Metropolitan Mortgage & Securities Co., of Spokane, posted a loss applicable to common stockholders of about $12.4 million in its quarter ended June 30, up sharply from a $2.8 million loss in the year-earlier period, according to a recent filing with the U.S. Securities and Exchange Commission.


That loss in the companys third fiscal quarter makes up the bulk of a $15.9 million loss attributable to common stockholders that Metropolitan reported for the first nine months of its current fiscal year. That figure compares with net income of nearly $13.5 million for the year-earlier period.


Erik Skaggs, company spokesman, says the losses are confined to the companys mortgage-banking activities. He notes that affiliate Summit Securities Inc. and its subsidiaries, also part of the Metropolitan group of companies, showed net income of $2.4 million for the most recent nine-month period.


The other areas of businessequity investment and venture capital, commercial lending and property developmentare all profitable, Skaggs says. Its important to look at both Summit and Metropolitans performance together. For next quarter (ending Sept. 30), the company projects a profit for Metropolitan Mortgage as well as continuing profits for Summit.


As further evidence that Metropolitan is secure financially, he points out that it had $347 million in cash and investments and $30 million in cash on hand as of the end of the last quarter.


Skaggs says, Management has had a very aggressive cost-streamlining effort, and we are also looking at other strategies to raise profitability in mortgage banking. I think its important to note that mortgage banking as an industry nationwide has been having a difficult time, so this is not unique to Metropolitan.


Metropolitan laid off about 40 workers in May due to a downturn in the mortgage industry caused by rising interest rates. Skaggs says the company, which currently employs about 670 people, has no plans for additional layoffs.


Metropolitans core business is buying real estate mortgages at a discount from mortgage holders who want to liquidate their positions. The Spokane company often holds the mortgages it buys and derives income from them over time as mortgagees make their payments. It invests mostly in receivables where the borrower doesnt qualify for conventional financing or the seller or the buyer opts to use nonconventional financing.


In recent years, the company has diversified into buying other types of cash-flow instruments, including some secured by lottery winnings, structured settlements, and annuities. It also began originating residential loans through relationships with other lenders and loan brokers throughout the Western U.S.


In addition, Metropolitan sells securities, manages a commercial real estate portfolio, and operates an insurance subsidiary. The company has been able to generate considerable earnings in recent years through a number of securitizations of real estate receivables, which involve the sale of mortgage-backed securities. In such transactions, the company sells a pool of loans, but continues to collect the payments made on the loans, then transfers that money to the buyers of the securities.


The company planned to hold its largest securitization to date this week, involving $300 million worth of loans.


Along with its other activities, Metropolitan has considerable real estate development holdings, including the Summit property west of downtown Spokane, Liberty Lake Center, the Spokane Valley Plaza, and Airway Business Park, as well as the Broadmoor Park mixed-use development in Pasco, Wash.


The companys recent quarterly report attributes its losses for the first nine months partly to a $10.2 million decrease in gains on the sales of receivables, and a $4.5 million increase in reserves to cover potential losses on real estate and other assets. It says other contributing factors included a $7.1 million increase in salaries and employee benefits and a $2.6 million increase in other operating and underwriting expenses. Those losses and increased costs were offset partially by higher fees, commissions, and other income, the report says.


It says the growth in salaries, employee benefits, and operating and underwriting expenses resulted mostly from the companys expansion into new areas of business, such as leasing, commercial lending, and loan origination.


The company also discloses in the report that, as of June 30, it was in technical default on a line-of-credit agreement with Banc of America Securities LLL. It says the agreement contained certain financial tests, including a minimum net worth and a maximum debt-to-net-worth ratio, and that the company had failed to maintain required levels.


Metropolitan says the bank sent it a letter indicating that it wouldnt take any action regarding the default through Oct. 1. The company says it is working with the lender to amend the terms of the agreement eliminating the default, and believes that the parties will reach agreement before the date sent out in the letter.


Skaggs claims Metropolitan is one of many companies in the mortgage-banking industry that are having to negotiate such contractual changes with lenders, and he says he expects the matter with Banc of America to be resolved amicably.