A little over a year ago, Spokane-based Metropolitan Mortgage & Securities Co. was in the midst of slashing its large work force by more than half as it exited the high-volume, low-margin mortgage-banking market and sought to redirect its resources to more profitable areas of business.


Today, with an intensified focus on commercial lending, property development, real estate contract buying, and alternative cash flows, the 49-year-old company says its strategic shift toward higher-quality investments is progressing well.


Metropolitan is hiring workers once againit now employs about 375 people, up from a low of around 320 last Juneand its showing what appears to be a gradual return to profitability, having notched its third consecutive profitable quarter at the end of last year following sizable losses in three of the four previous quarters.


The company is in a much stronger position today than it was a year ago, asserts Erik Skaggs, Metropolitans vice president of production and market development. Were very optimistic about continued growth. Weve come through the transition very successfully.


The company has begun recruiting aggressively to attract commercial loan officers and also is looking to add experienced real estate contract buyers and licensed securities representatives to sell some of its investment products, Skaggs says.


He emphasizes, though, that the companys employment growth will be more restrained than in the past, with a stronger emphasis on operating efficiently and trimming costs where possible. He says the company recently has been using Kaizen, the Japanese-based continuous-improvement process, to streamline operations in some departments.


Metropolitan is putting much of its redirected emphasis into commercial real estate lending, where it hopes to exceed volume of $500 million this year. Skaggs says a key part of that effort will be in making nonconforming bridge loans to property owners and developers.


Most of our deals are short term, averaging 24 to 36 months, and most of the deals that are brought to us are fairly complex transactions, with an average loan size of around $3 million, he says.


Nonconforming bridge loans typically provide interim development-related financing to parties that arent able to borrow from conventional lenders for various reasons, sometimes because they need to close on financing quickly, he says. Metropolitan doesnt charge large upfront fees, like some lenders in that market, and is able to meet rapid-turnaround needs, Skaggs claims. Furthermore, because it also is in the property-development business, its willing to consider equity investments in some projects it finds attractive, he says.


We operate in a specialized niche in the commercial-lending industry, and we are virtually the only ones who do at this level, he asserts. Thats why our deal flow is continually increasing as our name because more and more known in the national marketplace.


In property development, another area that Metropolitan considers to have strong potential for growth, the company recently has hired a new director of sales and is stepping up efforts to generate revenue from its current real estate portfolio, as well as to participate in new projects with strong potential, he says.


Financial upswing


Metropolitan reported meager net income of about $58,000 for its 2002 fiscal first quarter ended Dec. 31, but that was sharply improved compared with a net loss of nearly $4.3 million in the year-earlier period. The latest quarterly earnings were on revenues of about $35.1 million, up from $33.9 million in the year-earlier quarter.


Summit Securities Inc., a Spokane-based affiliate of Metropolitan, reported net income of about $484,000 for the latest quarter, compared with a net loss of about $516,000 in the year-earlier quarter.


In recent years, Metropolitan had used securitizations to raise capital. Through them, assetstypically receivables of some typeare pooled, and security interests in the pool then are sold to investors. Such transactions allow companies to receive upfront, lump-sum payments from institutional investors by issuing securities that pledge a future cash flow. Metropolitan sold a couple of billion dollars worth of mortgage-backed securities between 1996 and 2000, and during some of that period was reporting record net income figures.


However, the company began suffering losses when the residential-mortgage lending market began to weaken and securitization profit margins dried up as investors sought higher yields. In 2000, for example, the company realized securitization gains of $14.6 million on $592 million in sales, down from gains of $21.7 million on $530 million in sales the previous year.


Left with the option of increasing its volume further to bolster its gains or shifting its resources toward more profitable lines of business, the company announced in the fall of 2000 that it was taking the latter path.


The following spring, it disclosed thatas part of a revised long-term growth planit had sold the servicing rights to more than $1.8 billion in mortgages to a large, Florida-based company. Those various corporate changes and the market conditions that triggered them caused Metropolitan to slash its work force by several hundred employees over about the last two years.


In its annual report filed in late December for the fiscal year ended last Sept. 30, Metropolitan reported a net loss of $8.9 million for its 2001 fiscal year, compared with a net loss of $7.6 million in fiscal 2000. Summit Securities reported a net loss of about $2.5 million for the 2001 fiscal year, down from net income of about $4.1 million the previous year.