, a third party, unrelated lender will advance funds to the
developers, as needed, at a floating rate. At the completion of construction,
the Company is obligated to acquire the permanent Revenue Bonds at a
predetermined price and interest rate. The two forward commitments create
derivative instruments under SFAS No. 133, which have been designated as a cash
flow hedge of the anticipated funding of the Revenue Bonds, and are recorded at
fair value, with changes in fair value recorded in other comprehensive income
until the Revenue Bonds are funded. The Revenue Bonds are expected to be $18.8
million for Auburn Glenn and $12.4 million for Cottonwood, which combined
represents the Company's maximum liability.
NOTE 8 - Financial Risk Management and Derivatives
The Company's Revenue Bonds generally bear fixed rates of interest, but the
P-FLOATS and TOP financing programs incur interest expense at variable rates
re-set weekly. The Company is also exposed to interest rate risks due to its
borrowings under the Facility (see Note 11). Various financial vehicles exist
which allow the Company's management to hedge against the impact of interest
rate fluctuations on the Company's cash flows and earnings.
The Company has entered into two interest rate swaps in order to reduce the
Company's exposure to increases in the floating interest rate on its TOP and
P-FLOATS programs. Under such interest rate swap agreements, the Company is
required to pay MLCS (the "Counterparty") a fixed rate on a notional amount of
debt. In return, the Counterparty will pay the Company a floating rate
equivalent to The BMA Municipal Swap Index, an index of weekly tax-exempt
variable rate issues on which the Company's variable rate financing programs are
based. On January 5, 2001, the Company entered into a five-year interest rate
swap that fixes the BMA index to 3.98% on a notional amount of $50 million. On
February 5, 2001, the Company entered into a three-year interest rate swap that
fixes the BMA index to 3.64% on an additional notional amount of $100 million.
The average BMA rates for the six months ended June 30, 2003 and 2002, were
1.11% and 1.36%, respectively. Net swap payments received by the Company, if
any, will be taxable income to the Company and, accordingly, to shareholders. A
possible risk of such swap agreements is the
22
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
possible
inability of the Counterparty to meet the terms of the contracts with the
Company; however, there is no current indication of such an inability.
At June 30, 2003, these two interest rate swaps were recorded as a liability
with a combined fair market value of approximately $4.5 million, included in
interest rate hedges on the Consolidated Balance Sheets. Interest paid or
payable under the terms of the swaps, of approximately $1,979,000, is included
in interest expense.
During January 2002, the Company entered into an interest rate cap agreement
with Fleet Bank, with a cap of 8% on a notional amount of $30 million. Although
this transaction is designed to mitigate the Company's exposure to rising
interest rates, the Company has not designated this interest rate cap as a
hedging derivative. At June 30, 2003, this interest rate cap was recorded as an
asset with a fair market value of $32,421 included in interest rate derivatives
in the Consolidated Balance Sheets. Because the Company has not designated this
derivative as a hedge, the change in fair market value flows through the
Consolidated Statements of Income, where it is included in interest income, in
the amount of ($28,633) for the six months ended June 30, 2003.
NOTE 9 - Dividends and Restricted Assets
CharterMac may not receive any distributions from its subsidiary, Equity Issuer,
until Equity Issuer has either paid all accrued but unpaid distributions related
to its preferred shares, or in the case of the next following distribution
payment date, set aside funds sufficient for payment. The distributions related
to the preferred shares are payable only from Equity Issuer's quarterly net
income, defined as the tax-exempt income (net of expenses) for the particular
calendar quarter. Equity Issuer is required, under the terms of its preferred
share issuance, to meet certain leverage ratios calculated as its total
obligations divided by the gross fair value of investments. This could limit the
ability of Equity Issuer to distribute cash or Revenue Bonds to the Company or
to make loans or advances to the Company.
Equity Issuer and its subsidiaries hold Revenue Bonds which at June 30, 2003,
had an aggregate carrying amount of approximately $1.31 billion that serve as
collateral for securitized borrowings or are securitized. The total securitized
borrowings at June 30, 2003 were approximately $780 million. Equity Issuer's net
assets at June 30, 2003 were approximately $826 million.
NOTE 10 - Business Segments
As a result of the December 2001 acquisition of PWF, the Company has two
reportable business segments: an investing segment and an operating segment.
The investing segment consists of subsidiaries holding investments in Revenue
Bonds producing primarily tax-exempt interest income.
The operating segment generates taxable interest and fee income. Taxable
interest income is generated through the ownership of taxable bonds, certain
taxable loans and other investments. Taxable fee income includes loan
origination and loan servicing fees (through PWF) on portfolios for third
parties, fees earned and associated with the acquisition or origination of
Revenue Bonds, and fees for credit enhancement and guaranty services.
Segment results include all direct and contractual revenues and expenses of each
segment and allocations of indirect expenses based on specific methodologies.
The reportable segments are strategic business units that primarily generate
revenue streams that are distinctly different and are generally managed
separately. Segment reporting is applicable beginning with the acquisition of
PWF on December 31, 2001; prior to December 31, 2001, all of the Company's
operations were attributable to the investing segment. Of the total assets for
the Company at June 30, 2003 and December 31, 2002, approximately $1.88 billion
and $1.73 billion, respectively, are attributable to the investing segment and
approximately $75 million and $124 million, respectively, are attributable to
the operating segment.
23
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
The following tables provide more information regarding the Company's segments:
Three Months Ended June 30, 2003 Three Months Ended June 30, 2002
--------------------------------- --------------------------------
(Dollars in thousands) Investing Operating Total Investing Operating Total
--------- --------- ----- --------- --------- -----
Revenues $ 28,641 $ 4,567 $ 33,208 $ 23,560 $ 4,500 $ 28,060
Interest Revenues 27,236 608 27,844 23,042 566 23,608
Interest Expense 4,680 207 4,887 3,517 (503) 3,014
Depreciation and Amortization expense 1,098 1,817 2,915 255 1,505 1,760
Equity in the income of investees
accounted for under the equity method (67) -- (67) (49) -- (49)
Income tax expense or (benefit) (370) (418) (788) -- 1,457 1,457
Net income 18,552 (352) 18,200 14,091 56 14,147
Six Months Ended June 30, 2003 Six Months Ended June 30, 2002
--------------------------------- --------------------------------
(Dollars in thousands) Investing Operating Total Investing Operating Total
--------- --------- ----- --------- --------- -----
Revenues $ 56,525 $ 8,604 $ 65,129 $47,503 $9,360 $56,863
Interest Revenues 53,786 1,326 55,112 46,399 1,917 48,316
Interest Expense 8,242 461 8,703 7,005 0 7,005
Depreciation and Amortization expense 1,414 3,188 4,602 495 3,505 4,000
Equity in the income of investees
accounted for under the equity method (39) -- (39) 253 -- 253
Income tax expense or (benefit) (2,243) (521) (2,764) -- 1,638 1,638
Net income 36,321 (214) 36,107 31,705 1,266 32,971
24
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
NOTE 11 - Warehouse Facility
On March 31, 2003, the Company entered into a $75 million secured revolving
tax-exempt bond warehouse line of credit with Fleet Securities, Inc. and
Wachovia Securities, Inc. (the "Facility"). The Facility has a built in
accordion feature allowing up to a $25 million increase for a total of $100
million and a term of two years, plus a one year extension at the Company's
option. The Facility bears interest at either 31, 60, 90, or 180-day reserve
adjusted LIBOR plus 1.5%, or prime plus .25%, at the Company's option. The
outstanding balance of this Facility at June 30, 2003 was approximate-ly $29.2
million.
NOTE 12 - PWF Acquisition
As part of the PWF acquisition, the purchase agreement provided that CharterMac
has the right to purchase the remaining 19% of the economics of PWF shares
within the 37 months following the close of the acquisition, (the "Call
Option"). The agreement also gives the owners of the remaining PWF shares the
right to put those shares to CharterMac (the "Put Option"), within the 34 months
following the close of the acquisition. The Company considers these two options
to be a single unit (a forward contract), due to the fact the Put Option and
Call Option were entered into at the same time, have the same counter parties,
have the same risk, and could have been accomplished in a single transaction.
The price at which the shares of stock are to be repurchased is based on many
factors, determined in the future including the performance of the underlying
revenues of PWF, the value of PWF's servicing portfolio and other factors which
are not currently determinable. The Company determined the forward contract
should not be recorded until the contract is settled and the associated shares
transferred to the Company. During the period of the forward contract, the
Company will allocate subsidiary income or loss to the minority interest on a
pro-rata basis, determined by its ownership percentage.
NOTE 13 - Financing Arrangements
In addition to other Company borrowings, on April 1, 2003, the Company closed on
its sale of Tax-Exempt Multi-Family Housing Trust Certificates Series 2003A (the
"Trust"). Pursuant to the terms of the Trust, the Company contributed 19
fixed-rate, tax-exempt multifamily housing and senior housing Revenue Bonds
collateralized by 16 different properties totaling approximately $196.8 million
in aggregate principal into a trust out of which was sold $100 million in Class
A Certificates to various institutional investors. A wholly-owned indirect
subsidiary of CharterMac retained the subordinated Class B Certificates totaling
approximately $96.8 million. CharterMac has agreed that it will hold the Class B
Certificates until the Trust is terminated. The Class A Certificates will accrue
interest at the fixed rate of 3.25% per annum for two years. Distributions to
the Class A Certificate holders are expected to be made on the 15th day of each
month, commencing on May 15, 2003. The Class A Certificates will be subject to
mandatory tender for purchase at a price equal to the outstanding Certificate
Balance thereof plus accrued interest thereon on March 15, 2005. If CharterMac
does not exercise its option to terminate the Trust on March 15, 2005, the Class
A Certificates will be subject to remarketing. The Class A Certificates will be
subject to mandatory tender for purchase and cancellation on the Final
Distribution Date from proceeds of the liquidation of the bonds on March 15,
2007. This financing arrangement will be accounted for as a secured borrowing.
NOTE 14 - Subsequent Events
Subsequent to June 30, 2003, CharterMac has acquired seven Revenue Bonds with a
total aggregate face amount of approximately $74.7 million, secured by 1,952
multifamily units. The Company has also advanced additional funds to Revenue
Bonds which were previously acquired totaling approximately $2.4 million.
The Company has filed a preliminary Prospectus Supplement dated July 24, 2003
for the offer of 2,000,000 Series A Convertible Community Reinvestment Act
Preferred Shares. The offering is anticipated to close in August 2003.
25
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
-------
Charter Municipal Mortgage Acceptance Company ("CharterMac"), along with its
consolidated subsidiaries (the "Company"), is a Delaware statutory trust
principally engaged in the acquisition and ownership (directly or indirectly) of
tax-exempt multi-family housing revenue bonds ("Revenue Bonds") and other
investments that produce tax-exempt income, issued by various state or local
governments, agencies, or authorities. Revenue Bonds are primarily secured by
participating and non-participating first mortgage loans on underlying
properties ("Underlying Properties").
The Company believes that it can earn above market rates of interest on its
Revenue Bond acquisitions by focusing its efforts primarily on affordable
housing. The Manager estimates that nearly 30% of all new multi-family
development contains an affordable component which produces tax credits pursuant
to Section 42 of the Internal Revenue Code. The traditional methods of financing
affordable housing with tax-exempt Revenue Bonds are complex and time consuming,
and involve the participation of many intermediaries. Through the Manager, the
process has been streamlined with the "Direct Purchase Program". The Company's
Direct Purchase Program removes all intermediaries from the financing process
(except the governmental issuer of the Revenue Bond) and enables developers to
deal directly with one source. Because the Company purchases its Revenue Bonds
directly from the governmental issuer, the need for underwriters and their
counsel, rating agencies and costly documentation is eliminated. This reduces
the financing life cycle, often by several months, and also reduces the bond
issuance costs, usually by 30% or more. In dealing directly with the Company,
developers feel more certain about the terms and timing of their financing. The
Company believes the savings in time and up-front costs and the certainty of
execution that the Direct Purchase Program offers to developers allows the
Company to receive above-market rates of interest on the Company's Revenue
Bonds.
The Company believes that it is well positioned to market its Direct Purchase
Program as a result of the Manager's affiliation with Related Capital Company
("Related"), a nationwide, fully integrated real estate financial services firm,
because the Manager is able to utilize Related's resources and relationships in
the multi-family affordable housing finance industry to source potential
borrowers of Revenue Bonds. Related and its predecessor companies have
specialized in offering debt and equity products to mid-market multi-family
owners and developers for over 30 years. According to the 2001 National Multi
Housing Council survey, Related is the second largest owner of apartments in the
United States.
The Company, through its wholly-owned subsidiary CharterMac Corporation ("CM
Corp."), owns approximately 84% of the outstanding capital stock (81% of the
economics) of PW Funding, Inc. ("PWF"), a national mortgage banking firm
specializing in multi-family housing. CM Corp. expects to acquire the remaining
outstanding capital stock of PWF over the next 6 to 18 months. As a result of
the acquisition of PWF, the Company has diversified the range of its investment
products and is able to offer developers fixed and floating rate tax-exempt and
taxable financing through Fannie Mae, Freddie Mac and FHA for affordable and
market rate multi-family properties. Combining this with the Company's core
business of investing in Revenue Bonds and its affiliation with Related, the
Company is able to provide developers with financing for all aspects of their
property's capital structure.
On December 18, 2002, the Company announced it had entered into an agreement to
acquire 100% of the ownership interests in and substantially all of the
businesses operated by Related (other than specific excluded interests which
will be retained by the principals of Related). The acquisition will enable the
Company to terminate its outside management agreement with the Manager and to
become an internally-managed company.
The potential acquisition is intended to be structured so that the ownership
interests held by the principals of Related in both Related and the other
entities which control other aspects of Related's business will be contributed
into a newly-formed, wholly-owned subsidiary of CM Corp. (the "CharterMac Sub").
26
The Company anticipates paying total consideration to the principals of Related
of up to $338 million, as follows:
o The Initial Payment--$210 million consisting of $160 million in special
common units of the CharterMac Sub and $50 million in cash (with the
cash portion being paid only to TRCLP). These special common units will
be issued at $17.78 per unit, which was the average closing price of
the Company's common shares for the 30 calendar days prior to the
announcement of the acquisition (the "Initial Payment SCUs");
o The Contingent Payment--up to $128 million of additional special common
units (the "Contingent Payment SCUs"), which is based on 7.73x
Related's adjusted audited earnings before interest, taxes,
depreciation and amortization, as well as certain other adjustments,
for the year ended December 31, 2002. The Contingent Payment SCUs are
expected to be issued at the same price as the Initial Payment SCUs,
subject to a 17.5% symmetrical collar.
In connection with the proposed acquisition, the Company also intends to
establish a restricted share award plan which will permit the Company to grant
restricted common shares to the employees of Related. At the option of the
principals of Related, on or prior to the closing of the acquisition, the amount
of restricted common shares may be increased to up to $20.2 million, in which
event the amount of the contingent payment payable to the principals of Related
will be reduced by the amount by which the value of the restricted common shares
issued exceeds $15 million.
Following the completion of the proposed acquisition, the economic interest in
the Company of (i) TRCLP will equal approximately 17.7% and (ii) the Company's
management and the principals of Related (other than TRCLP) will equal
approximately 8.7%.
The affirmative vote of the holders of a majority of the Company's issued and
outstanding common shares entitled to vote is required to approve the issuance
of the Company's securities in connection with the proposed acquisition.
Accordingly, the Company filed a preliminary proxy statement with the SEC
regarding the proposed acquisition (and the other matters discussed below) on
February 28, 2003, a revised preliminary proxy statement on May 8, 2003, a
second revised preliminary proxy statement on July 2, 2003 and a third revised
preliminary proxy statement on August 7, 2003, in each instance after receiving
comments from the SEC.
In addition to asking the holders of the Company's common shares to approve the
issuance of securities in connection with the proposed acquisition, the Company
is also asking for their approval of the following proposals:
(a) Amending and restating the Company's trust agreement to (i) reflect
the terms of the proposed acquisition, (ii) accommodate the Company's
internalized management structure and expansion of the Company's
business resulting from the proposed acquisition and (iii) bring the
Company's organizational structure in line with other
internally-managed, public companies;
(b) Expanding the Company's existing incentive share option plan to
enable the Company to continue to attract and retain qualified
individuals to serve as the Company's officers and trustees and to
provide incentives to and more closely align the financial interests of
the Company's management team with the interests of the Company's
shareholders;
(c) Electing two trustees to the Company's board of trustees, each for
a term of three years; and
(d) Amending the Company's trust agreement to clarify that future
issuances by us or the Company's subsidiaries of securities which
contain mandatory redemption features would not be considered
"financing or leverage" under the terms of the Company's trust
agreement.
27
Results of Operations
---------------------
Interest income from Revenue Bonds increased approximately $4.9 million and $8.2
million for the three and six months ended June 30, 2003 as compared to 2002.
This increase was primarily due to an increase in interest income of
approximately $14.5 million from new Revenue Bonds acquired during 2002 and
2003, partially off-set by a decrease in interest income due to the sale or
repayment of Revenue Bonds of approximately $4.9 million and a decrease in
contingent interest of approximately $1.8 million.
Other income for the three and six months ended June 30, 2003, increased by
approximately $1.2 million and $2.2 million as compared to 2002. This increase
was primarily due to the Yield Guarantee Transaction completed in July 2002.
Total revenues for the three and six months ended June 30, 2003, increased by
approximately $5.1 million and $8.2 million including the increases in interest
income from Revenue Bonds noted above, increases in mortgage servicing fees and
other income offset by a decrease of approximately $876,000 in mortgage banking
fees due to lower origination volume.
General and administrative expenses decreased approximately $1,065,000 and
$625,000 for the three and six months ended June 30, 2003 as compared to 2002
primarily due to decreases in employee compensation resulting from lower
originations at PW Funding.
Amortization increased approximately $953,000 and $602,000 for the three and six
months ended June 30, 2003 primarily due to the increase of amortization of PW
Funding acquisition expense and deferred finance cost for LIHTC guarantee deal
and PW Funding acquisition and warehouse loans.
Income allocated to preferred shareholders of subsidiary for the three and six
months ended June 30, 2003 increased approximately $672,000 and $1,632,000 due
to the preferred offerings consummated on June 4, 2002.
During the three and six months ended June 30, 2003, the Company recorded a
benefit for income taxes of approximately $788,000 and $2,764,000, due to CM
Corp having a consolidated tax loss when calculated in accordance with FAS 109
(see Note 1, Income Taxes).
During the three and six months ended June 30, 2003, the Company recognized a
net gain on repayments of Revenue Bonds of approximately $2.7 million and $2.2
million, versus approximately $0.2 million and $4.0 million for 2002, due to the
number and size of Revenue Bonds repaid or sold. Additionally, during the three
and six months ended June 30, 2003, the Company recognized gains on sales of
loans of approximately $0.4 million and $2.6 million versus approximately $3.3
million and $6.9 million for 2002, relating to PWF's origination activities.
Liquidity and Capital Resources
-------------------------------
The Company has primarily used three sources of capital: collateralized debt
securitization, various types of equity offerings and a Credit Facility to fund
its investments and facilitate growth.
On March 31, 2003, the Company entered into a $75 million secured revolving
tax-exempt bond warehouse line of credit with Fleet Securities, Inc. and
Wachovia Securities, Inc. (the "Facility"). The Facility has a built- in
accordion feature allowing up to a $25 million increase for a total of $100
million and a term of two years, plus a one- year extension at the Company's
option. The Facility bears interest at either 31, 60, 90, or 180-day reserve
adjusted LIBOR plus 1.5%, or prime plus .25%, at the Company's option.
On April 1, 2003, the Company closed on its sale of Tax-Exempt Multi-Family
Housing Trust Certificates Series 2003A (the "Trust"). Pursuant to the terms of
the Trust, the Company contributed 19 fixed-rate, tax-exempt multifamily housing
and senior housing revenue bonds collateralized by 16 different properties
totaling approximately $196.8 million in aggregate principal into a trust out of
which was sold $100 million in Class A Certificates to various institutional
investors. A wholly-owned indirect subsidiary of CharterMac retained the
subordinated Class B Certificates totaling approximately $96.8 million.
CharterMac has agreed that it will hold the Class B Certificates until the Trust
is terminated. The Class A Certificates will accrue interest at the fixed rate
of 3.25% per annum for two years. Distributions to the Class A Certificate
holders are expected to be made on
28
the 15th day of each month, commencing on May 15, 2003. The Class A Certificates
will be subject to mandatory tender for purchase at a price equal to the
outstanding Certificate Balance thereof plus accrued interest thereon on March
15, 2005. If CharterMac does not exercise its option to terminate the Trust on
March 15, 2005, the Class A Certificates will be subject to remarketing. The
Class A Certificates will be subject to mandatory tender for purchase and
cancellation on the Final Distribution Date from proceeds of the liquidation of
the bonds on March 15, 2007.
During the six months ended June 30, 2003 cash and cash equivalents of the
Company and its consolidated subsidiaries increased approximately $53.2 million.
The increase was primarily due to cash provided by operating activities of
approximately $79.2 million, proceeds from the repayment of eight Revenue Bonds
of approximately $57.3 million, principal payments on Revenue Bonds of
approximately $9.0 million, principal payments received from loans made to
properties of approximately $8.8 million, proceeds from financing arrangements
of approximately $109.4 million and proceeds from exercise of stock options of
approximately $1.5 million, partially offset by distribution payments of
approximately $41.0 million, advances made to Revenue Bonds of approximately
$146.0 million, purchases of other investments of approximately $10.2 million,
loans made to properties of approximately $1.9 million and a decrease in notes
payable of approximately $5.4 million.
In July 2003, distributions declared in June 2003 were paid to Preferred
Shareholders as shown in the table below:
Liquidation
Value
Series Dividend Rate Distribution per Share Total Distribution per share
------ ------------- ---------------------- ------------------ ---------
A 6.625% $33,125 $1,490,625 $2,000,000
A-1 7.100% 8,875 426,000 500,000
A-2 6.300% 7,875 488,250 500,000
A-3 6.800% 8,500 510,000 500,000
B 7.600% 9,500 1,045,000 500,000
B-1 6.800% 8,500 314,500 500,000
B-2 7.200% 9,000 450,000 500,000
Also paid, during August 2003, were distributions of approximately $14,667,000
($.325 per share) to holders of common and convertible CRA shares, which were
declared in June 2003.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way.
Critical Accounting Policies
----------------------------
The Company's critical accounting policies are described in its Form 10-K for
the year ended December 31, 2002 and in Note 1 of the footnotes of the
accompanying financial statements. These critical accounting policies have not
changed during 2003 except for the Company's accounting treatment of MSRs (see
Note 1, Mortgage Banking Activities and Mortgage Servicing Rights for a
description of the current accounting policies).
Acquisitions
------------
During the period January 1, 2003 through June 30, 2003, the Company acquired 18
tax-exempt Revenue Bonds and three taxable Revenue Bonds with an aggregate face
amount of approximately $137.1 million, not including bond selection fees and
expenses of approximately $2.9 million. The Company also advanced additional
funds to Revenue Bonds which were previously acquired totaling approximately
$9.0 million.
Forward-Looking Statements
--------------------------
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities
29
Exchange Act of 1934, as amended. Such forward-looking statements include
statements regarding the intent, belief or current expectations of the Company
and its management and involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the following: general economic and
business conditions, which will, among other things, affect the availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing for properties financed by Revenue Bonds owned by the
Company; adverse changes in the real estate markets including, among other
things, competition with other companies; risks of real estate development and
acquisition; governmental actions and initiatives; and environment/safety
requirements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
Inflation
---------
Inflation did not have a material effect on the Company's results for the
periods presented.
Related Parties
---------------
The Company's day-to-day affairs are handled under the terms of the Management
Agreements with the Manager.
The Company has invested in, and may in the future invest in, Revenue Bonds
secured by properties in which either direct or indirect affiliates of Related
own equity interests in the borrower. The Company's trust agreement contains a
limitation, equal to 15% of total market value, on the aggregate amount of
Revenue Bonds the Company may hold where the borrowers under such Revenue Bonds
are either direct or indirect affiliates of Related and Related generally has a
controlling economic interest.
In some cases, Related or its affiliates may own a partnership or joint venture
interest merely to facilitate an equity financing on behalf of one of Related's
investment funds. These instances are not considered in the above 15%
limitation. This type of transaction with an affiliated borrower would be
structured as a limited partnership as follows: the general partner would be an
unaffiliated third party with a 1% general partnership interest and the 99%
limited partner would itself be a limited partnership in which an affiliate of
Related would own a 1% general partnership interest and one or more Fortune 500
companies would own a 99% limited partnership interest.
Affiliates of the Manager may provide certain financial guarantees to facilitate
leveraging by CharterMac, for which they could be paid market rate fees. In
addition, affiliates of the Manager may provide certain financial guarantees to
the owner (or partners of the owners) of the underlying properties securing
CharterMac's revenue bonds, for which they could be paid market rate fees.
Certain of the Revenue Bonds held by the Company are supported by various
guarantees including, but not limited to, construction and operating guarantees
from affiliates of the Manager.
During the quarter ended September 30, 2002, the Company agreed to back up a
primary guarantor's obligation to guarantee an agreed-upon internal rate of
return to the investor in Related Capital Guaranteed Corporate Partners II, L.P.
("RCGCP"). RCGCP is a fund sponsored by Related, who is an affiliate of the
Manager. The Company is the beneficiary of a guarantee against losses associated
with construction and operating stabilization for each of the properties in
RCGCP, which is capped at $15 million. The guarantee has been provided by The
Related Companies, L.P. ("TRCLP"), an affiliate of Related. If the Company's
acquisition of Related is completed, then this guarantee will no longer be in
force.
In connection with the refinancing of River Run, the Company entered into an
agreement which allows the Revenue Bond to be put to the Company should the
owner of the underlying property default on the bond. The Company, in turn,
entered into agreements which allow the Company to put the bond to the general
partners of the owner who are affiliates of the Manager. The Company's put right
is secured by collateral assignments of the general partners' partnership
interests in the limited partnership which owns the underlying property.
30
The Company has entered into a credit enhancement transaction with Merrill Lynch
Capital Services. TRCLP has provided the Company with an indemnity covering 50%
of any losses incurred by the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The nature of the Company's investments and the instruments used to raise
capital for their acquisition expose the Company to gains and losses due to
fluctuations in market interest rates. Market interest rates are highly
sensitive to many factors, including governmental policies, domestic and
international political considerations and other factors beyond the control of
the Company.
Revenue Bonds generally bear interest at fixed rates, or pay interest according
to the cash flows of the Underlying Properties, which do not fluctuate with
changes in market interest rates. In contrast, payments required under the TOP
program and on the secured borrowings under the P-FLOATS program vary based on
market interest rates based on the Bond Market Association ("BMA") and are
re-set weekly.
Various financial vehicles exist which would allow Company management to
mitigate the impact of interest rate fluctuations on the Company's cash flows
and earnings. Beginning in 2001, and upon management's analysis of the interest
rate environment and the costs and risks of such strategies, the Company entered
into two interest rate swaps in order to hedge against increases in the floating
interest rate on its TOP and P-FLOATS programs. Under such interest rate swap
agreements, the Company is required to pay Merrill Lynch Capital Services (the
"Counterparty") a fixed rate on a notional amount of debt. In return, the
Counterparty will pay the Company a floating rate equivalent to the BMA
Municipal Swap Index, an index of weekly tax-exempt variable rate issues on
which the Company's variable rate financing programs are based. On January 5,
2001, the Company entered into a five-year interest rate swap that fixes the BMA
index to 3.98% on a notional amount of $50 million. On February 5, 2001, the
Company entered into a three-year interest rate swap that fixes the BMA index to
3.64% on a notional amount of an additional $100 million. This effectively fixes
$50 million and $100 million of the Company's secured borrowings at 3.98% and
3.64%, respectively, protecting the Company in the event the BMA Municipal Swap
Index rises. For the quarter ended June 30, 2003, the Company's cost to borrow
funds through the TOP and P-FLOATS programs averaged 2.16% and 2.29%,
respectively, which does not include the effect of the Company's hedging
activities.
With respect to the portion of the Company's floating rate financing programs
which are not hedged, a change in the BMA rate would result in increased or
decreased payments under these financing programs, without a corresponding
change in cash flows from the investments in Revenue Bonds. For example, based
on the unhedged floating rate $530 million outstanding under these financing
programs at June 30, 2003, the Company estimates that an increase of 1.0% in the
BMA rate would increase interest expense and therefore decrease annual net
income by approximately $5.3 million. Conversely, a decrease in market interest
rates would generally benefit the Company in the same amount described above, as
a result of decreased allocations to the minority interest and interest expense
without corresponding decreases in interest received on the Revenue Bonds.
Changes in market interest rates would also impact the estimated fair value of
the Company's portfolio of Revenue Bonds. The Company estimates the fair value
for each Revenue Bond as the present value of its expected cash flows, using a
discount rate for comparable tax-exempt and taxable investments. Therefore, as
market interest rates for tax-exempt and taxable investments increase, the
estimated fair value of the Company's Revenue Bonds will generally decline, and
a decline in interest rates would be expected to result in an increase in their
estimated fair values. For example, the Company projects, using the same
methodology used to estimate the portfolio's fair market value under FAS 115,
that a 1% increase in market rates for tax-exempt and taxable investments would
decrease the estimated fair value of its portfolio of Revenue Bonds from its
June 30, 2003 value of $1,677,287,000 to approximately $1,487,299,000. A 1%
decline in interest rates would increase the value of the June 30, 2003
portfolio to approximately $1,933,934,000. Changes in the estimated fair value
of the Revenue Bonds do not impact the Company's reported net income, earnings
per share, distributions or cash flows, but are reported as components of other
comprehensive income and affect reported shareholders' equity.
31
The assumptions related to the foregoing discussion of market risk involve
judgments involving future economic market conditions, future corporate
decisions and other interrelating factors, many of which are beyond the control
of the Company and all of which are difficult or impossible to predict with
accuracy. Although the Company believes that the assumptions underlying the
forward-looking information are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
information included herein will prove to be accurate. Due to the significant
uncertainties inherent in forward-looking information, the inclusion of such
information should not be regarded as a representation of the Company that the
objectives and plans of the Company would be achieved.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, such officers have concluded that, as of the
end of such period, the Company's disclosure controls and procedures are
effective .
(b) Internal Control over Financial Reporting. There have not been any
significant changes in the Company's internal control over financial reporting
during the fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Shareholders Action - Related
On or about December 24, 2002, an alleged shareholder of the Company
commenced a shareholder's action ostensibly on behalf of the Company in
the Supreme court of the State of New York, County of Nassau, against
each member of the Company's board of trustees and Related.
Subsequently, the plaintiff amended his complaint to add a direct,
putative class action claim. The case is entitled Dulitz v. Hirmes, et
al., Index No. 02-020389, and we are named as a nominal defendant in
the action. The plaintiff alleges that each of the members of the
Company's board of trustees and Related breached fiduciary duties
and/or aided and abetted breaches of fiduciary duties owed to the
Company and the Company's shareholders in approving the Company's
proposed acquisition of Related. The amended complaint alleges, among
other things, that the purchase price for Related is excessive, the
transaction has been pursued and structured solely for the benefit of
the trustees that are affiliated with Related and the members of the
special committee are not independent because they are supposedly
"dominated or controlled" by the trustees that are affiliated with
Related. Additionally, the amended complaint alleges that the
defendants also breached fiduciary duties owed to a putative class of
all of the Company's shareholders (excluding the defendants and their
affiliates) due to alleged dilution of the voting power and economic
interests of the Company's shareholders by the proposed transaction.
The amended complaint further alleges that shareholder ratification of
the proposed transaction supposedly will not be effective and the
trustees allegedly will not "disclose the true nature and purpose of
the proposed transaction." The amended complaint seeks declaratory and
injunctive relief, including enjoining the consummation of the proposed
transaction, and unspecified amounts of compensatory damages, costs,
disbursements and attorneys' fees.
Although the defendants in the Dulitz action do not believe that the
plaintiff's allegations have merit, the defendants have engaged in
settlement negotiations with the plaintiff's counsel solely in order to
avoid unnecessary expenses, burdens, uncertainties and distractions of
continued litigation. In April and May 2003, counsel for the parties
met to discuss the issues in the case and counsel for the defendants
provided counsel for the plaintiff with certain documents and other
information. In June 2003, counsel for the parties drafted a memorandum
of understanding setting forth the terms of a settlement in principle.
In June 2003, the Company's board of trustees and the special committee
approved the memorandum of understanding and authorized and directed
the Company's counsel to enter into the memorandum of understanding and
a settlement agreement on terms substantially in accordance with the
memorandum of understanding. Also in June 2003, plaintiff conducted
limited confirmatory discovery pursuant to the memorandum of
understanding.
In July 2003, the parties to the litigation entered into a stipulation
of compromise and settlement. The stipulation of compromise and
settlement requires defendants to make certain changes to the proposed
transaction and the related agreements.
On August 7, 2003, the Company entered a hearing order that, in
pertinent part:
o conditionally certifies the class for purposes of
settlement;
o schedules for October 24, 2003 a settlement hearing at
which the Company will consider whether to approve the
settlement embodied in the stipulation of compromise and
settlement;
o requires defendants to distribute with the proxy
statement, and to file with the Securities and Exchange
Commission as an exhibit to a Form 8-K, a notice to the
class members of the action, the settlement, and the
settlement hearing; and
33
o establishes procedures and deadlines for members of the
class to file objections to the settlement or to opt out
of the class.
The individual defendants and Related have informed us that if the case
is not settled, they intend to defend against the plaintiff's claims
vigorously.
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
Exhibits:
10.1 Acquisition Loan Agreement, dated as of December 24, 2001, among
Charter Mac Corporation, as Borrower, Fleet National Bank, as
Agent, and the Lenders.
10.2 Mortgage Warehousing Credit and Security Agreement, dated as of
December 24, 2001, among PW Funding Inc., Cambridge Healthcare
Funding Inc. and Larson Financial Resources, Inc., as Borrowers,
Fleet National Bank, as Agent, and the Lenders.
10.3 Amended and Restated Reimbursement Agreement, dated as of March
31, 2003, among Charter Mac Equity Issuer Trust, Fleet National
Bank, as Agent, Fleet National Bank, as Issuing Bank, and the
Participants.
10.4 Tax-Exempt Bond Line of Credit and Security Agreement, dated as
of March 26, 2003, among Charter Mac Equity Issuer Trust, Fleet
National Bank, Wachovia Bank, National Association, Fleet
Securities Inc. and Wachovia Securities, Inc., and the Lenders.
31.1 Chief Executive Officer certification pursuant to Rule 13a-14 or
15d-14
31.2 Chief Financial Officer certification pursuant to Rule 13a-14 or
15d-14
32.1 Chief Executive Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The following 8-K reports were filed or furnished, as noted in the
applicable Form 8-K, for the quarter ended June 30, 2003.
Current report on Form 8-K relating to the Company making
available unaudited supplemental data regarding its operations for
the quarter ended March 31, 2003, dated May 14, 2003.
Current report on Form 8-K relating to a press release issued by
the Company reporting its financial results for the first quarter
ended March 31, 2003, dated May 14, 2003.
Current report on Form 8-K relating to filing exhibits for the
five-year 3.98% fixed interest rate swap transaction dated January
5, 2001, on a notional amount of $50 million and the three-year
3.64% fixed interest rate swap transaction dated February 5, 2001,
on a notional amount of $100 million, dated June 30, 2003.
34
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.
CHARTER MUNICIPAL MORTGAGE ACCEPTANCE COMPANY
(Registrant)
Date: August 14, 2003 By: /s/ Stuart J. Boesky
--------------------
Stuart J. Boesky
Managing Trustee, President
and Chief Executive Officer
Date: August 14, 2003 By: /s/Stuart A. Rothstein
----------------------
Stuart A. Rothstein
Chief Financial Officer and Chief
Accounting Officer
36