INVG MORTGAGE SECURITIES CORP /DE/
10-Q, 1995-11-14
REAL ESTATE INVESTMENT TRUSTS
Previous: SOMATIX THERAPY CORPORATION, 10-Q, 1995-11-14
Next: ANGELES INCOME PROPERTIES LTD V, 10QSB, 1995-11-14



                                 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, 1995
                                     
                                    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. 0-14447
                                     
                      INVG MORTGAGE SECURITIES CORP.
                                     
          (Exact name of Registrant as specified in its Charter)

                     Maryland                          13-3397560
         (State or other jurisdiction of             (IRS Employer
          incorporation or organization)          Identification No.)

             Meadow Wood Crown Plaza
         1575 Delucchi Lane, Suite 115-20                89502
                   Reno, Nevada                        (Zip Code)
     (Address of principal executive offices)

     Registrant's telephone number, including area code (702) 828-5405
 ________________________________________________________________________
                                     
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 10, 1995
    ---------------------                ---------------------------
        $.01 Par Value                          596,475 Shares
                                        (Exclusive of Treasury Stock)
<PAGE>
                      INVG MORTGAGE SECURITIES CORP.
                                     
                                   Index
                                     
                      Part I.  Financial Information
                                     
Item 1.  Financial Statements (Unaudited)                   Page Number

     Condensed Consolidated Statements of Income (Loss)
          Three months and nine months ended
           September 30, 1995 and 1994                            3

     Condensed Consolidated Balance Sheets
          September 30, 1995 and December 31, 1994                4

     Condensed Consolidated Statements of Cash Flows
          Nine months ended September 30, 1995 and 1994           5

     Notes to Condensed Consolidated Financial Statements         6


Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                     14


                        Part II.  Other Information
                                     
Item 4.  Results of Votes of Security Holders                    15

Item 5.  Other Information                                       15

Item 6.  Exhibits and Reports on Form 8-K                        15
<PAGE>
Part I.  Financial Information

Item 1.  Financial Statements

<TABLE>
                      INVG MORTGAGE SECURITIES CORP.
                                     
            CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                                (UNAUDITED)

<CAPTION>
                                                            Three Months Ended            Nine Months Ended
                                                              September 30,                 September 30,
                                                       ----------------------------  ----------------------------
                                                                1995           1994           1995           1994
- -----------------------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>            <C>            <C>
Interest from GNMA Certificates                           $4,650,216     $5,511,203    $14,436,200    $17,840,157
Interest on Bonds                                          4,527,665      5,305,095     14,133,352     17,518,566
                                                       -------------  -------------  -------------  -------------
Net Interest Margin                                          122,551        206,108        302,848        321,591
Amortization of Discount                                   1,933,897      2,532,526      5,366,442     10,295,710
Amortization of Bond Discount                             (2,239,484)    (2,892,875)   (6,204,471)   (11,795,387)
Amortization of Bond Issuance Costs                          (66,391)       (91,274)     (186,123)      (399,980)
Valuation Reserve Provision                                   20,895         68,555        329,278       (916,847)
Adjustment of Reserve for Loss                               294,184        376,104        793,633      1,438,568
                                                       -------------  -------------  -------------  -------------
Net Interest Income (Loss) from GNMA Obligations              65,652        199,144        401,607     (1,056,345)
Income from Mortgage Derivative Investments                1,436,444        770,508      4,173,207      1,940,686
Impairment of Mortgage Derivative Investments               (793,858)    (1,460,452)   (1,156,060)    (1,460,452)
Gain on Sale of GNMA Certificates                                  0              0              0      4,500,169
Gain (Loss) on Sale of Mortgage                                                                                   
  Derivative Investments                                   2,989,850       (164,565)     2,885,555       (134,019)
Other Interest Income                                         11,208         22,582         52,411        102,423
                                                       -------------  -------------  -------------  -------------
Total Income (Loss)                                        3,709,296       (632,783)     6,356,720      3,892,462
                                                       -------------  -------------  -------------  -------------
                                                                                                                 
Operating Expenses                                                                                               
  Interest on Short-term Debt                                287,875        150,381        833,234        323,008
  Incentive Management Fee (Credit)                          990,000        (94,679)     1,184,523        294,323
  Professional Fees                                           20,937        159,950        144,702        314,343
  Trustee Fee                                                 13,436          5,883         32,283         37,379
  Management Fee and Officers' Compensation                   78,000         78,000        234,000        234,000
  Directors' Fees                                              4,000          8,500         23,500         18,500
  General and Administrative                                 132,906         68,712        294,198        148,670
                                                       -------------  -------------  -------------  -------------
            Total Expenses                                 1,527,154        376,747      2,746,440      1,370,223
                                                       -------------  -------------  -------------  -------------
                                                                                                                 
Income (Loss) before Extraordinary Item                    2,182,142     (1,009,530)     3,610,280      2,522,239
Extraordinary Item - Loss from Redemption of Bonds                 0              0              0     (2,250,778)
                                                       -------------  -------------  -------------  -------------
Net Income (Loss)                                         $2,182,142    ($1,009,530)    $3,610,280       $271,461
                                                       =============  =============  =============  =============
- -----------------------------------------------------------------------------------------------------------------
Per Common Share                                                                                                 
  Income (Loss) before Extraordinary Item                      $3.66         ($1.63)         $6.02          $3.94
  Net Income (Loss)                                            $3.66         ($1.63)         $6.02          $0.42
                                                                                                                 
  Dividends Declared                                           $0.20          $0.20          $0.60          $0.60
                                                                                                                 
Weighted Average Shares Outstanding                          596,475        620,475        599,274        640,761
- -----------------------------------------------------------------------------------------------------------------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>>
<PAGE>
<TABLE>
                      INVG MORTGAGE SECURITIES CORP.
                                     
                   CONDENSED CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                         Sept. 30,    December 31,
                                                           1995           1994
                                                       -------------  -------------
                                                        (Unaudited)                
<S>                                                    <C>            <C>
ASSETS                                                                             
  Cash and Cash Equivalents                               $3,471,386     $1,425,534
  Government National Mortgage                                                     
     Association Certificates, at amortized cost         159,747,087    177,990,217
  Other Mortgage Certificates                                 97,678        100,730
  Mortgage Derivative Investments                         23,884,437     21,322,104
  Accrued Interest and Accounts Receivable                 3,874,070      3,973,306
  Deferred Issuance Costs                                  1,135,768      1,321,892
  Organization Costs                                          38,282         74,145
  Other Investments                                        5,327,535        837,149
                                                       -------------  -------------
     Total Assets                                       $197,576,243   $207,045,077
                                                       =============  =============
- -----------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY                                               
Liabilities                                                                        
  GNMA-Backed Sequential Pay Bonds                      $160,405,713   $178,933,727
  Accrued Interest Payable                                 1,537,031      1,723,202
  Short-term Debt                                         16,062,431     14,694,000
  Incentive Management Fee Payable                         1,871,944        687,421
  Accrued Expenses and Other Liabilities                   1,629,632        173,874
  Dividends Payable                                          136,455        136,455
                                                       -------------  -------------
     Total Liabilities                                   181,643,206    196,348,679
                                                       -------------  -------------
                                                                                   
Stockholders' Equity                                                               
  Common Stock, $.01 Par Value;                                                    
     25,000,000 Shares Authorized;                                                 
     682,275 Shares Issued and Outstanding                     6,823          6,823
  Additional Paid-in Capital                              15,103,692     15,103,692
  Treasury Shares (1995 - 85,800 shares;                                            
     1994 - 61,800)                                         (769,939)      (682,050)
  Unrealized Gain on Investments                           2,374,189        298,459
  Retained Deficit                                          (781,728)    (4,030,526)
                                                       -------------  -------------
     Total Stockholders' Equity                           15,933,037     10,696,398
                                                       -------------  -------------
                                                                                   
     Total Liabilities and Stockholders' Equity         $197,576,243   $207,045,077
                                                       =============  =============
- -----------------------------------------------------------------------------------
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>>
<PAGE>
<TABLE>>
                      INVG MORTGAGE SECURITIES CORP.
                                     
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (UNAUDITED)

<CAPTION>
                                                                   Nine Months Ended
                                                                     September 30,
                                                              ----------------------------
                                                                  1995           1994
                                                              ----------------------------
<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES                                         
Net Income                                                      $3,610,280       $271,461
                                                              ------------   ------------
Adjustments to reconcile Net Income to Net Cash                                          
 Provided by Operating Activities:                                                       
   Amortization of Deferred Bond Issuance Costs                    186,123        821,569
   Amortization of Bond Discount                                 6,204,471     13,426,024
   Amortization of Discount on Government                                                
     National Mortgage Association Certificates, Net            (5,366,443)    (9,519,465)
   Income from Mortgage Derivative Investments                  (4,173,207)    (1,940,686)
   Impairment of Mortgage Derivative Investments                 1,156,060      1,460,452
   Loss (Gain) on Sales of Investments                          (2,885,555)       134,019
   Decrease in Reserve for Loss on Investments                  (1,122,911)      (683,721)
   Amortization of Organization Costs                               35,863              0
   Decrease in Accrued Interest and Accounts Receivable             99,236      1,025,480
   Increase (Decrease) in Incentive Management Fee Payable       1,184,523       (249,002)
   Increase (Decrease) in Accrued Expenses                       1,455,758        (37,883)
   Decrease in Accrued Interest Payable                           (186,171)      (394,713)
                                                              ------------   ------------
     Total Adjustments                                          (3,412,253)     4,042,074
                                                              ------------   ------------
                                                                                         
     Net Cash Provided by Operating Activities                     198,027      4,313,535
                                                              ------------   ------------
                                                                                         
CASH FLOWS FROM INVESTING ACTIVITIES                                                     
Decrease in Principal Amount of                                                          
 Government National Mortgage Association Certificates          24,732,484    113,093,195
Investment in Other Mortgage Certificates and Investments                0    (11,527,555)
Investment in Mortgage Derivative Investments                   (8,322,470)   (15,113,913)
Purchase of Other Investments                                   (4,131,060)    (1,000,000)
Principal Collections and Proceeds from Sales of                                         
   Mortgage Derivative Investments                              13,371,907      7,118,239
Principal Collections from Other Mortgage Certificates              10,389     11,993,351
                                                              ------------   ------------
     Net Cash From Investing Activities                         25,661,250    104,563,317
                                                              ------------   ------------
                                                                                          
CASH FLOWS FROM FINANCING ACTIVITIES                                                     
Decrease in Principal Amount of                                                          
 GNMA-Backed Sequential Pay Bonds                              (24,732,484)  (113,176,168)
Increase in Short-term Debt                                      1,368,431      4,080,750
Decrease in Due to Broker                                                0     (2,704,621)
Repurchase of Common Stock                                         (87,889)      (473,676)
Dividends Paid                                                    (361,483)      (391,106)
                                                              ------------   ------------
     Net Cash Used in Financing Activities                     (23,813,425)  (112,664,821)
                                                              ------------   ------------
                                                                                         
Net Increase (Decrease) in Cash and Cash Equivalents             2,045,852     (3,787,969)
Cash and Cash Equivalents at Beginning of Period                 1,425,534      4,464,990
                                                              ------------   ------------
                                                                                         
Cash and Cash Equivalents at End of Period                      $3,471,386       $677,021
                                                              ============   ============
<FN>
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
                      INVG MORTGAGE SECURITIES CORP.
                                     
           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                (UNAUDITED)

Note 1. - Basis of Presentation

     In the opinion of the Company, the accompanying condensed consolidated
financial statements contain all adjustments necessary to present fairly
the financial position as of September 30, 1995 and the results of
operations and the cash flows for the nine months ended September 30, 1995
and 1994.  Operating results for the quarter and nine months ended
September 30, 1995 are not necessarily indicative of the results that may
be expected for the entire year.  These financial statements should be read
in conjunction with the December 31, 1994 financial statements and notes
thereto.

Note 2. - Summary of Significant Accounting Policies

     Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries,
Investors GNMA Mortgage-Backed Securities Trust, Inc. and INVG Government
Securities Corp.  All significant intercompany balances and transactions
have been eliminated.

     Accounting Change - On December 31, 1993 the Company adopted Statement
of Financial Accounting Standards No. 115 ("SFAS 115") - Accounting for
Certain Investments in Debt and Equity Securities.  In accordance with this
new Standard, the Company classified its investments as either available-
for-sale or held-to-maturity.  The Company has elected to classify its
investments in CMO Residuals and REMIC Residuals as available-for-sale
while it has elected to classify its investments in GNMA Certificates as
held-to-maturity investments.  SFAS 115 requires that held-to-maturity
investments be accounted for at amortized cost.  However, if the fair
value, as defined, of the investment declines below the amortized cost
basis and the decline is considered to be "other than temporary", the cost
basis of the individual asset must be 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 decline in
fair value is considered to be other than temporary if the cost basis
exceeds the related projected cash flow from the investment discounted at a
risk-free rate of return.

     Held-to-Maturity.  The investment in GNMA Certificates is classified
as a held-to-maturity investment.  In connection with the fourth quarter
1993 adoption of SFAS 115 and consistent with the consensus reached by the
Emerging Issues Task Force on Issue No. 93-18, the Company measures other
than temporary impairment by comparing the net cash flows from the GNMA
Certificates (net of GNMA Bonds principal and interest payments and related
trustee expenses) discounted at a risk-free rate to the net carrying value
of the GNMA Certificates (i.e. net of GNMA Bond liabilities).  If such
discounted cash flows are less than the net carrying value, the Company
records a reserve to reduce the net carrying value to fair value.  For
purposes of determining fair value, the Company discounts the net cash
flows as discussed above using an estimated risk-adjusted rate of return.

     Available-for-Sale.  The Company is not in the business of trading its
mortgage-related assets, however, from time to time the Company may sell an
asset as part of the Company's efforts to adjust its portfolio composition
to reflect changes in economic conditions.  Therefore the Company has
classified its investments in CMO Residual Interests and REMIC Residual
interests as available-for-sale.  They are carried at fair value in the
financial statements.  Unrealized holding gains and losses for available-
for-sale investments are excluded from earnings and reported as a net
amount in shareholders' equity until realized.  Available-for-sale
investments are also subject to write down whenever the carrying value
(excluding unrealized losses) is less than the future projected cash flows
discounted at a risk-free rate. In the nine months ended September 30,
1995, the Company recognized an impairment to its CMO residual interests
and REMIC residual interests of $1,156,060.

     Cash Equivalents - Cash equivalents are short-term investments which
are readily converted to cash and have original maturities of less than
three months.

     Mortgage Certificates and Collateralized Mortgage Obligation Bonds
("CMOs") - Mortgage certificates and CMO bonds are carried at their
outstanding principal balance plus or minus any premium or discount,
respectively.

     Amortization of Deferred Issuance Costs, Premiums and Discounts -
Deferred issuance costs, premiums and discounts relating to mortgage
certificates and GNMA Bonds are amortized to income using the interest
method over the stated maturity of the mortgage certificates or bonds.
Prepayments are not anticipated.  When prepayments occur, a proportionate
amount of the related costs, premiums and discounts are recognized in
income so that the effective interest rate on the remaining balance
continues unchanged.

     Mortgage Derivative Investments - With respect to income recognition,
Mortgage Derivative Investments are accounted for using the prospective
method prescribed by EITF 89-4.  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
income.

     Under certain extended high interest rate periods, or in the event of
extremely high prepayment rates on the collateral, the return on the
Company's investment in a Mortgage Derivative Investment could be zero or
negative.  In the event that the projected return on an investment in a
mortgage derivative investment falls below a risk-free rate, the Company
would be required to write down the investment to its fair value.

     Income Taxes - The Company has elected to be taxed as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended.  As a REIT, the Company must distribute annually at least 95% of
its taxable income to its shareholders.  No provision has been made for
income taxes in the accompanying financial statements as the Company will
not be subject to income taxes.  Over the life of a Mortgage Derivative
Investment, total taxable income will equal total financial statement
income; however, the timing of income recognition may differ significantly
between the two from year to year.

     Reclassifications -  Certain reclassifications have been made to the
Statements of Income (Loss) and the Statement of Cash Flows for the nine
months ended September 30, 1994 to conform such financial statement to the
September 30, 1995 statement.  Such reclassifications do not affect net
income as reported.

     Net Income (Loss) Per Share - Net income (loss) per share is based
upon the weighted average number of shares of common stock outstanding.
<PAGE>
Note 3. - GNMA Certificates

     The GNMA Certificates are being used as collateral for the GNMA-Backed
Sequential Pay Bonds (the "Bonds").  The estimated fair value is based on
Bloomberg quotes at the respective dates.  Information with respect to such
GNMA Certificates is as follows:
<TABLE>
<CAPTION>
                                                                   COST LESS      ESTIMATED
                    BOND     INTEREST      DUE      PRINCIPAL     UNAMORTIZED        FAIR
CERTIFICATES       SERIES      RATE       DATE        AMOUNT        DISCOUNT        VALUE
- ----------------------------------------------------------------------------------------------
<S>               <C>       <C>         <C>       <C>            <C>            <C>
Sept. 30, 1995                                                                               
                   1984-2      8.0%       2008     $ 89,048,595    $73,115,928   $ 91,497,432
                   1984-3      9.0%       2009       60,220,847     48,056,600     63,382,442
                   1984-4     11.0%       2013       50,074,023     45,056,302     56,082,905
Reserve                                                             (6,481,743)              
                                                   ------------------------------------------
Total                                              $199,343,465   $159,747,087   $210,962,779
                                                   ==========================================
                                                                                              
December 31, 1994                                                                             
                   1984-2      8.0%       2008     $ 99,473,878    $80,900,971   $ 95,090,811
                   1984-3      9.0%       2009       66,767,191     52,813,548     67,351,404
                   1984-4     11.0%       2013       57,834,880     51,880,352     62,823,138
Reserve                                                             (7,604,654)              
                                                   ------------------------------------------
Total                                              $224,075,949   $177,990,217   $225,265,353
                                                   ==========================================

Note 4. - GNMA-Backed Sequential Pay Bonds

     The Bonds are collateralized by the GNMA Certificates.  Information
with respect to such Bonds is as follows:


</TABLE>
<TABLE>
<CAPTION>
                                                                                       
                    BOND      STATED       DUE      PRINCIPAL     UNAMORTIZED          
BONDS              SERIES    MATURITY     DATE        AMOUNT        DISCOUNT         NET
- ----------------------------------------------------------------------------------------------
<S>               <C>       <C>         <C>       <C>            <C>            <C>
Sept. 30, 1995                                                                               
                   1984-2     7.875%      2008     $ 89,047,983    $19,493,048    $69,554,935
                   1984-3   8.875-9.0%    2009       60,220,378     13,709,667     46,510,711
                   1984-4     10.875%     2013       50,073,315      5,733,247     44,340,068
                                                   ------------------------------------------
Total                                              $199,341,676    $38,935,962   $160,405,714
                                                   ==========================================
                                                                                              
December 31, 1994                                                                             
                   1984-2     7.875%      2008     $ 99,473,266    $22,681,427     $76,791,839
                   1984-3   8.875-9.0%    2009       66,766,722     15,658,178      51,108,544
                   1984-4     10.875%     2013       57,834,171      6,800,827      51,033,344
                                                   ------------------------------------------
Total                                              $224,074,159    $45,140,432    $178,933,727
                                                   ==========================================
</TABLE>

     The sequence of each series of Bonds with the latest stated maturity
is redeemable at the option of the Company in whole, but not in part, when
the outstanding principal amount of that sequence declines to 10% or less
of its original outstanding principal amount at a redemption price equal to
the outstanding principal amount thereof, plus accrued interest.

     The Company's Net Interest Margin continues to decline through the
process of repayments and prepayments on the mortgages underlying the
Company's assets as well as from the redemptions of Bonds.  Additionally,
the Company's asset pool is depleted by normal business expenses and the
payment of dividends.

Note 5. - Redemption of Series A Bonds

     On January 5, 1994 the Board of Directors of the Company authorized an
optional redemption of the Series A Bonds on February 1, 1994 pursuant to
the call provisions of the Series A Bonds.  On January 24, 1994, the GNMA
Certificates securing the Series A Bonds were sold.  The Company realized a
gain of $4,500,000 from the sale of the GNMA Certificates.  On February 1,
1994, the Series A Bonds were redeemed at par.  After accounting for
expenses, including amortization of discounts and premiums, the Company
incurred an extraordinary loss of $2,250,000 from the redemption of the
Series A Bonds.  The net cash the Company received from this series of
transactions was $5,000,000.

Note 6. - Other Mortgage Certificates

     At September 30, 1995, Other Mortgage Certificates consisted of 7.0%
and 8.5% GNMA certificates.

     On May 17, 1994, the Board of Directors of INVG Government Securities
Corp. authorized an optional redemption of Thomson McKinnon Mortgage Assets
Trust 2, which was previously classified as a Mortgage Derivative
Investment, and the Company received $11,527,555 Federal National Mortgage
Association bonds.  Simultaneously the Company increased its short-term
borrowings by $11,698,000.  On July 25, 1994 the bonds were sold and the
debt was retired resulting in a loss of $162,000.

Note 7. - Mortgage Derivative Investments

     At September 30, 1995, the Company owned Mortgage Derivative
Investments as shown in the schedule below.  The carrying value of all of
the Mortgage Derivative Investments except FNMA REMIC 92-G64 R and 92-G65
R, described below, is based on expected future cash flows discounted at
21.5%.
<TABLE>
<CAPTION>
                                                                                               CARRYING
                                                                                                  VALUE
                                  PURCHASE          %                           PURCHASE      SEPT. 30,
RESIDUAL SERIES                     DATE        OWNERSHIP    COLLATERAL            PRICE           1995
- -------------------------------------------------------------------------------------------------------
<S>                           <C>              <C>          <C>            <C>            <C>
FNMA REMIC 92-G64 R            Aug. 26, 1993     100.00%     GNMA 8.00%        3,668,000     ($325,000)
FNMA REMIC 92-G65 R            Sept. 21, 1993    100.00%     GNMA 8.00%        2,200,000      (325,000)
FHLMC REMIC 1424-R             Sept. 27, 1993    100.00%     FHLMC 8.00%         377,108         11,833
Paine Webber G-3               Oct. 14, 1993     25.00%      FNMA 12.00%         318,719        207,222
FHLMC REMIC 9-R                   Various        87.50%     FHLMC 10.01%       2,114,992      1,228,709
Drexel Burnham Q-7                Various       74.4369%     FNMA 10.00%       1,279,136      1,103,854
Santa Barbara 1-A                 Various       9.74406%     FHLMC 9.50%         799,751        509,676
CMOT Series 5-R                Dec. 10, 1993     49.00%      FNMA 9.50%          560,682        388,509
CMOT Series 6-R                   Various        64.00%      FHLMC 9.50%         189,713        608,031
Morgan Stanley Trust E         Feb. 14, 1994     42.00%     FHLMC 9.308%         315,000        180,647
Ryan Mortgage IV - 3           Mar. 28, 1994     100.00%     GNMA 12.00%         800,000        763,774
Ryan Mortgage IV - 4           Mar. 28, 1994     100.00%     FNMA 10.00%         400,000        468,264
CMIT Series 7                  Mar. 30, 1994     100.00%     GNMA 9.50%          800,000        845,328
FHLMC REMIC 4-R                Apr. 21, 1994     52.593%     FHLMC 10.5%       2,550,000      1,720,969
CMSC Series 1988-14             July 5, 1994     100.00%    FHLMC 10.60%       2,100,000      2,073,942
Mortgage Capital 6C            July 22, 1994     100.00%     GNMA 11.00%       1,350,000      1,377,109
Drexel Burnham Series N        Sept. 3, 1994     50.00%      FNMA 10.50%         611,326        450,877
FHLMC Series 150               Sept. 16, 1994    100.00%     FHLMC 9.50%       1,350,000        964,622
FHLMC Series 118               Sept. 27, 1994    100.00%     FHLMC 9.50%         725,000        525,066
FNMA Trust 88-19               Oct. 17, 1994     74.40%      FNMA 9.50%        1,227,600      1,062,000
Drexel Burnham Trust D         Nov. 10, 1994    12.6305%     FHLMC 9.50%         235,000        262,370
E.F. Hutton III 87-1           Nov. 10, 1994    37.6143%     GNMA 12.13%       1,222,225      1,147,184
E.F. Hutton Trust 1               Various        99.965%     GNMA 10.00%         141,951        142,995
Merrill Lynch Trust 7          Nov. 17, 1994      8.96%     FHLMC 11.00%         208,000        212,833
FHLMC REMIC 7                  Nov. 23, 1994     10.00%      FHLMC 9.50%         165,000        140,753
FBMS II 1987-4 Class 2         Nov. 30, 1994     100.00%    Whl.Loan 9.5%        275,000        298,524
L.F. Rothschild Series 3       Nov. 30, 1994     20.90%      GNMA 10.00%           5,539        (6,157)
Pacific Coll. Mtg. Trust 2     Nov. 30, 1994      7.50%     FHLMC 10.00%          25,000         34,744
Leader Funding 1                  Various        79.50%     FHLMC 10.00%         628,308        949,736
Ryland Acceptance 38              Various        66.99%     FHLMC 10.10%         301,950        448,177
FHLMC REMIC 105-R              Jan. 17, 1995    69.6706%     FHLMC 9.50%       1,672,093        887,208
Ryland Acceptance 62              Various        69.995%     GNMA 10.00%         691,366        659,147
Ryland Acceptance 74            Feb. 8, 1995     23.664%     GNMA 10.50%         466,104        403,862
Ryland Acceptance 75            Feb. 8, 1995     35.997%     GNMA 9.50%          472,337        674,249
FHLMC REMIC 111-R              Mar. 27, 1995     100.00%     FHTPM 9.50%         860,000        589,462
FHLMC REMIC 5-R                April 26, 1995    50.00%      FHLMC 9.50%       1,450,000      1,209,627
FNMA REMIC 90-13               April 26, 1995    100.00%     FNMA 9.00%           95,000         75,394
Merrill Lynch Trust 37          May 2, 1995     34.6666%     GNMA 10.00%         988,000        900,675
FNMA REMIC 88-22               Aug. 25, 1995     40.00%      FNMA 9.50%          994,792      1,013,222
                                                                           ----------------------------
    Total                                                                    $34,634,692    $23,884,437
                                                                           ============================
</TABLE>

     Because only minimal additional cash receipts are anticipated from
FNMA REMIC 92-G64 R and 92-G64 R and they are expected to have taxable
income in the future, the Company has adjusted the carrying values to
reflect an estimate of the inducement payment required to dispose of these
investments.  The Company has not made any provision for future tax
liabilities arising from these investments because it anticipates having
sufficient resources to continue making distributions sufficient to
continue qualifying as a REIT.  In the quarter ended June 30, 1995, FHLMC
REMIC 1332-R was disposed of at a cost of $375,000.
<PAGE>
     During the nine months ended September 30,1995 the Company sold some
of its Mortgage Derivative and Other Investments as follows:

<TABLE>
<CAPTION>
RESIDUAL SERIES                          SALES PRICE         COST        GAIN OR (LOSS)
- ----------------------------------------------------------------------------------------
<S>                                     <C>             <C>             <C>
Kidder Peabody Trust 3                     $  130,226      $    3,562        $  126,664
Kidder Peabody Trust 1                        857,143         210,549           646,594
Merrill Lynch Trust 8-R                     2,479,091       1,324,737         1,154,354
Oxford Acceptance 3D                        3,101,852       1,776,245         1,325,607
FHLMC REMIC 1332-R                           (375,000)              0          (375,000)
Pine Street Associates                          7,336               0             7,336
- ----------------------------------------------------------------------------------------
Total                                      $6,200,648      $3,315,093        $2,885,555
========================================================================================
</TABLE>

     There is no exchange or other active market from which to obtain a
quoted market price for CMO Residual Interests.  Instead, the estimate of
fair value was determined by calculating the present value of the projected
Excess Cash Flow to the Company discounted at a weighted average interest
rate of 21.5%.  The discount rates, prepayment rates and other assumptions
were based upon current market information.

     Excess Cash Flow represents the Company's proportionate share of the
difference between (i) the cash flow from the collateral pledged to secure
the related CMO issuance together with reinvestment income thereon, if any;
and (ii) the amount required for debt service payments on such CMO issuance
together with administrative expenses.

Note 8. - Fair Value of Investments

     In accordance with FASB-107, the Company must disclose the fair value
of financial instruments for which it is practicable to estimate that
value. Due to the complex nature of CMO structures, every CMO investment
and, in particular, every CMO Residual has a unique risk/return profile.
Not only do CMO structures vary significantly from issuance to issuance,
but the individual mortgage loans underlying the mortgage certificate
collateral for one CMO issuance are separate and distinct from those
underlying the mortgage certificate collateral of another CMO issuance.  As
a result, these investments are very illiquid and there is no exchange or
other active market from which to obtain a quoted market price for these
financial instruments.  Accordingly, the estimates of fair value have been
determined by the Company using available market information and valuation
methodologies.  Considerable judgment was required to interpret the market
information and develop the estimates of fair value.  The estimates of fair
value presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange.  The use of different
market assumptions and/or valuation methodologies may have a material
effect on the estimates of fair value.

     The Company has disclosed in Note 3 the fair value of the GNMA
Certificates based on market prices for comparable instruments as of
September 30, 1995.  However, the Company is unable to sell the GNMA
Certificates and therefore realize any gain until the Bonds which are
collateralized by the certificates either mature or are called in
accordance with the underlying bond indenture.  For purposes of determining
fair value of the GNMA Certificates, the Company uses the cash flows from
GNMA Certificates net of bond interest expenses and related trustee
expenses.  The Company includes in its net cash flows an assumption of
redemption of the Series at the earliest available stated redemption date
with an assumed sale of the GNMA Certificates at a current market price.
The net cash flows also assume annual expenses of $175,000 for the three
Series for trustee, auditing, administration and legal expenses.  These
cash flows are discounted at a fair value rate of 20%.  The 20% discount
rate is the rate quoted by several market makers for valuing similar
securities.  The following table gives the pertinent fair value assumptions
used in forecasting the cash flows as of September 30, 1995:
<TABLE>
<CAPTION>
                                                    
BOND SERIES                 COLLATERAL     PSA *       FAIR VALUE
- -----------------------------------------------------------------
<S>                      <C>            <C>         <C>
Series 1984-2               GNMA 8.00%      178%         $166,775
Series 1984-3               GNMA 9.00%      243%           54,432
Series 1984-4              GNMA 11.00%      270%          275,651
                                                    -------------
     Total Fair Value                                    $496,858
                                                    =============
<FN>
* Average PSA projection for similar collateral from various dealers.
Source:  Bloomberg September 30, 1995.
</TABLE>

     The Company's methodology and fair value estimates for its mortgage
derivative investments, including CMO Residuals and REMIC Residuals are
discussed in Note 7.  The Company has used available market information as
of September 30, 1995 and has concluded that the fair value of the mortgage
derivative investments at that date was approximately $2,374,000 in excess
of amortized cost.  The Company estimated the prospective yield on these
investments for 1995 to be approximately 21.5% per annum.

Note 9. - Excess Inclusion Income

     Ownership by the Company of residual interests in REMICs may adversely
affect the federal income taxation of the Company and of stockholders to
the extent those residual interests generate "excess inclusion income."
The Company's excess inclusion income during a calendar quarter generally
will equal the excess of its taxable income from residual interests in
REMICs over its "daily accruals" with respect to those residual interests
for the calendar quarter.  The daily accruals are calculated by multiplying
the adjusted issue price of the residual interest by 120% of the long-term
federal interest rate in effect on the REMIC's startup date.  It is
possible that the Company will have excess inclusion income without
associated cash.  In taxable years in which the Company has both a net
operating loss and excess inclusion income, it will still have to report
taxable income equal to its excess inclusion income.  In order to maintain
its REIT status, the Company will be required to distribute at least 95% of
its taxable income, even if its taxable income is comprised exclusively of
excess inclusion income and otherwise it has a net operating loss.

     In General, each stockholder is required to treat the stockholder's
allocable share of the portion of the Company's excess inclusions that is
not taxable to the Company as an excess inclusion received by each
stockholder.  Excess inclusion income will constitute unrelated business
taxable income for tax-exempt entities and may not be used to offset
deductions or net operating losses from other sources for most other
taxpayers.

     The Company is estimating that it may have excess inclusion income in
1995 of between $1,460,000 and $4,000,000 from its investments in REMIC
residual interests.  The Company intends to make distributions to its
stockholders on a basis that will allow the Company to satisfy the
distribution requirements consistent with maintaining its REIT status,
however, if due to cash flow shortfalls, the Company is unable to meet
these requirements, the Company may decide to terminate its REIT status.
If the Company should not qualify as a REIT in any tax year, it would be
taxed as a regular domestic corporation and, among other consequences,
distributions to the Company's stockholders would not be deductible by the
company in computing its taxable income.  Any such tax liability could be
substantial and would reduce the amount of cash available for distributions
to the Company's stockholders.

Note 10. - Other Investments

     At September 30, 1995 Other Investments consists of $4,000,000 face
value of 6.5% U. S. Treasury Notes due August 15, 2005 and an interest in
Bennett/Lawrence Partners, L.P., an investment fund.  This interest was
purchased January 4, 1994 for $750,000 and has a fair value of $1,196,475
at September 30, 1995.

Note 11. - Short-Term Debt

     At September 30, 1995 the Company owed $16,062,431 under 24 repurchase
agreements.  These borrowings had initial terms of one month and are
renewed on a month-to-month basis.  The interest rate on these borrowings
at September 30, 1995 was 6.175%.  The debt is collateralized by some of
the Company's mortgage derivative investments.

Note 12. - Consulting Agreement

     Under the terms of a consulting agreement with Page Mill Asset
Management, the Company pays a monthly fee of $10,000 plus an incentive
management fee.  The incentive management fee is equal to 25% of the
amount, if any, by which the annual consolidated taxable income of the
group, before payment of any incentive fee to Page Mill, net operating loss
deductions arising from prior periods' losses and special Internal Revenue
Code deductions pertaining to real estate investment trusts, plus certain
other adjustments in accordance with generally accepted accounting
principles, exceeds the amount necessary to provide an annualized return on
equity equal to 1% over the average ten-year U.S. Treasury rate for the
year.  Under this agreement, the Company has recorded expense in the nine
months ended September 30, 1995 of $90,000 for the monthly management fee.
In the nine months ended September 30, 1995 incentive management fee of
$1,184,523, of which $194,523 was accrued represents an adjustment of the
1994 fee based on finalization of taxable income for 1994.  The Company
recorded expense in the nine months ended September 30, 1994 of $90,000 and
$294,323 for the monthly and incentive management fees, respectively.
Taxable income cannot be precisely determined until the tax return is filed
for the year.

     The Company is managed by the Board of Directors.  The day-to-day
administrative affairs of the Company are managed, subject to the
supervision of the Board of Directors, under an Administration Agreement
with TIS Asset Management, Inc.  This agreement provides for a monthly fee
of $16,000 for administrative services which cost is divided among the
affiliated companies.
<PAGE>
Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations

                           RESULTS OF OPERATIONS
                                     
Nine Months Ended September 30, 1995 Compared to 1994
- -----------------------------------------------------
     Net income for the nine months ended September 30, 1995 amounted to
$3,610,280.  This compares to net income of $271,461 for the nine months
ended September 30, 1994.  The greatly improved operating results were
brought about by a number of factors.

     Interest from GNMA Certificates is a declining amount based on the
principal amount outstanding, which has been declining due to scheduled
amortization and prepayments of the underlying mortgage loans.  In 1995,
the weighted average interest rate on the GNMA Certificates was 9.005% as
compared to 8.956% in 1994.  Similarly, interest expense on Bonds declines
from year to year in proportion to the declining principal amount
outstanding.  In 1995 the weighted average interest rate on the Bonds was
8.888% as compared to 8.847% in 1994.  Therefore, the net interest margin
(interest from GNMA Certificates less interest on Bonds) remained
essentially constant between the two years, and has declined only because
of principal payments. Amortization of Discount on the GNMA Certificates,
Bond Discount and Bond Issuance Costs also declines from year to year
because of the declining principal amount outstanding.  However,
amortizations are computed using the interest method over the stated
maturity of the Certificates or Bonds with the result that amortization is
not directly proportional to the principal amounts outstanding.

     The reserve for loss on GNMA obligations is adjusted quarterly for two
factors:  (1)  the reserve is reduced on a straight-line basis in
proportion to the decline is principal amount of Certificates outstanding
resulting in the income item captioned Adjustment of Reserve for Loss and
(2)  the reserve is adjusted up or down to bring the net carrying value of
the GNMA obligations to fair value based on current prepayment assumptions;
this adjustment is captioned Valuation Reserve Provision.

     Income from Mortgage Derivative Investments increased to $4,173,207 in
1995 from $1,940,686 in 1994 because the amount of such investments
essentially doubled in 1995.  The average of quarter-end carrying values of
Mortgage Derivative Investments during the period in 1995 was $24,532,000
as compared to $12,837,000 in 1994.  In 1995 gains from the sale of
Mortgage Derivative and Other Investments were $2,885,555 as shown in Note
7.

     1994 results include a gain of $4,500,169 from the sale of the Series
A GNMA Certificates.  Partially offsetting this gain is a extraordinary
loss of $2,250,778 from the redemption of the related Bonds.

     Operating expenses for the nine months ended September 30, 1995
totaled $2,746,440 as compared to $1,370,223 in the prior year.  The most
significant elements contributing to this increase are interest on short-
term debt, all of which is related to the purchase of Mortgage Derivative
Investments, and accrual of an incentive management fee based on an
estimate of taxable income for the year. Professional fees were reduced in
1995 by the deferral of certain legal and accounting fees.

Three Months Ended September 30, 1995 Compared to 1994
- ------------------------------------------------------
     Net income for the three months ended September 30, 1995 amounted to
$2,182,142.  This compares to a net loss of $1,009,530 for the three months
ended September 30, 1994.

     As described above, interest from GNMA Certificates and interest
expense on Bonds declines in direct proportion to the principal amounts
outstanding.  Amortization of Discount and Bond Issuance Costs also
declines as the principal amounts outstanding were reduced.  The basis for
the amounts shown as Valuation Reserve Provision and Adjustment of Reserve
for Loss is described above.

     Income from Mortgage Derivative Investments increased to $1,436,444 in
1995 from $770,508 in 1994 because the amount of such investments
essentially doubled in 1995.  The average of quarter-end carrying values of
Mortgage Derivative Investments during the period in 1995 was $25,769,000
as compared to $15,093,000 in 1994.  In 1995 gains from the sale of
Mortgage Derivative and Other Investments were $2,885,555, most of which
occurred in the third quarter.

     Operating expenses for the three months ended September 30, 1995
totaled $1,527,154 as compared to $376,747 in the prior year.  The most
significant elements contributing to this increase are interest on short-
term debt, all of which is related to the purchase of Mortgage Derivative
Investments, and accrual of an incentive management fee based on an
estimate of taxable income for the year.  Professional fees were reduced in
1995 by the deferral of certain legal and accounting fees.

     On September 11, 1995 the Company declared a distribution of $0.20 per
share, payable on October 16, 1995 to shareholders of record as of
September 29, 1995.

                      LIQUIDITY AND CAPITAL RESOURCES
                                     
     Cash provided from operations of the Company totaled $198,027 for the
nine months ended September 30, 1995 and $4,313,535 for the nine months
ended September 30, 1994.  Cash and cash equivalents of the Company
increased during the first nine months of 1995 by $2,045,852 but decreased
$3,787,969 in the first nine months of 1994.  The most significant element
in the improved cash flow relates to cash received from the sales of
certain Mortgage Derivative Investments.

     The Company had total assets of $197.6 million at September 30, 1995.
At that date GNMA Certificates collateralizing the Bonds comprised $159.7
million of the assets and deferred issuance costs accounted for $1.1
million of the assets.  Mortgage Derivative Investments accounted for $23.9
million of the assets.

     The Company had no capital expenditures in the quarter ended September
30, 1995.
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------

Item 4.   Results of Votes of Security Holders
          ------------------------------------
          Not Applicable

Item 5.   Other Information
          -----------------
          Not Applicable

Item 6.   Exhibits and Reports on Form 8-K
          --------------------------------
          On August 29, 1995 the Company filed Form 8-K reporting the
          resignation of the Company's certifying account, Deloitte &
          Touche LLP.
          
          On October 13, 1995 the Company filed Form 8-K reporting the
          appointment of Coopers & Lybrand LLP as independent auditors for
          the fiscal year ending December 31, 1995.
                                     
                                     
                                     
                                 SIGNATURE

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.

                         INVG MORTGAGE SECURITIES CORP.
                         
                         
                         By:  /s/ Robert E. Greeley
                             -------------------------------------
                               Robert E. Greeley
                               Chairman of the Board,
                               President and Treasurer.
                               (Principal Executive and Financial Officer)
                         
                         
                         By:  /s/ John E. Castello
                             -------------------------------------
                               John E. Castello
                               Assistant Secretary and
                               Principal Accounting Officer
                         
Dated:    November 10, 1995


<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEEET AS
OF SEPTEMBER 30, 1995 AND THE CONDENSED CONSOLIDATED
STATEMENT OF INCOME (LOSS) FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
       
<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-START>                             JAN-01-1995
<PERIOD-END>                               SEP-30-1995
<CASH>                                       3,471,386
<SECURITIES>                               189,056,737
<RECEIVABLES>                                3,874,070
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                           197,576,243
<PP&E>                                               0
<DEPRECIATION>                                       0
<TOTAL-ASSETS>                             197,576,243
<CURRENT-LIABILITIES>                       21,237,493
<BONDS>                                    160,405,713
<COMMON>                                         6,823
                                0
                                          0
<OTHER-SE>                                  15,926,214
<TOTAL-LIABILITY-AND-EQUITY>               197,576,243
<SALES>                                              0
<TOTAL-REVENUES>                            20,490,072
<CGS>                                                0
<TOTAL-COSTS>                                        0
<OTHER-EXPENSES>                             2,746,440
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                          14,133,352
<INCOME-PRETAX>                              3,610,280
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                          3,610,280
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 3,610,280
<EPS-PRIMARY>                                     6.02
<EPS-DILUTED>                                     6.02
        



</TABLE>


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission