FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission file number 0-29075

SUMMIT SECURITIES, INC.
(Exact name of registrant as specified in its charter)


IDAHO		82-0438135
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


601 W. 1st AVENUE, SPOKANE, WASHINGTON		99201
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (509) 838-3111

Former name, former address and former fiscal year, if changed since last report: N/A.

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 [ ]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: N/A.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ] N/A.

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common: 10,000 shares at July 31, 2002.

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II-OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES

SUMMIT SECURITIES, INC.
INDEX

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


		Consolidated Balance Sheets
		As of June 30, 2002 and September 30, 2001

		Consolidated Statements of Operations
		Three Months Ended June 30, 2002 and 2001
		Nine Months Ended June 30, 2002 and 2001

		Consolidated Statements of Comprehensive Income (Loss)
		Three Months Ended June 30, 2002 and 2001
		Nine Months Ended June 30, 2002 and 2001

		Consolidated Statement of Stockholders’ Equity
		Nine Months Ended June 30, 2002

		Consolidated Statements of Cash Flows
		Nine Months Ended June 30, 2002 and 2001

		Notes to Consolidated Financial Statements

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS


				June 30,		September 30,
				2002		2001

				(unaudited)
Assets:
	Cash and cash equivalents			$	40,745,569	$	37,986,345
	Investments:
		Affiliated companies			3,022,425		4,522,425
		Trading securities, at fair value			—		22,226,923
		Available-for-sale securities, at fair value			136,663,497		73,630,137
		Held to maturity securities, at amortized cost			5,946,842		—
		Accrued interest on investments			869,166		603,076

			Total investments		146,501,930		100,982,561

	Real estate contracts and mortgage notes receivable, net of discounts and origination fees and net of allowances of $5,556,307 and $4,125,102				264,180,776		216,156,590
	Real estate held for sale and development at the lower of cost or market, net of allowances of $3,128,460 and $2,626,303				25,229,052		6,964,260
	Other receivable investments, net of discounts and origination fees and net of allowances of $355,181 and $1,021,017				53,399,435		43,296,220

			Net real estate assets and other receivable investments		342,809,263		266,417,070

	Other assets:
	Deferred acquisition costs, net				17,308,843		15,153,250
	Deferred income taxes				3,021,058		3,836,841
	Other assets, net				2,135,092		12,212,244

		Total other assets			22,464,993		31,202,335

		Total assets		$	552,521,755	$	436,588,311

Liabilities:
	Annuity reserves			$	360,635,170	$	291,001,734
	Investment certificates				104,659,153		93,101,273
	Debt payable				20,381,630		11,062,139
	Accounts payable and accrued expenses				31,921,637		9,659,410
	Income taxes payable				431,306		76,393

		Total liabilities			518,028,896		404,900,949

Stockholders’ equity:
	Preferred stock, Series S, R and T, $10 par value, 10,000,000 shares authorized, 83,480 shares and 76,154 shares issued and outstanding (liquidation preference $8,348,017 and $7,615,480)				834,802		761,548
	Preferred stock, Series S-3, $2.5 par value, 10,000,000 shares authorized, 1,004,561 shares and 1,025,430 shares issued and outstanding (liquidation preference $25,114,025 and $25,635,760)				2,511,402		2,563,576
	Common stock, $10 par value, authorized 2,000,000 shares, 10,000 shares issued and outstanding				100,000		100,000
	Additional paid-in capital				27,173,225		27,020,141
	Accumulated other comprehensive income (loss)				461,840		(1,121,734	)
	Retained earnings				3,411,590		2,363,831

			Total stockholders’ equity		34,492,859		31,687,362

			Total liabilities and stockholders’ equity	$	552,521,755	$	436,588,311

The accompanying notes are an integral part of the consolidated financial
statements.

SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)


			Three Months Ended						Nine Months Ended
			June 30,						June 30,

			2002			2001			2002			2001

Revenues:
	Interest on receivables		$	8,500,331		$	6,682,692		$	24,130,279		$	18,209,659
	Earned discount on receivables and investments			4,587,282			1,590,121			11,051,647			5,082,285
	Other investment income			2,215,961			2,382,926			6,490,072			7,461,396
	Net gains (losses) on investments			(554,379	)		1,096,331			(2,306,753	)		(5,428,958	)
	Net gains on sales of receivables			79,868			8,144			257,598			63,104
	Real estate sales			255,000			959,435			1,831,892			1,608,525
	Fees, commissions, service and other income			2,690,886			2,121,169			8,039,536			6,378,522

		Total revenues		17,774,949			14,840,818			49,494,271			33,374,533

Expenses:
	Annuity benefits			4,763,259			4,302,670			13,724,186			12,296,652
	Interest			2,831,945			2,486,265			7,889,809			6,808,887
	Cost of real estate sold			255,037			957,904			1,787,535			1,598,493
	Provision for losses on real estate			690,929			926,076			2,663,698			3,087,703
	Provision for (recovery of) losses on other assets			(615,841	)		10,221			(615,841	)		10,221
	Salaries and employee benefits			1,446,511			832,477			4,012,147			2,475,965
	Commissions to agents			7,320,727			2,872,157			14,056,512			8,703,804
	Other operating and underwriting expenses			681,620			782,017			3,427,807			2,283,297
	Decrease (increase) in deferred acquisition costs, net of amortization			(2,451,399	)		48,385			(1,889,151	)		(294,669	)

		Total expenses		14,922,788			13,218,172			45,056,702			36,970,353

Income (loss) before income taxes				2,852,161			1,622,646			4,437,569			(3,595,820	)
Income tax (provision) benefit				(995,579	)		(267,081	)		(1,356,001	)		1,597,690

Net income (loss)				1,856,582			1,355,565			3,081,568			(1,998,130	)
Preferred stock dividends				(686,243	)		(637,024	)		(2,033,809	)		(1,876,324	)

Income (loss) applicable to common stockholders			$	1,170,339		$	718,541		$	1,047,759		$	(3,874,454	)

The accompanying notes are an integral part of the consolidated financial
statements.

SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)


			Three Months Ended						Nine Months Ended
			June 30,						June 30,

			2002			2001			2002			2001

Net income (loss)			$	1,856,582		$	1,355,565		$	3,081,568		$	(1,998,130	)

Other comprehensive income (loss), net of income tax:
	Cumulative effect of accounting change, net of tax			—			—			—			40,497
	Unrealized gains (losses) on investments:
		Unrealized holding gains (losses) arising during period*		3,461,272			(2,067,844	)		1,723,904			460,835
		Less: reclassification adjustment for (gains) losses included in net income **		(1,862,762	)		1,576,896			(140,330	)		3,293,101

		Unrealized gains (losses) on investments		1,598,510			(490,948	)		1,583,574			3,753,936

	Net other comprehensive income (loss)			1,598,510			(490,948	)		1,583,574			3,794,433

Comprehensive income			$	3,455,092		$	864,617		$	4,665,142		$	1,796,303

*		Net of related tax of $1,783,079 and $(785,551) for the three months ended June 30, 2002 and 2001, respectively, and $888,074 and $258,262 for the nine months ended June 30, 2002 and 2001, respectively.

**		Net of related tax of $(959,606) and $812,341 for the three months ended June 30, 2002 and 2001, respectively, and $(72,291) and $1,696,446 for the nine months ended June 30, 2002 and 2001, respectively.

The accompanying notes are an integral part of the consolidated financial
statements.

SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(UNAUDITED)


									Accumulated
						Additional			Other
	Preferred			Common		Paid-in			Comprehensive			Retained
	Stock			Stock		Capital			Income (Loss)			Earnings			Total

Balance, October 1, 2001	$	3,325,124		$	100,000	$	27,020,141		$	(1,121,734	)	$	2,363,831		$	31,687,362
Net income													3,081,568			3,081,568
Net unrealized gains on available-for sale securities, net of income tax provision of $815,783										1,583,574						1,583,574
Cash dividends, preferred stock (variable rate)													(2,033,809	)		(2,033,809	)
Redemption and retirement of preferred stock (5,210 shares)		(52,098	)				(462,739	)								(514,837	)
Sale of variable rate preferred stock, net (7,318 shares)		73,178					615,823									689,001

Balance, June 30, 2002	$	3,346,204		$	100,000	$	27,173,225		$	461,840		$	3,411,590		$	34,492,859

The accompanying notes are an integral part of the consolidated financial
statements.

SUMMIT SECURITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


					Nine Months Ended
					June 30,

					2002			2001

Cash flow from operating activities:
	Net income (loss)				$	3,081,568		$	(1,998,130	)
	Adjustments to reconcile net income (loss) to net cash from operating activities:
			Proceeds from sales of trading securities			7,729,039			16,917,966
			Purchase of trading securities			(1,789,429	)		(14,920,247	)
			Earned discount on receivables and investments			(11,051,647	)		(5,082,285	)
			Losses on investments, net			2,306,753			5,428,958
			Gains on sales of receivables, net			(257,598	)		(63,104	)
			Gains on sales of real estate			(44,357	)		(10,032	)
			Provision for losses on real estate and other			2,047,857			3,097,924
			Depreciation and amortization			50,638			39,357
			Deferred income tax provision (benefit)			815,783			(572,911	)
			Changes in assets and liabilities:
				Deferred acquisition costs, net		(2,155,593	)		(1,390,700	)
				Annuity reserves		13,581,748			12,155,893
				Compound and accrued interest on certificates and debt payable		975,558			(158,402	)
				Accrued interest on receivables and investments		(9,678,318	)		(6,449,484	)
				Accounts payable and accrued expenses		15,240,860			1,710,075
				Other, net		2,326,971			(1,617,627	)

	Net cash provided by operating activities					23,179,833			7,087,251

Cash flow from investing activities:
	Principal payments received on real estate contracts and mortgage notes receivable and other receivable investments					63,326,486			39,026,624
	Proceeds from sales of real estate contracts and mortgage notes receivable and other receivable investments					15,229,211			2,991,129
	Proceeds from sales of real estate					1,832,828			1,608,525
	Proceeds from maturities of available-for-sale investments					4,594,405			1,585,013
	Proceeds from sales of available-for-sale investments					37,463,696			23,197,467
	Acquisition of real estate contracts and mortgage notes receivable and other receivable investments					(137,164,127	)		(80,578,877	)
	Purchases of available-for-sale investments					(73,195,032	)		(27,111,984	)
	Purchases of held to maturity investments					(5,963,245	)		—
	Purchases of and costs associated with real estate held for sale and development					(638,687	)		(506,095	)

			Net cash used in investing activities			(94,514,465	)		(39,788,198	)

Cash flow from financing activities:
	Increase (decrease) in debt payable					9,312,061			(7,142,015	)
	Receipts from annuity products					47,677,773			50,494,577
	Withdrawals of annuity products					(18,310,974	)		(13,591,225	)
	Reinsurance of annuity products to reinsurers, net					26,684,889			(6,034,094	)
	Proceeds from issuance of investment certificates					19,810,103			41,078,270
	Repayment of investment certificates					(9,220,351	)		(15,174,884	)
	Issuance of preferred stock					689,001			3,177,760
	Redemption and retirement of preferred stock					(514,837	)		(432,319	)
	Cash dividends on preferred and common stock					(2,033,809	)		(2,926,324	)

		Net cash provided by financing activities				74,093,856			49,449,746

Net change in cash and cash equivalents						2,759,224			16,748,799
Cash and cash equivalents:
	Beginning of year					37,986,345			24,228,881

	End of year				$	40,745,569		$	40,977,680

Non cash investing and financing activities of Company:
	Real estate acquired through foreclosure					20,755,797			5,164,462
	Receivables originated to facilitate the sale of real estate					840,000			—
	Transfer of investments from held-to-maturity to available-for-sale					—			4,616,744
				Transfer of investments from trading to available-for-sale		16,599,912			—
	Transfers between annuity products					4,633,241			7,603,114
	Timing difference on settlements of securities sales					1,008,750			—
	Timing difference on settlements of securities purchases					10,142,188			—

The accompanying notes are an integral part of the consolidated financial
statements.

SUMMIT SECURITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position of Summit Securities, Inc. and subsidiaries (the “Company”) as of June 30, 2002, the results of operations for the three months and nine months ended June 30, 2002 and 2001 and the cash flows for the nine months ended June 30, 2002 and 2001. The results of operations for the three months and nine months ended June 30, 2002 and 2001 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the consolidated financial statements including notes thereto included in the Company’s fiscal 2001 Form 10-K.

Certain amounts in the prior year’s consolidated financial statements have been reclassified to conform to the current year’s presentation. These reclassifications had no effect on net income (loss) or retained earnings as previously reported and were not considered material.

2. Segment Reporting

The Company principally operates in three industry segments which encompass: (1) investing in real estate contracts and mortgage notes receivable, other receivables and investment securities with funds generated from the issuance of investment certificates and preferred stock; (2) annuity operations; and (3) a property development division, which provides services related to the selling, marketing, designing, subdividing and coordinating of real estate development properties. The insurance segment also invests a substantial portion of the proceeds from insurance and annuity operations in real estate contracts and mortgage notes receivables, other receivables and investment securities. The Company allocates certain overhead and operating expenses amongst its segments based on established cost sharing agreements.

Information about the Company’s separate business segments and in total as of and for the three month and nine month periods ended June 30, 2002 and 2001 is as follows:


	As of and for the nine month period ended June 30, 2002

						Property
				Annuity		Development
	Investing			Operations		Operations			Total

Revenues	$	8,154,703		$	39,918,852	$	1,420,716		$	49,494,271
Income (loss) from operations		(4,700,985	)		9,349,459		(210,905	)		4,437,569
Identifiable assets, net		79,278,584			472,567,356		675,815			552,521,755
Depreciation and amortization		8,495			30,676		11,467			50,638
Capital expenditures		34,205			164,048		13,587			211,840


	As of and for the three month period ended June 30, 2002

						Property
				Annuity		Development
	Investing			Operations		Operations			Total

Revenues	$	3,611,791		$	13,647,457	$	515,701		$	17,774,949
Income (loss) from operations		(340,727	)		3,387,744		(194,856	)		2,852,161
Identifiable assets, net		79,278,584			472,567,356		675,815			552,521,755
Depreciation and amortization		2,987			11,373		4,411			18,771
Capital expenditures		34,205			28,205		36,462			98,872


	As of and for the nine month period ended June 30, 2001

						Property
			Annuity			Development
	Investing		Operations			Operations		Total

Revenues	$	5,326,460	$	27,231,735		$	816,338	$	33,374,533
Income (loss) from operations		516,836		(4,210,622	)		97,966		(3,595,820	)
Identifiable assets, net		84,690,193		337,533,173			457,796		422,681,162
Depreciation and amortization		8,271		19,060			12,026		39,357
Capital expenditures		—		—			—		—


	As of and for the three month period ended June 30, 2001

						Property
			Annuity			Development
	Investing		Operations			Operations		Total

Revenues	$	3,834,326	$	10,732,417		$	274,075	$	14,840,818
Income (loss) from operations		6,645,446		(5,195,483	)		172,683		1,622,646
Identifiable assets, net		84,690,193		337,533,173			457,796		422,681,162
Depreciation and amortization		2,753		6,353			3,319		12,425
Capital expenditures		—		—			—		—

3. Preferred Stock Split

On April 8, 2002, the Company’s Board of Directors declared a stock split of the Company’s Variable Rate Cumulative Preferred Stock, Series S-3 (the “Series S-3 Preferred Stock”). On May 5, 2002, each outstanding share of Series S-3 Preferred Stock was converted into four shares of Series S-3 Preferred Stock. Accordingly, the par value and liquidation preference of each such share was adjusted from $100.00 per share to $25.00 per share to reflect the split. All outstanding Series S-3 Preferred Stock and related per share amounts in the accompanying consolidated financial statements and related notes to the consolidated financial statements have been retroactively adjusted to give effect to the stock split.


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

These discussions may contain some forward-looking statements. A forward-looking statement may contain words such as “will continue to be,” “will be,” “continue to,” “expect to,” “anticipates that,” “to be,” or “can impact.” Management cautions that forward-looking statements are subject to risks and uncertainties that could cause the Company’s actual results to differ materially from those projected in forward-looking statements.

General

The Company consists of Summit Securities, Inc. (“Summit”) and several subsidiaries, including two insurance companies, Old Standard Life Insurance Company (“Old Standard”) and Old West Annuity & Life Insurance Company (“Old West”), a securities broker/dealer, Metropolitan Investment Securities, Inc. (“MIS”) and a property development services company, Summit Property Development, Inc. (collectively, the “Consolidated Group”).

Summit is affiliated, due to the common control by C. Paul Sandifur, Jr., with Metropolitan Mortgage & Securities Co., Inc. (“Metropolitan”), which has as its principal subsidiaries Metwest Mortgage Services, Inc. (“Metwest”) and Western United Life Assurance Company (“Western United”). These affiliates provide services to the Consolidated Group for a fee and engage in various business transactions with the Consolidated Group.

Critical Accounting Policies

The accounting policies described below are those that the Company considers critical in preparing its Consolidated Financial Statements. These policies include significant estimates made by management using information available at the time the estimates are made. However, the estimates could change materially if different information or assumptions were used. The descriptions below are summarized and have been simplified for clarity. A more detailed description of the significant accounting policies used by the Company in preparing its consolidated financial statements is included in Note 2 of the Company’s 2001 Form 10-K.

Asset Valuations

Investments

The Company classifies its investments in debt and equity securities as “trading,” “available-for-sale,” or “held-to-maturity”. The significant accounting policies related to these investment classifications are as follows:


	Trading Securities: Trading securities consist primarily of equity securities, and mortgage- and asset-backed securities and are recorded at fair value based on quoted market prices. Realized and unrealized gains and losses on these securities are included in the consolidated statements of operations.


	Available-for-Sale Securities: Available-for-sale securities, consisting of mortgage- and asset-backed securities, government-backed bonds, corporate bonds, equity securities and venture capital investments, are carried at quoted and estimated fair values.

Unrealized gains and losses on available-for-sale securities are excluded from earnings and presented as accumulated other comprehensive income or loss, net of related deferred income taxes. The Company continually monitors its investment portfolio for other than temporary impairment of its securities. When an other than a temporary decline in the value below cost or amortized cost is identified, the investment is reduced to its fair value, which becomes the new cost basis of the investment. The amount of the reduction is reported as a realized loss in the statement of income. Any recovery of value in excess of the investment’s new cost basis is recognized as a realized gain only upon sale, maturity or other disposition of the investment. Factors that the Company evaluates in determining the existence of an other than temporary decline in value include (1) the length of time and extent to which the fair value has been less than cost, (2) the circumstances contributing to the decline in fair value (including a change in interest rates or spreads to benchmarks), (3) recent performance of the security, (4) the financial strength of the issuer, and (5) the intent and ability to retain the investment for a period of time sufficient to allow for anticipated recovery. Additionally for asset-backed investments, the Company also considers the credit rating and the amount of credit support available for the security.

The Company holds debt securities generated from securitization transactions. For securities without an established market price, estimated fair value is derived from expected discounted future cash flows. When determining expected future cash flows, the Company considers interest rates, estimated prepayment rates, collateral value and historical default rates experienced by the securities. To the extent that actual experience is less favorable than the assumptions, an impairment in the debt securities could result. The Company periodically assesses the assumptions used in valuing the cash flows and the related carrying value of these securities.


	Held-to-Maturity Securities: Held-to-maturity securities are carried at amortized cost. Premiums and discounts on these securities are amortized on a specific-identification basis using the interest method. The Company has the ability and intent to hold these investments until maturity.

Real Estate Held for Sale

Real estate held for sale is stated at the lower of cost or fair value less estimated costs to sell. The Company principally acquires real estate through foreclosure or forfeiture. Cost is determined by the lower of (a) the fair value of the property at the date of foreclosure less estimated selling costs, or (b) carrying value at the date of foreclosure.

Profit on sales of real estate is recognized when the buyers’ initial and continuing investment is adequate to demonstrate (1) a commitment to fulfill the terms of the transaction, (2) that collectibility of the remaining sales price due is reasonably assured, and (3) the Company maintains no continuing involvement or obligation in relation to the property sold and has transferred all the risks and rewards of ownership to the buyer.

Deferred Costs

Deferred acquisition costs, consisting of commissions to agents and other annuity policy costs, are deferred. Cost for annuity contracts are amortized over the lives of the contracts or policies in proportion to the present value of estimated future gross profits. To the extent actual experience differs from assumptions, and to the extent estimates of future gross profits require revision, the unamortized balance of deferred acquisition costs is adjusted accordingly; such adjustments would be included in the consolidated statement of operations.

Allowances for Losses

Allowance for Losses on Real Estate Contracts and Mortgage Notes Receivable

Originated commercial loans are individually monitored for impairments. When a loan has been identified as impaired, the Company determines the allowance for loss based on the estimated fair value (less estimated liquidation expenses) of the collateral compared to the carrying value of the receivable. If the estimated fair value of the collateral is less than the carrying value, an allowance for loss is recognized. Additionally, the Company has established a 0.25% allowance for losses that represents inherent losses within the commercial loan portfolio at the balance sheet date.

The remaining real estate contracts and mortgage notes receivable portfolio is consists of a large group of smaller-balance homogenous loans that are collectively evaluated for impairment. The Company establishes an allowance for inherent losses (both principal and interest) on the receivables based primarily on historical foreclosure and loss experience. To the extent actual experience differs from assumptions, such adjustments would be included in consolidated statement of operations.

Allowance for Losses on Real Estate Held for Sale

The established allowance for losses on real estate held for sale includes amounts for estimated losses as a result of an impairment in value of the real property. The Company reviews its real estate properties for impairment in value periodically or whenever events or circumstances indicate that the carrying value of the asset may not be recoverable. The carrying value of a repossessed property is determined as of the date of repossession of the property. It is based on the lower of fair value or carrying value at the time the property was repossessed. The fair value is based on an appraisal by a licensed independent appraiser at the time of repossession. If expected future undiscounted cash flows from the use of the asset or the fair value, less selling costs, from the disposition of the asset is less than its carrying value, an impairment is recognized in the consolidated statement of operations.

Annuity Reserves

Premiums for annuities are reported as annuity reserves under the deposit method. An obligation is recorded for the premiums assumed under reinsurance transactions with other insurers in annuity reserves. Reserves for annuities are equal to the sum of the account balances including credited interest and deferred service charges. Based on past experience, consideration is given in actuarial calculations to the number of policyholder and annuitant deaths that might be expected, policy lapses, surrenders and terminations. As a result of possible changes in the factors considered in the actuarial calculations, it is reasonably possible that the reserves for insurance and annuities could change in the future.

Liquidity and Capital Resources

The objective of liquidity management is to provide funds at an acceptable cost to meet demands for receivable purchases and commercial loans and to service other liabilities as they become due. Managing liquidity also enables the Company to take advantage of opportunities for business expansion. The Company finances its business operations and growth with the proceeds from the sale of debenture certificates and preferred stock, annuity products, a secured line of credit agreement, reverse repurchase agreements, receivable cash flows, the sale of real estate, the sale of marketable securities, and investment portfolio earnings.

The annuity business is highly competitive. Old Standard and Old West compete with other financial institutions including ones with greater resources and greater name recognition. Annuity yields and commissions to agents are particularly sensitive to competitive forces. Management believes that it is in an advantageous position in this regard because of its earnings capability through investments in receivables compared to that of most other insurance companies. Additionally, management believes the primary competitive factors among insurance companies for investment-oriented insurance products, like annuities, include product flexibility, net return after fees, innovation in product design, the claims-paying ability rating and the name recognition of the issuing company, the availability of distribution channels and service rendered to the customer before and after a policy or contract is issued, and service provided to agents. Other factors affecting the annuity business include the benefits, including before-tax and after tax investment returns, and guarantees provided to the customer and the commissions paid to the agent. If Old Standard or Old West are unable to effectively price their annuities, offer competitive commissions and effectively compete in general for the sale of our annuity products, the Company’s liquidity could be adversely affected.

The States of Idaho and Arizona have enacted the Risk-Based Capital Model law, which requires an insurance company to maintain minimum amounts of capital and surplus based on complex calculations of risk factors that encompass the invested assets and business activities of the insurance company. The Company’s insurance subsidiaries’ capital and surplus levels exceeded the calculated minimum requirements at their statutory reporting period ended December 31, 2001.

Old Standard has a secured line of credit agreement with the Federal Home Loan Bank of Seattle (FHLB). When an institution becomes a stockholder in the FHLB, it can borrow from the FHLB at a stock to borrowing ratio of 1 to 20. At June 30, 2002, Old Standard had a stock investment in the FHLB of approximately $0.9 million, which resulted in a borrowing capacity of approximately $18.4 million, subject to collateral requirements. The collateral used to secure the borrowing is predefined by the FHLB and generally consists of high quality Collateralized Mortgage Obligations. Each type of collateral has a minimum pledge requirement that ranges from 100% to 125%. At June 30, 2002, Old Standard had pledged $33.1 million in eligible collateral with a market value of $30.2 million resulting in a borrowing potential of $22.2 million. At June 30, 2002, Old Standard had approximately $7.0 million in outstanding borrowings leaving an unused borrowing potential of approximately $11.4 million based on their FHLB stock investment. In order to increase the unused borrowing potential to match the amount of collateral pledged, Old Standard would be required to purchase approximately $0.2 million in additional FHLB stock.

Summit engages in public offerings of debt securities and preferred stock. These investments are typically offered to the public on a continuous best efforts basis through MIS. As of June 30, 2002, the Company had registered for sale up to $50.0 million of Series B Investment Certificates. These securities will be offered to the public on a continuous best efforts basis through January 31, 2003.

Another source of liquidity is derived from payments received on receivable cash flows and the sale of real estate. A decrease in the prepayment rate on receivables or the ability to sell real estate would reduce future cash flows from receivables. Additionally, to increase liquidity, the Company may occasionally sell securities to a broker-dealer under the provision that we will buy them back by a predetermined date for a specific price (i.e., reverse repurchase agreement). At June 30, 2002, the Company did not have any reverse repurchase agreements outstanding.

There are no specific regulatory limitations imposed by Idaho or Arizona on the percent of assets which Old Standard or Old West may have invested in real estate related assets. However, management has placed internal limits at 75% of statutory assets. Therefore, Old Standard and Old West may not sell non-real estate related assets for liquidity purposes if the re-investment of the sale proceeds will result in real estate assets exceeding 75% of its statutory assets. However, occasionally Old Standard and Old West may acquire real estate related receivables that qualify as mortgage-related securities under the Secondary Mortgage Market Enhancement Act, or SMMEA. SMMEA generally provides that qualifying loans may be acquired to the same extent that obligations that are issued by or guaranteed as to principal and interest by the United States Government, its agencies and the instrumentalities can be acquired. As a result, Old Standard and Old West can acquire qualifying real estate loans in amounts in excess of the 75% limitation imposed by management. At June 30, 2002, Old Standard and Old West had approximately 67% of their statutory admitted assets invested in real estate related assets that did not qualify as SMMEA investments.

For statutory purposes, Old Standard and Old West perform cash flow testing under seven different rate scenarios. An opinion regarding the adequacy of the cash flow testing is filed with the respective states. At December 31, 2001, the results of this cash flow testing process were satisfactory.

During the nine month period ended June 30, 2002, 2001, $250.8 million in funds provided by the Company’s various liquidity sources were used to (1) invest $217.7 million primarily in receivables and investments and (2) fund $30.4 million in debt maturities, annuity product surrenders, and the payment of dividends.

During the nine month period ended June 30, 2001, $170.2 million in funds provided by the Company’s various liquidity sources were used to (1) invest $108.2 million primarily in receivables and investments and (2) fund $45.3 million in debt maturities, annuity product surrenders, and the payment of dividends.

Transactions with Affiliates

Summit was originally organized as a wholly owned subsidiary of Metropolitan. On September 9, 1994, the controlling interest in Summit was acquired by National Summit Corp., a Delaware corporation that is controlled by C. Paul Sandifur, Jr. Following this sale, Metropolitan has continued to provide, for a fee, principally all of Summit’s management services.

Mr. Sandifur holds effective control of Metropolitan. Prior to the sale, Mr. Sandifur held effective control of Summit through Metropolitan. Following the sale, Mr. Sandifur continues to control Summit through National Summit Corp. Currently, no officer or director of Summit is an officer or director of Metropolitan.

Summit and Metropolitan entered into the following purchase and sale agreements during the nine month period ending June 30, 2002.

On March 28, 2002, Old Standard and Old West agreed to purchase from Western United, a 69.20% undivided beneficial interest in a certain Lottery Trust owned by Western United. The purchase price of $11.2 million was derived from future expected cash flows discounted at a 6.957% market rate. Additionally, on March 29, 2002, Summit agreed to purchase from Metropolitan the remaining participation in certain structured settlements acquired from Metropolitan during the fiscal year ended September 30, 2000. The purchase price of approximately $4.8 million was derived from future expected cash flows discounted at an 8.5% market rate. Investment diversification was the primary purpose of entering into the lottery trust and structured settlement purchase and sale agreements.

On March 29, 2002, Summit agreed to sell to Metropolitan its minority interest investment in Consumers Group Holding Company, a subsidiary of Metropolitan. The sale price of approximately $2.3 million was based on an estimated fair value of Consumers Group Holding of approximately two times the adjusted book value, discounted to approximately the adjusted book value due to the minority interest nature of the investment. The sale resulted in a gain of approximately $0.8 million.

Delinquency

The principal amount of real estate receivables as to which payments were in arrears more than three months was $49.3 million at June 30, 2002 and $49.7 million at June 30, 2001.

The carrying amount of other receivables as to which payments were in arrears was $19.2 million at June 30, 2002 and $4.0 million at June 30, 2001. The increase from June 30, 2001 to June 30, 2002 was primarily due to the delinquency of a timber harvest right agreement that had a carrying value of $13.9 million at June 30, 2002.

Results of Operations

Nine Months Ended June 30, 2002 Compared to Nine Months Ended June 30, 2001

Net income for the nine month period ended June 30, 2002 was $3.1 million on $49.5 million in revenues compared to net loss of $2.0 million on $33.4 million in revenues for the nine month period ended June 30, 2001. Income before income taxes for the nine month period ended June 30, 2002 was $4.4 million compared to loss of $3.6 million for the nine month period ended June 30, 2001.

The increase in income before taxes of $8.0 million was primarily due to:

•		an increase in net interest spread of $8.5 million,

•		a decrease in investment losses of $3.1 million,

•		an increase in fees, commissions and other income of $1.7 million and

•		a decrease in provision for losses of $1.1 million.

These changes were partially offset by:

•

an increase in non-interest expense of $6.4 million.

Management monitors interest sensitive income and expenses as it manages the objectives for the Company’s results of operations. Interest sensitive income consists of interest and earned discounts on receivables, insurance revenues and other investment interest. Interest sensitive expense consists of interest expense on borrowed money and insurance policy and annuity benefits.

The Company is in an “asset sensitive” position in that its interest sensitive assets reprice or mature more quickly than do its interest sensitive liabilities. Consequently, in a rising interest rate environment, the net return from interest sensitive assets and liabilities will tend to increase. Conversely, in a falling interest rate environment, the net return from interest sensitive assets and liabilities will tend to decline. The Company believes there has not been a material change in its market risk since the end of its last fiscal year.

During the nine month period ended June 30, 2002, the excess of interest sensitive income over interest sensitive expense was approximately $20.1 million compared to $11.6 million in the prior year’s period. The increase between periods was primarily the result of an increase in the Company’s commercial lending activities. The Company’s average monthly balance on interest earning assets was $434.1 million during the nine month period ended June 30, 2002 compared to $370.2 million during the nine month period June 30, 2001. Additionally, the Company’s average net interest margin increased to 5.95% through June 2002 compared to 3.75% through June 2001.

The following table represents the average yields realized by the Company on interest sensitive assets and liabilities during the nine month periods ended June 30, 2002 and 2001 based on average monthly ending balances:


	2002			2001
	Average			Average

Investments	$	113,991,815		$	101,667,414
Yield		7.22	%		7.80	%
Real estate contracts		250,562,481			199,125,399
Yield		17.43	%		14.02	%
Other receivables		46,525,143			33,663,549
Yield		6.94	%		9.33	%
Annuity reserves		308,151,501			260,484,257
Yield		5.97	%		6.54	%
Investment certificates		97,518,099			84,878,570
Yield		9.52	%		9.35	%
Debt payable		19,583,945			12,063,261
Yield		7.39	%		10.00	%

During the nine month period ended June 30, 2002, the Company determined that certain “available-for-sale” fixed income securities acquired from securitization activities of affiliates had other than temporary declines in value. Accordingly, the carrying value of the investments were decreased by approximately $0.6 million, representing the amount impaired. The Company continues to periodically assess the assumptions used in valuing the cash flows and the related carrying value of these securities. Additionally, the Company reported approximately $0.4 million in other than temporary impairments on certain asset-backed fixed income securities due to a deterioration of the underlying collateral.

A $2.6 million decline in value in various public equity securities, which had previously been deemed as temporary, was determined to be other than temporary at June 30, 2002 due to the length of time and extent that the investment have traded below the Company’s cost basis. The decline in value was primarily the result of an overall decline in the value of stocks traded on the NASDAQ.

The other than temporary impairments on the equity and fixed income securities have been recorded in the statement of operations as a loss on investments. The impairment losses reported during the nine month period ended June 30, 2002 were partially offset by approximately $1.3 million of gains realized on the sale of other investment securities.

During the nine month period ended June 30, 2001, the Company reported a $5.4 million loss on investments. The losses were primarily the result of other than temporary declines in value due to the downgrading of certain securities and the deterioration of expected future cash flows of certain residual certificates. Additionally, the Company realized a loss on the sale of a certain investment. Of the $5.0 million loss reported as a result of sales and other than temporary impairments in the fixed income securities portfolio, $4.3 million had previously been reported as a temporary decline in accumulated other comprehensive loss in stockholders’ equity.

Additionally, the Company experienced approximately $1.0 million in net mark to market losses on equity investments the Company has made in certain limited partnership interests. The limited partnerships generally invest funds in both publicly and privately traded small and microcapitalization equity securities. The decline in value was primarily the result of an overall decline in the value in stocks traded on the NASDAQ.

Fees, commissions and other income increased to $8.0 million during the nine month period ended June 30, 2002 from $6.4 million during the same period ended June 30, 2001. The increase of approximately $1.7 million was primarily due to $0.3 million increase in commission income earned by MIS, $0.6 million increase in consulting fees of Summit Property Development, and $0.6 million increase in late charge fees related to commercial lending activity.

During the nine month period ended June 30, 2002, the provision for losses on real estate assets was approximately $2.7 million compared to $3.1 million for the same period ended June 30, 2001.For commercial loans, the Company individually evaluates each loan for impairment in accordance with FAS114, “Accounting by Creditors for Impairment of a Loan”, as amended by FAS118 “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosure”. FAS114 addresses the accounting by creditors for impairments of a loan by specifying how allowances for credit losses related to certain loans should be determined. According to FAS114, a loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Probable is defined as “future events are likely to occur”. When a loan has been identified as impaired, the Company determines the allowance for loss based on the estimated fair value (less estimated liquidation expenses) of the collateral compared to the carrying value of the receivable. If the estimated fair value of the collateral is less than the carrying value, an allowance for loss is recognized. Additionally, the Company established a 0.25% allowance for losses that represents inherent losses within the commercial loan portfolio at the balance sheet date.

Provision for losses on other assets decreased from $10,000 during the nine month period ended June 30, 2001 to a $0.6 million reserve release during the similar time period ended June 30, 2002. The $0.6 million reserve release was due to a positive change in the federal tax law effecting structured settlement transfers and the consequential cooperation by certain annuity issuers with respect to the payment of defaulted, and in some cases current, structured settlements.

The following table summarizes changes in the Company’s allowance for losses on real estate and other assets for the nine month periods ended June 30, 2002 and 2001:


	June 30,

	2002			2001

Beginning balance	$	7,772,422		$	6,755,244
Provision for losses on real estate assets		2,663,698			3,087,703
Provision for (recovery of) losses on other assets		(615,841	)		10,221
Charge-offs, net		(780,331	)		909,564

Ending balance	$	9,039,948		$	10,762,732

Non-interest expense consists of all non-interest expenses except the cost of real estate sold and provision for losses. Non-interest expense was approximately $19.6 million for the nine month period ended June 30, 2002 compared to $13.2 million for the similar period ended June 30, 2001. The $6.4 million increase in non-interest expenses during the current period was primarily the result of a $4.6 million increase in administrative charges from Metropolitan in accordance with an established cost sharing agreement, a $0.7 million increase in loan servicing expenses due to an increase in real estate contracts and mortgage notes receivable, and a $0.4 million increase in amortization of deferred costs.

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

Net income for the three month period ended June 30, 2002 was $1.9 million on $17.8 million in revenues compared to net income of $1.4 million on $14.8 million in revenues for the three month period ended June 30, 2001. Income before income taxes for the three months ended June 30, 2002 was $2.9 million compared to income of $1.6 million for the three months ended June 30, 2001.

The increase in income before taxes of $1.3 million was primarily due to:

•		an increase in net interest spread of $3.8 million,

•		an increase in fees, commissions and other income of $0.6 million and

•		a decrease in provision for losses of $0.9 million.

These changes were partially offset by:

•		a increase in investment losses of $1.7 million and

•		an increase in non-interest expense of $2.5 million.

During the three month period ended June 30, 2002, the excess of interest sensitive income over interest sensitive expense was approximately $7.7 million, compared to $3.9 million in the prior year’s comparable period. The increase between periods is primarily the result of an increase in the Company’s commercial lending activities.

During the three month period ended June 30, 2002, the Company determined that $0.6 million of losses on equity and fixed income investment portfolio had other than temporary declines in value. A $0.5 million decline in value in various public equity securities, which had previously been deemed as temporary, was determined to be other than temporary at June 30, 2002 due to the length of time and extent that the investment have traded below the Company’s cost basis. The decline in value was primarily the result of an overall decline in the value of stocks traded on the NASDAQ.

The other than temporary impairments on the equity and fixed income securities have been recorded in the statement of operations as a loss on investments. The impairment losses reported during the three month period ended June 30, 2002 were partially offset by approximately $0.1 million of gains realized on the sale of other investment securities.

During the three month period ended June 30, 2001, the Company reported a $1.1 million gain on investments. The gain was primarily the result of mark to market gains on equity investments the Company has made in certain limited partnership interests. The limited partnerships generally invest funds in both publicly and privately traded small and microcapitalization equity securities. During the three month period ended June 30, 2001, the value of the equity securities increased, thereby increasing the value of Company’s investment by approximately $1.1 million.

Fees, commissions and other income increased to $2.7 million during the three month period ended June 30, 2002 from $2.1 million during the same period ended June 30, 2001. The increase of approximately $0.6 million was primarily due to $0.2 million increase in consulting fees of Summit Property Development and $0.2 million increase in late charge fees related to commercial lending activity.

During the three month period ended June 30, 2002, the provision for losses on real estate assets was approximately $0.7 million compared to $0.9 million for the same period ended June 30, 2001. For commercial loans, the Company individually evaluates each loan for impairment in accordance with FAS114, “Accounting by Creditors for Impairment of a Loan”, as amended by FAS118 “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosure”. FAS114 addresses the accounting by creditors for impairments of a loan by specifying how allowances for credit losses related to certain loans should be determined. According to FAS114, a loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Probable is defined as “future events are likely to occur”. When a loan has been identified as impaired, the Company determines the allowance for loss based on the estimated fair value (less estimated liquidation expenses) of the collateral compared to the carrying value of the receivable. If the estimated fair value of the collateral is less than the carrying value, an allowance for loss is recognized. Additionally, the Company established a 0.25% allowance for losses that represents inherent losses within the commercial loan portfolio at the balance sheet date.

Provision for losses on other assets decreased from $10,000 during the three month period ended June 30, 2001 to $0.6 million reserve release during the similar time period ended June 30, 2002. The $0.6 million reserve release was due to a positive change in the federal tax law effecting structured settlement transfers and the consequential cooperation by certain annuity issuers with respect to the payment of defaulted, and in some cases current, structured settlements.

The following table summarizes changes in the Company’s allowance for losses on real estate and other assets for the three month periods ended June 30, 2002 and 2001:


	June 30,

	2002			2001

Beginning balance	$	8,968,853		$	8,366,345
Provision for losses on real estate assets		690,929			926,076
Provision for (recovery of) losses on other assets		(615,841	)		10,221
Charge-offs, net		(3,993	)		1,460,090

Ending balance	$	9,039,948		$	10,762,732

Non-interest expense consists of all non-interest expenses except the cost of real estate sold and provision for losses. Non-interest expense was approximately $7.0 million for the three month period ended June 30, 2002 compared to $4.5 million for the similar period ended June 30, 2001. The $2.5 million increase in non-interest expenses during the current period was primarily the result of a $1.8 million increase in administrative charges from Metropolitan in accordance with an established cost sharing agreement, and a $0.3 million increase in loan service fees due to a growth in real estate contracts and mortgage notes receivable.

New Accounting Rules

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 addresses accounting and reporting of long-lived assets, except goodwill, that are either held and used or disposed of through sale or other means. The Company is currently evaluating the impact of this statement on the Company’s consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the nine month period ended June 30, 2002, the excess of interest sensitive income over interest sensitive expense was approximately $20.1 million compared to $11.6 million in the prior year’s period. The increase between periods was primarily the result of an increase in the Company’s commercial lending activities. The Company’s average monthly balance on interest earning assets was $434.1 million during the nine month period ended June 30, 2002 compared to $370.2 million during the nine month period June 30, 2001. Additionally, the Company’s average net interest margin increased to 4.31% through June 2002 compared to 5.95% through June 2001.

During the three month period ended June 30, 2002, the excess of interest sensitive income over interest sensitive expense was approximately $7.7 million compared to $3.9 million in the prior year’s period. The increase between periods was primarily the result of an increase in the Company’s commercial lending activities.

PART II – OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)		Exhibits

		None

(b)		During the quarter ended June 30, 2002, the Registrant filed the following report on Form 8-K:

		Form 8-K dated February 21, 2002, filed April 25, 2002, reporting the resolution of the board of directors reducing the previously authorized additional annual distribution rate on the Registrant’s Variable Rate Cumulative Preferred Stock, Series S-3 from 2.00% to 1.75%, and reporting the declaration of a stock split for the Registrant’s Variable Rate Cumulative Preferred Stock, Series S-3, under Item 5, Other Events.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed this 14th day of August 2002 on its behalf by the undersigned, thereunto duly authorized.

SUMMIT SECURITIES, INC

/s/ TOM TURNER

Tom Turner
President/Director

/s/ROBERT A. NESS

Robert A. Ness
Principal Accounting Officer

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SUMMIT SECURITIES INC /ID/ 10-Q