Holdings owns no property. TLIC owns an undivided 56.54% interest in its home office building and Texas National Bank of Waco, Waco, Texas, owns the remaining undivided interest. The building is a ten-story, 80,391 square foot office and bank building located in Waco, Texas. TLIC occupies 32,954 square feet of the building. TLICs interest in the building had a net book value of approximately $2,459,000 as of December 31, 1996. TLIC leases space for its Dallas and Waco regional offices. As of December 31, 1996, TLIC also owned real estate that it acquired through foreclosure in satisfaction of debt. The foreclosed property included land and a residential development in Corinth, Texas. It is reported in the Consolidated Balance Sheet as of December 31, 1996 at its estimated net realizable value of approximately $982,000.
The following table presents selected consolidated financial data for the Registrant as of and for the years ended December 31, 1996, 1995, 1994, 1993 and 1992 (dollars in thousands):
METLIFE TEXAS HOLDINGS, INC. AND SUBSIDIARY ANNUAL REPORT ON FORM 10-K (Continued) - ------------------------------------------------------
Historical Results of Operations -------------------------------- Holdings is a wholly-owned subsidiary of Metropolitan and was formed for the purpose of acquiring TLIC. The unconsolidated revenues of Holdings are exclusively attributable to its interest bearing investments. Therefore, the changes in the Consolidated Statements of Operations discussed below are primarily attributable to TLIC.
The increase in 1995 is primarily attributable to (i) a $3.5 million, or 12.8%, increase in net investment income related to increased yields on investments in 1995 and an increase in invested assets (invested assets were $441.3 million at December 31, 1995 versus $387.6 million at December 31, 1994), (ii) a $1.9 million, or 17.1%, increase in traditional life insurance premiums related to increased business in force resulting from increased sales in recent years, and (iii) a $2.0 million increase in realized capital gains (a $0.6 million gain at December 31, 1995 versus a $1.4 million loss at December 31, 1994) related to the sale in 1994 of underperforming mortgage-backed securities and U.S. Treasuries.
Benefits, claims and expenses increased $4.1 million, or 7.9%, in 1996 versus 1995 and $3.8 million, or 8.0%, in 1995 versus 1994. The 1996 increase is primarily attributable to a $1.9 million, or 16.7%, increase in policyholder benefits and claims and a $1.9 million, or 8.0%, increase in the change in the liability for future policyholder benefits, both of which are related to the growth and aging of the block of business in force.
The 1995 increase over 1994 is primarily attributable to (i) a $2.0 million, or 9.7%, increase in the change in liability for future policyholder benefits related to the growth and aging of the block of business in force, (ii) a $0.7 million, or 22.7%, increase in the amortization of deferred policy acquisition costs due primarily to increased production of new business, and (iii) a $0.7 million, or 6.6%, increase in operating expenses and commissions, taxes and fees due primarily to increases in personnel, commissions and printing associated with increased sales in recent years.
Federal income taxes increased $1.4 million, or 122.4%, in 1995 versus 1994, resulting from a $2.3 million, or 433.0%, increase in the current tax provision and a partially offsetting $0.9 million, or 130.5%, decrease in deferred taxes. Current tax expense increased $0.4 million resulting from an increase in the DAC tax in 1995 versus 1994, $0.7 million due to a bad debt deduction taken in 1994 relating to certain mortgage loans, and $1.0 million as a result of an increase in the tax versus book basis of realized capital gains in 1995 versus 1994. Deferred taxes decreased $0.5 million due to an increase in the difference between the tax and book basis of invested assets and other policyholder liabilities and $0.3 million due to a decrease in the difference between the tax and book basis of deferred policy acquisition costs and cost of insurance acquired.
Federal income taxes remained virtually unchanged for the fourth quarter of 1996 versus the comparable period of 1995. Current taxes decreased $0.5 million and deferred taxes increased an equivalent amount. Current taxes decreased $279,000 due to decreased statutory operating earnings, $141,000 due to the difference between the book and tax basis of policyholder reserves and $99,000 due to increased realized capital losses. Deferred taxes increased $579,000 due to the difference between the book and tax basis of policyholder reserves.
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
As a result of the items discussed above, net income increased $0.2 million, or 11.4%, for the fourth quarter of 1996 as compared to the fourth quarter of 1995.
losses on the underlying Pool Loans. Additionally, no interest was paid in January 1997. It is unlikely that interest will be paid on the Contingent Payment Notes in July 1997.
As a result of book interest expense on the Contingent Payment Notes for the year ended December 31, 1996, Holdings had a net loss of approximately $108,000, on an unconsolidated basis. Due to the low interest rate environment and the constraints on investment options imposed on Holdings by the Indenture under which the Contingent Payment Notes were issued, the book interest expense on the Notes resulted in an operating loss in both 1995 and 1996. The operating losses do not present a cash flow concern since, as noted above, no interest payments are expected to be made in July 1997.
On June 30, 1989, TLIC issued a $7 million note payable to Metropolitan and, on December 31, 1990, it issued a $5.5 million note payable to MetLife Credit Corp., a wholly-owned subsidiary of Metropolitan (see Note 10 to the Consolidated Financial Statements for a description). While both of these notes are considered a liability by the Registrant on a GAAP basis, they are considered surplus for TLIC on a statutory basis. The $7 million note payable was issued to provide additional statutory capital to TLIC for expansion of premium writings. Increases in first year premium volume reduce statutory surplus since, for statutory purposes, acquisition costs are expensed rather than deferred. The $5.5 million note payable is being used to provide a voluntary statutory reserve for mortgage loans and foreclosed properties.
The Registrant has no outstanding borrowings other than the Contingent Payment Notes and the notes payable of TLIC to affiliates and has no need or plans to borrow funds in the foreseeable future, other than additional notes which may be issued to affiliates by TLIC to provide additional statutory surplus. Borrowings by Holdings are prohibited by the terms of the Indenture pursuant to which the Contingent Payment Notes were issued.
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL RESOURCES (Continued)
Included in the mortgage loan book value is $3,403,000 of loans on watch (i.e., loans which are not delinquent over 90 days but are being monitored more carefully for possible problems in the future). One loan, which is 30 days overdue, has a total value of $71,000. The 8.4% delinquency rate of TLICs mortgage loan portfolio at December 31, 1996 is up from 7.6% at December 31, 1995 and down from 10.9% at December 31, 1994 and 12.3% at December 31, 1993. The $2,955,000 book value at December 31, 1996 of loans that were delinquent by 90 days or more was up slightly from $2,951,000 at December 31, 1995 and down from $4,531,000 at December 31, 1994.
real estate aggregating $4,163,000, and forty-four agricultural loans aggregating $20,203,000 through the Agricultural Investments Department of Metropolitan, for a total of $29,404,000. Since its acquisition, TLIC has required a maximum loan to appraised value of 75% based on earnings conditions at the time of the loan. Additionally, these loans are issued to borrowers having strong financial backgrounds. Collateral on loans generally includes personal guarantees for the entire amount of the mortgage indebtedness as well as a lien on the mortgaged property. Loans generally mature within ten to fifteen years, with recent ten to fifteen year loans containing a provision for adjustment in the interest rate after three or five years.
The total ratio of original loan balance to original appraised value is 58.4% and the current loan value to original appraised value is 45.7%. The average seasoning of loans is approximately 5.0 years. The total current loan balance to original loan balance is 78.2%. The largest single loan balance is $1,642,000.
Additionally, almost 39% of the insurance in force of TLIC is traditional life insurance, which is not as susceptible to changes in the interest rate environment (31% of its insurance in force is term insurance, which has no cash surrender value and is not impacted by changes in the interest rate).
In addition to the large amount of readily marketable securities referred to above, it is also the policy of TLIC to maintain at least $3,000,000 of cash and short-term investments, net of commitments for investment purchases. At December 31, 1996, TLIC had approximately $2,910,000 in cash, and approximately $7,831,000 in cash equivalents and short-term investments. There were no investment commitments at December 31, 1996.
During 1996, TLIC adopted Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of, which requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is evaluated by comparing future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition to the carrying amount of the asset. Adoption of SFAS 121 had no significant impact on the Registrants consolidated financial position.