-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RzP+rysgmdUgCEf1RCkYNbQpZSj5afH1PueM1rqRNt0yFJkn/TzxTSL9x+5aqK+J Qq7lt/j3SG/gihjlWKROMw== 0000929624-97-001410.txt : 19971117 0000929624-97-001410.hdr.sgml : 19971117 ACCESSION NUMBER: 0000929624-97-001410 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIS MORTGAGE INVESTMENT CO CENTRAL INDEX KEY: 0000833088 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 943067889 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10004 FILM NUMBER: 97720291 BUSINESS ADDRESS: STREET 1: 655 MONTGOMERY ST STE 800 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4153938000 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ COMMISSION FILE NO. 1-10004 TIS MORTGAGE INVESTMENT COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MARYLAND 94-3067889 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 655 MONTGOMERY STREET 94111 SAN FRANCISCO, CALIFORNIA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (415) 393-8000 ---------------------- 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 AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ____ ____ INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE. CLASS OF COMMON STOCK OUTSTANDING AT NOVEMBER 12, 1997 --------------------- -------------------------------- $.001 PAR VALUE 8,105,880 SHARES
TIS MORTGAGE INVESTMENT COMPANY INDEX Part I. Financial Information Item 1. Financial Statements (Unaudited) Page Number Consolidated Financial Statements 3 Condensed Consolidated Balance Sheets September 30, 1997 and December 31, 1996 4 Condensed Consolidated Statements of Income Three and nine months ended September 30, 1997 and 1996 5 Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 1997 and 1996 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Part II. Other Information Item 1. Legal Proceedings 16 Item 6. Exhibits and Reports on Form 8-K 16
2 - -------------------------------------------------------------------------------- PART 1: FINANCIAL INFORMATION - -------------------------------------------------------------------------------- ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the 1996 Form 10-K of the registrant (the "Company"). These statements have been prepared in accordance with the instructions of the Securities and Exchange Commission Form 10-Q and do not include all the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. In the opinion of the Company's management, all material adjustments of a normal and recurring nature considered necessary for a fair presentation of results of operations for the interim periods have been included. The results of consolidated operations for the three and nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 3
TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT SHARE DATA) SEPTEMBER 30, DECEMBER 31, 1997 1996 - ------------------------------------------------------------------------------------ ASSETS Mortgage Related Assets Mortgage Certificates, net $ 64,567 $ 72,703 Residual Interests 396 436 Interest Only (IO) Bonds 2,153 2,695 Commercial Securitizations 184 183 Reserve for Loss on Investments (2,661) (2,997) --------- --------- Total Mortgage Related Investments 64,639 73,020 --------- --------- Operating Real Estate Assets 28,811 28,945 --------- --------- Other Assets Cash and Cash Equivalents 108 82 Restricted Cash 1,431 1,272 Accrued Interest and Accounts Receivable 527 668 Deferred Bond Issuance Costs 531 598 Other Assets 651 988 --------- --------- Total Other Assets 3,248 3,608 --------- --------- Total Assets $ 96,698 $ 105,573 ========= ========= - ----------------------------------------------------------------------------------- LIABILITIES Collateralized Mortgage Obligations, net $ 62,565 $ 70,259 Accounts Payable and Accrued Liabilities 558 449 Accrued Interest Payable 941 1,056 Notes Payable on Real Estate 20,417 20,373 Short-term Debt 2,043 2,418 --------- --------- Total Liabilities 86,524 94,555 --------- --------- SHAREHOLDERS' EQUITY Common Stock, par value $.001 per share; 100,000,000 shares authorized; 8,105,880 shares issued and outstanding 8 8 Additional Paid-in Capital 74,696 74,696 Unrealized Loss on Investments (2,159) (2,142) Retained Deficit (62,371) (61,544) --------- --------- Total Shareholders' Equity 10,174 11,018 --------- --------- Total Liabilities and Shareholders' Equity $ 96,698 $ 105,573 ========= =========
See Notes to Condensed Consolidated Financial Statements 4
TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) Three Months Ended Nine months Ended September 30 September 30 ------------------ ------------------ 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------ MORTGAGE RELATED ASSETS Interest Mortgage Certificates, net $ 1,484 $ 1,746 $ 4,636 $ 6,102 Short-term Investments 1 1 1 15 Residual Interests 7 16 16 5 Interest Only (IO) Bonds 85 118 260 338 Valuation Reserve Reduction 100 129 335 539 Gain on Sales of Investments -- -- 442 450 ------- ------- ------- ------- Income from Mortgage Related Assets 1,677 2,010 5,690 7,449 ------- ------- ------- ------- INTEREST AND CMO RELATED EXPENSES Collateralized Mortgage Obligations Interest 1,574 1,862 4,945 6,549 Administration Fees 17 16 51 53 Deferred Bond Issuance Costs 20 26 67 124 Short-term Debt 43 37 134 118 ------- ------- ------- ------- Total Interest and CMO Related Expenses 1,654 1,941 5,197 6,844 ------- ------- ------- ------- REAL ESTATE OPERATIONS Rental and Other Income 1,020 1,012 3,027 3,018 Operating and Maintenance Expenses (351) (401) (1,047) (1,045) Depreciation and Amortization (200) (178) (643) (517) Interest on Real Estate Notes Payable (424) (431) (1,290) (1,294) Property Taxes (88) (85) (252) (264) ------- ------- ------- ------- Loss from Real Estate Operations (43) (83) (205) (102) ------- ------- ------- ------- OTHER EXPENSES Management and Residual Interest Administration Fees -- -- -- 77 General and Administrative 287 331 1,116 1,068 ------- ------- ------- ------- Total Other Expenses 287 331 1,116 1,145 ------- ------- ------- ------- Net Loss ($ 307) ($ 345) ($ 828) ($ 642) ======= ======= ======= ======= ========================================================================================== Net Loss per Share ($ 0.04) ($ 0.04) ($ 0.10) ($ 0.08) Dividends Declared per Share -- $ 0.02 -- $ 0.02 Weighted Average Shares Outstanding 8,106 8,106 8,106 8,106 - ------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements 5
TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (AMOUNTS IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1997 1996 - --------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Loss ($ 828) ($ 642) Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation of Operating Real Estate Assets 555 512 Other Depreciation and Amortization 507 647 Valuation Reserve Reduction (335) (539) Gain on Sales of Investments (442) (450) Decrease (Increase) in Accrued Interest and Accounts Receivable 142 (274) Decrease (Increase) in Other Assets 246 (375) Increase in Accounts Payable and Accrued Liabilities 111 105 Decrease in Accrued Interest Payable (115) (261) -------- -------- Net Cash Used in Operating Activities (159) (1,277) -------- -------- - -------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Decrease in Short-term Debt (376) (158) Increase in Notes Payable on Real Estate 17,400 -- Notes Payable on Real Estate Retired (17,201) -- Principal Payments on Notes Payable on Real Estate (155) 37 Principal Payments on CMO's (8,187) (14,695) -------- -------- Net Cash Used in Financing Activities (8,519) (14,816) -------- -------- - -------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTMENT ACTIVITIES Net Decrease (Increase) In Restricted Cash (160) 536 Investment in Real Estate Assets (421) (166) Proceeds from Sales of Investments 442 450 Principal Reduction in Mortgage Certificates 8,278 14,676 Principal Reduction in Residual Interests 55 67 Principal Reduction in IO Bonds 511 610 Principal Reduction in Commercial Securitizations (1) 8 -------- -------- Net Cash Provided by Investment Activities 8,704 16,181 -------- -------- Net Increase in Cash and Cash Equivalents 26 88 Cash and Cash Equivalents at Beginning of Period 82 198 -------- -------- Cash and Cash Equivalents at End of Period $ 108 $ 286 ======== ======== - --------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements 6 TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The accompanying interim condensed consolidated financial statements do not include all of the information and disclosures generally required for annual financial statements. They include the accounts of the Company, its wholly-owned subsidiary and its partnership interests in real estate assets. All significant intercompany balances and transactions have been eliminated. In the opinion of management all adjustments of a normal recurring nature considered necessary for a fair presentation have been made. Operating results for the quarter and nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the entire year. These condensed consolidated financial statements should be read in conjunction with the Company's Form 10-K for the year ended December 31, 1996. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OVERALL METHODS OF ACCOUNTING - On May 31, 1990, the Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus (Issue 89-4) for a uniform method of accounting for Residual Interests in collateralized mortgage obligations ("CMOs"). The consensus, among other things, required Residual Interests to be classified either as "equity" (and be accounted for under the Equity Method) or as "nonequity" (and be accounted for under a level yield method referred to as the Prospective Method). The methods described in Issue 89-4 are essentially the same as those used by the Company. ACCOUNTING CHANGE - In accordance with Financial Accounting Standards Board Standard No. 115 ("SFAS 115") - Accounting for Certain Investments in Debt and Equity Securities, the Company classifies its investments as either trading investments, available-for-sale investments or held-to-maturity investments. The Company is not in the business of trading its mortgage related investments, however, from time to time the Company may sell an investment as part of its efforts to adjust its portfolio composition to reflect changes in economic conditions. Therefore, the Company has classified all its mortgage related investments as available-for-sale investments, carried at fair value in the financial statements. Unrealized holding gains and losses for unimpaired available-for-sale investments are excluded from earnings and reported as a net amount in shareholders' equity until realized. All of the Company's mortgage related investments are subject to write down whenever the yield on the projected cash flows is less than a risk free rate. If the yield on the projected cash flows is less than a risk free rate, the decline in value is considered to be "other than temporary" and the investment is written down to its fair value as the new cost basis. The amount of the write down is included in the Company's current earnings (i.e. accounted for as a realized loss). The Emerging Issues Task Force of the Financial Accounting Standards Board reached a consensus (EITF 93-18) as to the definition of "other than temporary" impairment. The Company's accounting policy is consistent with this consensus. For purposes of applying the impairment provisions of SFAS 115, the Company considers its investment in each of its Equity Residuals to be a net cash flow investment (net of CMO Bond interest payments and related CMO Bond administrative expenses). The Company measures other than temporary impairment by comparing the yield on the projected net cash flows from the Equity Residual, (i.e. Mortgage Certificates net of discounts and CMO Bond Liabilities) to a risk free rate. If the yield on the projected cash flows from the Equity Residual is less than a risk free rate, the Company records a reserve to reduce the carrying value to fair value. The fair value is calculated using the forecasted net cash flows discounted at a risk adjusted rate. The risk adjusted rate is determined by the Company using established market transactions for securities having similar characteristics and backed by collateral of similar rate and term. PRINCIPLES OF CONSOLIDATION - In April 1996 the Company sold its economic interest in TMAC CMO Trust 1986-1 through the sale of the residual interest certificate and optional redemption rights in the underlying trust. As a result, the accounts of TMAC CMO Trust 1986-1 are not included in the consolidated balance sheets and the results of operations of the trust are included in the 1996 consolidated statement of operations only through the date of sale. In addition, under generally accepted accounting principles, the Company consolidates assets and liabilities 7 of Owner Trust Residuals when over 50% equity interest in the trust is held by the Company. The portion of equity interest of each such Owner Trust Residual not owned by the Company is accounted for as minority interest. Additionally, the condensed consolidated financial statements include the accounts underlying its interest in real estate partnerships. MORTGAGE CERTIFICATES AND CMOS - Mortgage certificates and CMO bonds of consolidated Owner Trusts are carried at their outstanding principal balance plus or minus any premium or discount, respectively. AMORTIZATION OF PREMIUMS AND DISCOUNTS - Premiums and discounts related to mortgage certificates and CMOs are amortized to income using the interest method over the stated maturity of the mortgage certificates or CMOs. RESIDUAL INTERESTS AND INTEREST ONLY (IO) BONDS - Residual Interests held in bond form and Corporate Real Estate Mortgage Investment Conduit ("REMIC") Residual Interests, regardless of percentage ownership, are Nonequity Residual Interests and, along with IO Bonds, are accounted for under the Prospective method. Under this method, assets are carried at cost and income is amortized over their estimated lives based on a method which provides a constant yield. At the end of each quarter, the yield over the remaining life of the asset is recalculated based on expected future cash flows using current interest rates and mortgage prepayment speeds. This new yield is then used to calculate the subsequent quarter's financial statement income. Owner Trust Residuals are accounted for under the equity method. OPERATING REAL ESTATE ASSETS - In accordance with Statement of Financial Accounting No. 121 ("SFAS 121") - Accounting for Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of, the Company values operating real estate assets at cost unless circumstances indicate that cost cannot be recovered, in which case carrying value is reduced to estimated fair value. In management's opinion, as of September 30, 1997, the carrying value of real estate assets did not exceed their estimated fair value. Operating real estate assets are depreciated using the straight-line method over the estimated useful lives of the real estate assets. The Company uses a 40 year estimated life for buildings and improvements and either a 5 or 12 year life for furniture, fixtures and equipment depending on the nature of the asset. Significant expenditures that improve or extend the useful life of the asset are capitalized and depreciated over their estimated useful lives. All leases of real estate assets are classified as operating leases. Rental income is recognized when contractually due based on the terms of signed lease agreements which range in duration from month-to-month to one year. RESTRICTED CASH - Restricted cash represents the cash balances of CMOs in which the Company holds a Residual Interest and whose assets and liabilities are consolidated with those of the Company. This cash is not available to the Company or its creditors. INCOME TAXES - The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. As a REIT, the Company must distribute at least 95% of its taxable income to its shareholders. No provision has been made for income taxes in the accompanying consolidated financial statements as the Company is not subject to federal income taxes. The loss reported in the accompanying financial statements may be greater or less than the taxable loss because some income and expense items are reported in different periods for income tax purposes. Over the life of a Residual Interest or IO Bond, total taxable income will equal total financial statement income. However, the timing of income recognition may differ between the two from year to year. NET LOSS PER SHARE - Net loss per share is based upon the weighted average number of shares of Common Stock outstanding. The common equivalent shares related to the 1995 Stock Option Plan are antidilutive and therefore are not included in the weighted average number of shares outstanding. In March 1997, the Financial Accounting Standards Board issued Statement of Financial Account No. 128 ("SFAS No. 128") Earnings Per Share. SFAS No. 128 requires the disclosure of basic earnings per share and modifies existing guidance for computing fully diluted earnings per share. Under the new standard, basic earnings per share is computed as earnings divided by weighted average shares, excluding the dilutive effects of stock options and other potentially dilutive securities. The effective date of SFAS No. 128 is December 15, 1997 and early adoption is not permitted. The Company intends to adopt SFAS No. 128 during the quarter and year ended December 31, 1997. 8 Had the provisions of SFAS No. 128 been applied to the Company's results of operations for the three and nine months ended September 30, 1997 and 1996, the Company's basic earnings per share would have been the same as those reported. STATEMENT OF CASH FLOWS - For purposes of the statement of cash flows, the Company considers only highly liquid instruments with original maturities of three months or less to be cash equivalents. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3 - MORTGAGE CERTIFICATES Information is presented in the table below as of September 30, 1997 and December 31, 1996 with respect to the fair value of the mortgage certificates collateralizing those CMO Bonds where the residual interests are accounted for under the equity method and the Company owns more than a 50% interest in the trust. See the CMO Collateral chart in Note 4 for additional information on the mortgage collateral. The Company is not able to sell the mortgage collateral, and therefore realize any gain until the CMO Bonds which are collateralized by the mortgages mature or are called in accordance with the underlying bond indenture.
MORTGAGE CERTIFICATES - --------------------- (In thousands) Principal Amount of Fair Value of Cost Less Residual Series Mortgage Certificates Mortgage Certificates Unamortized Discount - ----------------------------------------------------------------------------------------------- SEPTEMBER 30, 1997 CMOT 28 $65,694 $68,589 $64,567 DECEMBER 31, 1996 CMOT 28 $73,973 $76,677 $72,703
NOTE 4 - RESIDUAL INTERESTS Residual Interests are classified as either equity or nonequity. Presented below is a schedule of the nonequity residual interests and unconsolidated equity residual interests.
NONEQUITY RESIDUAL INTERESTS - ---------------------------- (In thousands) Book Value ------------------------------------ Purchase September 30, December 31, Residual Series Price 1997 1996 - ------------------------------------------------------------------------------------- Nonequity Residual Interests BT 88-1 $1,537 $ 188 $ 210 LFR-9 2,589 97 113 CMSC I 8,642 104 104 FHLMC 25 4,934 4 5 FHLMC 21 5,361 3 4 - ------------------------------------------------------------------------------------ 396 436 - ------------------------------------------------------------------------------------ Total Residual Interests $ 396 $ 436 ====================================================================================
9 On June 12, 1997, the Company sold its equity residual interests in TMAC 1986-2 and 1987-3 for $442,000. These investments had been carried at zero so that the entire amount of the sales proceeds is reflected as a gain on sales of investments in the second quarter of 1997. SECURITIZED RESIDUALS AND CORPORATE REMIC RESIDUAL INTERESTS - Both Residual Interests held in bond form and Corporate REMIC Residual Certificates are Nonequity Residual Interests and are accounted for under the Prospective Method as described in Note 2. Certain characteristics of the CMO Bonds in the Company's Residual Interests held in these forms are on the following tables:
FIXED RATE RESIDUALS - ----------------------------------------------------------------------------------------------------------------- CMO BOND DATA (100% OF ISSUE) -------------------------------------------------------------- NAME OF ISSUER TIS INITIAL SEPT. 30,1997 AND SERIES/ TIS PURCHASE PRINCIPAL PRINCIPAL CMO ISSUE PURCHASE TIS % PRICE BOND BALANCE BALANCE BOND STATED DATE DATE OWNERSHIP ($000) CLASS ($000) ($000) COUPON MATURITY - ----------------------------------------------------------------------------------------------------------------- 1) Bankers Trust May 29, 1991 99.990% $1,537 1-A $ 9,722 $ 0 7.35% Jan 1, 2013 Series 1988-1 1-B 8,017 0 8.50% Apr 1, 2014 (BT 88-1) 1-C 34,769 13,574 8.75% Apr 1, 2018 Feb 16, 1988 1-D 47,492 8,972 8.63% Apr 1, 2018 -------------------- $100,000 $22,546 - ----------------------------------------------------------------------------------------------------------------- 2) L F Rothschild Nov 7, 1990 100.000% $2,589 A $ 11,000 $ 0 Zero Coupon Jan 1, 2019 Trust 9 B 22,000 0 Zero Coupon Jan 1, 2019 (LFR-9) C 54,000 7,492 Zero Coupon Jan 1, 2019 Dec 2, 1988 D 32,850 2,036 Zero Coupon Jan 1, 2019 E 30,000 0 Zero Coupon Jan 1, 2019 R 150 150 Residual Bond Jan 1, 2019 ------------------------ $150,000 $ 9,678 - ----------------------------------------------------------------------------------------------------------------- 3) Collateralized Dec 21, 1988 44.000% $4,462 I-1 $291,000 $ 0 7.95% Feb 1, 2009 Mortgage Mar 23, 1989 44.000% 4,180 I-2 194,000 0 9.45% May 1, 2013 -------- ------ Securities Corp. Subtotal 88.000% $8,642 I-3(Z) 15,000 34,175 9.45% Feb 1, 2017 ======= ====== --------------------- Series I (CMSC I) $500,000 $34,175 Jan 28, 1987 - ----------------------------------------------------------------------------------------------------------------- 4) Federal Home Jun 22, 1989 55.000% $4,934 25-A $105,923 $ 0 9.00% Nov 15, 2018 Loan Mortgage 25-B 51,002 0 9.50% Nov 15, 2005 Corporation 25-C 53,028 0 9.50% Mar 15, 2011 Series 25 25-D 46,414 0 9.50% Feb 15, 2014 (FHLMC 25) 25-E 50,936 0 9.50% May 15, 2016 Dec 1, 1988 25-F 76,167 0 9.50% Dec 15, 2018 25-G 43,940 38,224 9.50% Feb 15, 2020 25-H 72,490 0 7.90% Feb 15, 2020 R 100 8 Residual Bond Feb 15, 2020 -------------------- $ 500,000 $38,232 - ----------------------------------------------------------------------------------------------------------------- 5) Federal Home Jan 5, 1989 62.500% $5,361 21-A $ 140,645 $ 0 8.90% Jan 15, 1998 Loan Mortgage 21-B 216,267 0 8.90% Feb 15, 2004 Corporation 21-C 101,503 0 9.10% Jan 15, 2006 Series 21 21-D 93,376 0 9.25% Jun 15, 2007 (FHLMC 21) 21-E 122,951 0 9.35% Feb 15, 2009 Nov 30, 1988 21-F 240,408 0 9.45% Sep 15, 2011 21-Z 84,750 66,392 9.50% Jan 15, 2020 R 100 7 Residual Bond Jan 15, 2020 --------------------- $1,000,000 $66,399 =================================================================================================================
10 EQUITY RESIDUAL INTERESTS - The Company currently holds interests in onr Owner Trust Residual. Although the underlying CMOs in these Residual Interests are not liabilities of the Company, under the requirements of generally accepted accounting principles, the Company consolidates assets and liabilities of the Owner Trust Residuals when over 50% equity interest in the trust is held by the Company. Under the underlying bond indentures, the Company would never be required to pay more than the outstanding principal balance to retire the CMO Bonds. Therefore, the carrying value of these CMO Bonds are reasonable estimates of their fair value to the Company. Certain characteristics of the CMO Bonds in the Equity Residual Interest in which the Company holds an interest at September 30, 1997 are set forth below:
EQUITY RESIDUAL INTERESTS - -------------------------------------------------------------------------------------------------------------- CMO BOND DATA (100% OF ISSUE) ----------------------------------------------------------- NAME OF ISSUER TIS INITIAL SEPT. 30, 1997 AND SERIES/ TIS PURCHASE PRINCIPAL PRINCIPAL CMO ISSUE PURCHASE TIS % PRICE BOND BALANCE BALANCE BOND STATED DATE DATE OWNERSHIP ($000) CLASS ($000) ($000) COUPON MATURITY - -------------------------------------------------------------------------------------------------------------- Collateralized Aug 31, 1988 98.000% $4,810 A $275,000 $ 0 8.00% Jun 1, 2006 Mortgage Aug 8, 1990 2.000% 47 B 77,200 0 8.50% Jun 1, 2008 -------- ------ Obligation 100.000% $4,857 C 108,300 0 8.50% Dec 1, 2010 ======== ====== (CMOT 28) Z 39,500 66,480 8.45% Jun 1, 2017 ----------------------- May 29, 1987 $500,000 $66,480 =============================================================================================================
CMO COLLATERAL - The table below sets forth certain characteristics of the mortgage collateral pledged to secure each CMO in which the Company holds a Residual Interest.
CMO COLLATERAL - ------------------------------------------------------------------------------------------------------------ CMO COLLATERAL DATA (100% OF ISSUE) -------------------------------------------------- WEIGHTED SEPT 30, 1997 CURRENT WEIGHTED AVERAGE COLLATERAL WEIGHTED AVERAGE RESIDUAL PASS- PRINCIPAL AVERAGE REMAINING RESIDUAL INTEREST TYPE OF THROUGH BALANCE COUPON MONTHS TO SERIES TYPE COLLATERAL RATE ($000) RATE MATURITY - ----------------------------------------------------------------------------------------------------------- Equity Residual Interests - ------------------------- CMOT 28 Fixed FNMA 8.50% $65,694 9.11% 224 Nonequity Residual Interests - ---------------------------- BT 88-1 Fixed GNMA 9.00% 21,136 9.50% 216 LFR-9 Fixed FNMA 9.50% 9,484 10.21% 236 CMSC I Fixed FNMA 9.50% 33,124 10.13% 207 FHLMC 25 Fixed FHLMC 9.50% 37,534 10.34% 232 FHLMC 21 Fixed FHLMC 9.50% 66,398 10.22% 232 ===========================================================================================================
11 NOTE 5 - INTEREST ONLY (IO) BONDS IO Bonds include both regular IO Bonds and Inverse IO Bonds. Presented below is a schedule of the Company's IO Bonds.
INTEREST ONLY (IO) BONDS - ------------------------ (In thousands) Book Value ----------------------------- Name and Issuer Purchase September 30, December 31, and Series Price 1997 1996 - -------------------------------------------------------------------------------------- FNMA Series 1992-123 Class S $8,203 $1,440 $1,753 Pru Home Mtg Corp Series 1992-7 4,776 553 708 Bear Stearns Mtg Sec Series 1992-1 2,720 160 234 - -------------------------------------------------------------------------------------- $2,153 $2,695 ======================================================================================
Certain characteristics of the Company's IO Bonds are on the following table:
INTEREST ONLY BONDS - ------------------------------------------------------------------------------------------------------------ COLLATERAL DATA (% OF IO HELD BY TIS) ----------------------------------------------------------------- WEIGHTED SEPT. 30, 1997 CURRENT WEIGHTED NAME OF ISSUER TIS AVERAGE COLLATERAL WEIGHTED AVERAGE AND SERIES/ TIS PURCHASE PASS PRINCIPAL AVERAGE REMAINING CMO ISSUE PURCHASE PRICE TYPE OF THROUGH BALANCE COUPON MONTHS TO DATE DATE ($000) COLLATERAL RATE TO IO ($000) RATE MATURITY - ------------------------------------------------------------------------------------------------------------- 1) FNMA July 30, 1992 $8,203 FNMA 49.58 - $3,956 8.95% 284 Series 1992-123 (5.67 x Class S LIBOR) July 25, 1992 - ------------------------------------------------------------------------------------------------------------- 2) Prudential Mar 27, 1992 $4,776 NON 0.5652% $44,541 8.79% 282 Home Mortgage AGENCY Corporation Series 1992-7 March 1, 1992 - ------------------------------------------------------------------------------------------------------------- 3) Bear Stearns May 28, 1992 $2,720 NON 0.3714% $5,796 9.83% 232 Mortgage AGENCY Securities, Inc. Series 1992-1 May 1, 1992 =============================================================================================================
12 NOTE 6 - OPERATING REAL ESTATE ASSETS During the year ended December 31, 1995, the Company acquired four multifamily housing properties in California's Central Valley. The properties were purchased either in the form of direct ownership of the real property or in the form of an interest in a partnership that directly owns the real property. Capitalized costs differ from the purchase price due to capitalization of acquisition costs. The carrying value of operating real estate assets at September 30, 1997 and December 31, 1996 is presented in the following table:
September 30, December 31, (in thousands) 1997 1996 --------------------------------------------------------------------------------- Land $ 5,024 $ 4,990 Buildings and improvements 24,187 24,036 Personal property 1,229 993 ---------------------------------- Total 30,440 30,019 Less accumulated depreciation and amortization (1,629) (1,074) ---------------------------------- Net $28,811 $28,945 ==================================
At September 30, 1997, the Company's four multifamily properties had an overall occupancy of 95%. NOTE 7 - NOTES PAYABLE ON REAL ESTATE As part of the 1995 acquisition of multifamily residential properties, existing secured debt totaling $18,675,000 was assumed. In addition, new secured debt of $1,815,000 was obtained in 1995 secured by Four Creeks - I. In August 1996, the River Oaks and Four Creeks - II mortgage notes payable matured and were retired using the proceeds from a new mortgage note in the principal amount of $11,235,000 (the "Interim Note"). On March 24, 1997, the Company obtained permanent financing with an insurance company (the "Permanent Financing"). The total loan proceeds from the Permanent Financing amounted to $17,400,000 and, after certain costs and fees, were used to retire the then outstanding principal and interest on the Interim Note of $11,235,000 and the mortgage note on Villa San Marcos of $5,965,884. The Permanent Financing comprises three deeds of trust and an assignment of rents on Four Creeks - II, River Oaks and Villa San Marcos. The mortgages comprising the Permanent Financing may not be retired during the first five years and are subject to a prepayment penalty if prepaid after the 5th year. The following table summarizes the debt outstanding on the properties as of September 30, 1997 and December 31, 1996. The Shady Lane loan remains in the name of the seller of the property and will until refinanced but the Company is servicing the debt and receives all of the economic benefits from the property.
Principal Balance Interest Monthly ----------------- Basis of Rate Principal September 30, December 31, Interest Sept. 30, Due and Interest Property 1997 1996 Rate 1997 Date Payment - -------------------------------------------------------------------------------------------------------------------- Shady Lane $1,335,804 $ 1,358,576 Fixed 8.38% Dec. 1, 2004 $ 11,967 River Oaks 6,392,319 6,665,796 Fixed 8.36% Apr. 30, 2007 51,181 Villa San Marcos 6,932,434 5,980,626 Fixed 8.31% Apr. 30, 2007 55,274 Four Creeks - I 1,787,383 1,799,034 Fixed 8.16% Dec. 1, 2005 13,521 Four Creeks - II 3,969,378 4,569,204 Fixed 8.31% Apr. 30, 2007 31,649 - -------------------------------------------------------------------------------------------------------------------- Total $20,417,318 $20,373,236 $163,592 ====================================================================================================================
13 NOTE 8 - SHORT-TERM DEBT At September 30, 1997 the Company's short-term borrowings totaled $2,042,518 which consisted of $1,942,518 under repurchase agreements with Bear Stearns & Co. and Paine Webber and $100,000 of interim financing provided by its principal banker. The repurchase agreement borrowings had a weighted average interest rate of 7.25%; the bank borrowing had an interest rate of 10%. The repurchase agreements had initial terms of one month, are renewed on a month-to-month basis, are collateralized by some of the Company's nonequity Residual Interests and IO Bonds whose fair values approximated $3 million and have a floating rate of interest which is tied to the one month LIBOR rate. The bank interim financing is unsecured and is payable in installments of $50,000 a month. The Company has no committed lines of credit. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL Prior to 1995, the Company primarily invested in the Residual Interests of CMOs and other mortgage related assets. The mortgage collateral underlying the CMOs in the Company's portfolio of Residual Interests are mortgage-backed certificates issued by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). In 1995 the Company changed its investment focus from investments in Residual Interest of CMOs and other mortgage related assets to multifamily real estate. As a result, it sold a number of its nonequity residual interests, interest only bonds and a commercial securitization in order to fund the purchase of multifamily real estate projects. The Company is not in the business of selling its mortgage related investments and therefore purchases these assets with the intention of holding them to term. However, from time to time the Company may sell an asset as part of the Company's ongoing effort to adjust its portfolio composition to reflect changes in economic conditions. The Company may also occasionally acquire mortgage related assets which are available for sale before their term. It may also utilize hedging strategies with certain mortgage related assets and other instruments which would not be held to term. The Company's income from mortgage related assets is sensitive to changes in mortgage prepayments and interest rates. The Company attempts to reduce the prepayment and interest rate risks by purchasing mortgage related assets which have characteristics and yields that complement the characteristics and yields of existing assets. The Company's income from multifamily real estate is sensitive to local real estate market conditions, cost of maintenance of its properties and interest rates on its secured debt. RESULTS OF OPERATIONS The Company had a net loss of $307,000, or $0.04 per share, for the quarter ended September 30, 1997. This compares to a net loss of $345,000, or $0.04 per share, for the quarter ended September 30, 1996. For the nine months ended September 30, 1997, the Company had a net loss of $828,000, or $0.10 per share. This compares to a net loss of $642,000, or $0.08 per share, for the nine months ended September 30, 1996. The Company did not pay a dividend in the first nine months of either year. Interest from mortgage certificates is a declining amount based on the principal amount outstanding, which has been declining due to scheduled amortizations and prepayments of the underlying mortgage loans. Interest expense on CMOs also declines from year to year in proportion to the declining principal amount outstanding. Therefore, the net interest margin (interest income from mortgage certificates less interest expense on CMOs) remained essentially in relation to the principal amounts outstanding between the two years. As a result of the sale of the residual interest in TMAC CMO Trust 1986-1 in April 1996, interest from mortgage certificates and interest on CMOs declined significantly in the nine months ended September 30, 1997 because the accounts of this Owner Trust Residual are no longer included in the condensed consolidated financial statements. In the nine months ended September 30, 1996, interest income included $518,000 and interest expense included $438,000 from TMAC CMO Trust 1986-1. 14 Income from Residual Interests and Interest Only bonds was $276,000 in the nine months ended September 30, 1997 as compared to $343,000 in the prior year period as the underlying portfolios remained relatively constant between periods except for scheduled principal reductions. Real Estate operations showed a loss of $205,000 and $102,000 in the nine months ended September 30, 1997 and 1996, respectively. However, operating income from real estate operations before depreciation and amortization was $438,000 and $415,000 in the nine months ended September 30, 1997 and 1996, respectively. Depreciation of operating real estate assets increased in the nine months ended September 30, 1997 compared to the first nine months of 1996 as a result of capital improvements. Amortization expense includes $55,000 representing the write off of unamortized loan costs relating to a note payable which was refinanced in the first quarter of 1997. On June 27, 1996, the Board of Directors announced that as of July 1, 1996 the Company became a self-administered Real Estate Investment Trust and was no longer managed by TIS Financial Services, Inc. Prior to that date, the Manager oversaw the operations of the Company pursuant to a management agreement. As a result, for the nine months ended September 30, 1997, the Company incurred no management fees. In the first nine months of 1996, the Company incurred management fees of $77,000. For the nine months ended September 30, 1997, general and administrative expense totaled $1,116,000 as compared to $1,068,000 in the comparable prior year period. The increase is primarily attributable to an increase in legal and annual meeting expenses incurred in the second quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES The Company uses cash flow from operations to provide working capital to support its operations and for the payment of dividends to its stockholders, and uses its other capital resources for the purchase of Residual Interests, mortgage instruments, multifamily residential properties and other mortgage related assets. The Company currently has agreements with two investment banking firms to borrow funds under repurchase agreements. At September 30, 1997 the Company had borrowings outstanding under these agreements totaling $1,942,518. This debt was collateralized by some of the Company's Nonequity Residual Interests and IO Bonds whose fair values approximated $3 million. In addition, the Company has obtained interim financing from its principal banker totaling $100,000. The bank borrowings are unsecured and are due in monthly installments of $50,000. The Company's cash flows for the nine months ended September 30, 1997 and 1996 are as follows:
(in thousands) 1997 1996 ------------------------------------------------------------------------------------ Used in Operating Activities $ (159) ($ 1,277) Used in Financing Activities (8,519) (14,816) Provided by Investment Activities 8,704 16,181 ----------------------------------------- Net Increase in Cash and Cash Equivalents $ 26 $ 88 =========================================
At September 30, 1997, the Company had unrestricted cash and cash equivalents of $108,000. Over the twelve months ending September 30, 1998, scheduled principal maturities on the notes payable on real estate amount to $275,000 and are expected to be funded by cash flow from the Company's multifamily residential properties. During the nine months ended September 30, 1997 and 1996, the income from real estate operations before depreciation and amortization amounted to $438,000 and $415,000, respectively. The Company has no significant commitments for capital expenditures relating to the real estate operations over the twelve months ended September 30, 1998 and anticipates that any capital expenditures or repair and maintenance activities would be funded from cash generated from real estate activities. 15 Over the twelve months ending September 30, 1998, the Company anticipates that cash inflows from mortgage related assets will approximate the cash outflows associated with the underlying collateralized mortgage obligations. However, management can provide no assurances of such mortgage related cash flows as such cash flows are subject to interest rate changes, prepayment risks and other uncertainties. The Company has no committed lines of credit. Management of the Company believes that cash flows from operations and the availability of repurchase agreements are sufficient to enable the Company to meet its current and anticipated future liquidity requirements including payment of dividends to its stockholders, which must equal at least 95% of the Company's taxable income in order for the Company to qualify as a REIT. DIVIDEND REINVESTMENT PLAN The Company has a Dividend Reinvestment and Share Purchase Plan designed to enable shareholders to have their dividends from the Company automatically invested in additional shares of the Company. Mellon Securities Trust Company, which is unaffiliated with the Company, acts as the Plan Administrator. The purpose of the Plan is to provide shareholders with a convenient and economical way of investing dividends in additional shares of the Company's Common Stock. These shares will be purchased on the open market or, at the direction of the Company's Board of Directors, directly from the Company at a 3% discount from the open market price. The Company has registered 1,000,000 Common shares for possible issuance under the Plan. The impact on liquidity from the Dividend Reinvestment and Share Purchase Plan, if any, is expected to be immaterial. PART II - OTHER INFORMATION - --------------------------- ITEM 1. LEGAL PROCEEDINGS ----------------- Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- No reports on Form 8-K were filed during the quarter ended September 30, 1997. 16 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. TIS MORTGAGE INVESTMENT COMPANY November 12, 1997 BY: /s/ Lorraine O. Legg - ------------------------- --------------------- Date Lorraine O. Legg, President and Chief Executive Officer (Principal Executive Officer) November 12, 1997 BY: /s/ John E. Castello - -------------------------- ----------------------- Date John E. Castello, Executive Vice President and Chief Financial Officer (Principal Financial Officer) 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1,539 64,639 527 0 0 67,887 30,439 (1,628) 96,698 3,542 0 0 0 8 10,166 96,698 0 8,717 0 0 4,600 0 4,945 (828) 0 (828) 0 0 0 (828) (0.10) (0.10)
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