19
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, 1994
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 8, 1994
--------------------- -------------------------------
$.001 Par Value 8,105,880 Shares
<PAGE>
TIS MORTGAGE INVESTMENT COMPANY
Index
Part I.. Financial Information
Item 1. Financial Statements (Unaudited) Page Number
Condensed Consolidated Statements of Income
Three months and nine months ended
September 30, 1994 and 1993 3
Condensed Consolidated Balance Sheets
September 30, 1994 and December 31, 1993 4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1994 and 1993 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Amounts in Thousands except Per Share Data)
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
---------------------- -----------------------
1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Mortgage Certificates, net $4,222 $8,700 $14,332 $29,981
Short-term Investments 37 44 97 139
Mortgage Bonds 25 0 25 0
Residual Interests 1,148 24 2,563 86
Interest Only (IO) Bonds 598 348 1,724 1,582
Other 47 21 47 69
---------- ---------- ---------- ----------
6,077 9,137 18,788 31,857
---------- ---------- ---------- ----------
INTEREST AND CMO RELATED EXPENSES
Collateralized Mortgage Obligations
Interest 4,702 9,692 14,523 31,636
Administration Fees 35 44 120 158
Amortization of Deferred Bond Issuance Costs 117 502 268 1,552
Short-term Debt 144 133 371 450
Valuation Reserve Provision 200 0 200 0
---------- ---------- ---------- ----------
5,198 10,371 15,482 33,796
---------- ---------- ---------- ----------
Net Interest Income (Loss) 879 (1,234) 3,306 (1,939)
Write-downs of Mortgage Assets 0 (4,671) 0 (11,598)
Management and Residual Interest Administration Fees (59) (74) (166) (231)
General and Administrative Expense (326) (322) (974) (1,105)
---------- ---------- ---------- ----------
Income (Loss) before Minority Interest 494 (6,301) 2,166 (14,873)
Minority Interest 0 0 0 172
---------- ---------- ---------- ----------
Net Income (Loss) $494 ($6,301) $2,166 ($14,701)
========== ========== ========== ==========
- -------------------------------------------------------------------------------------------------------
Net Income (Loss) per Share Outstanding $0.06 ($0.77) $ 0.27 ($1.81)
Dividends Declared per Share $0.02 $0.05 $ 0.02 $0.15
Weighted Average Shares Outstanding 8,106 8,106 8,106 8,106
- -------------------------------------------------------------------------------------------------------
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
<CAPTION>
September 30, December 31,
1994 1993
- ---------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Real Estate Investments
Mortgage Certificates, net $170,734 $250,015
Residual Interests 9,458 11,919
Interest Only (IO) Bonds 11,044 12,212
Multifamily Mortgage Bond 959 0
Reserve for Loss on Investments (4,052) (3,852)
----------- -----------
Total Real Estate Investments 188,143 270,294
Cash and Cash Equivalents 2,013 680
Restricted Cash 3,041 17,982
Accrued Interest and Accounts Receivable 2,906 8,289
Deferred Bond Issuance Costs 2,399 2,667
Other Assets 388 278
----------- -----------
Total Assets $198,890 $300,190
=========== ===========
- --------------------------------------------------------------------------------
LIABILITIES
Collateralized Mortgage Obligations, net $169,452 $268,742
Payable to Affiliate 31 31
Accounts Payable and Accrued Liabilities 242 190
Accrued Interest Payable 2,465 3,702
Short-term Debt 8,867 11,745
Dividends Payable 162 0
----------- -----------
Total Liabilities 181,219 284,410
----------- -----------
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 Gain on Investments 1,238 1,351
Retained Earnings (58,271) (60,275)
----------- -----------
Total Shareholders' Equity 17,671 15,780
----------- -----------
Total Liabilities and Shareholders' Equity $198,890 $300,190
=========== ===========
- --------------------------------------------------------------------------------
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in Thousands)
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $2,166 ($14,701)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 384 3,055
Write-downs of Mortgage Assets 0 11,598
Increase in Reserve for Loss on Investments 200 0
Decrease in Accrued Interest and Accounts Receivable 5,383 7,981
Increase in Prepaid Expenses (114) (142)
Decrease in Payable to Affiliate 0 (13)
Increase in Accounts Payable and Accrued Liabilities 52 163
Decrease in Accrued Interest Payable (1,237) (2,174)
----------- -----------
Net Cash Provided by (Used in) Operating Activities 6,834 5,767
----------- -----------
- -------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in Short-term Debt (2,878) (5,046)
Principal Payments on CMO's (100,058) (160,867)
Decrease in Minority Interest in Owner Trust Residuals 0 (1,275)
Cash Dividends Paid on Common Stock 0 (1,216)
----------- -----------
Net Cash Used in Financing Activities (102,936) (168,404)
----------- -----------
- -------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Net Decrease (Increase) in Restricted Cash 14,941 (1,694)
Principal Reduction in Mortgage Certificates 80,824 157,936
Principal Reduction in Residual Interests 504 5,154
Investments in Equity Residuals 0 (340)
Purchase of Multifamily Mortgage Bond (982) 0
Purchase of IO Bonds 0 (3,071)
Principal Reduction in IO Bonds 2,125 4,745
Principal Reduction in Multifamily Mortgage Bonds 23 0
----------- -----------
Net Cash Provided by Investment Activities 97,435 162,730
----------- -----------
Net Increase in Cash and Cash Equivalents 1,333 93
Cash and Cash Equivalents at Beginning of Period 680 903
----------- -----------
Cash and Cash Equivalents at End of Period $2,013 $996
=========== ===========
- -------------------------------------------------------------------------------------
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
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
and its wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated. In the opinion of management all
adjustments considered necessary for a fair presentation have been made.
Operating results for the quarter and nine months ended September 30, 1994
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 December 31, 1993 consolidated financial
statements and notes thereto.
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 - On December 31, 1993 the Company adopted Financial
Accounting Standards Board Standard No. 115 ("SFAS 115") - Accounting for
Certain Investments in Debt and Equity Securities. In accordance with this
new standard, the Company is required to classify 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 real estate
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 real estate investments as available-for-sale investments, and they are
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 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.
The Company recognized a $9,879,000 charge to earnings in 1993 from
the cumulative effect at December 31, 1993 of adopting the new standard for
assets which meet the definition of other than temporary impairment. For
assets which do not meet the definition of other than temporary impairment
and for assets where the fair value exceeds amortized cost, the Company has
recorded, as a cumulative effect of change in accounting for investments, a
net unrealized gain of $1,238,000 directly to equity as prescribed by SFAS
115 for assets classified as available-for-sale. Prior years' consolidated
financial statements were not permitted to be restated.
The change in accounting principle has significantly reduced the
amortized cost of many of the Company's CMO Ownership Interests. As a
result, it is anticipated that earnings from these assets will improve in
future periods. However, faster prepayment speeds and lower estimates of
cash flow from call rights may cause the fair value of CMO Ownership
Interests and Acquired CMO Classes to decline further and may require
additional write downs in the future.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, TIS
Mortgage Acceptance Corporation ("TISMAC"). The assets of TISMAC are not
available to pay creditors of the Company. The Company has undertaken to
indemnify certain parties who have contracted with TISMAC against certain
losses which they might sustain in carrying out their obligations. In
addition, under generally accepted accounting principles, the Company
consolidates assets and liabilities 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.
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.
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 income reported in the accompanying financial statements may be greater
or less than taxable income 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 Income (Loss) Per Share - Net income (loss) per share is based
upon the weighted average number of shares of Common Stock outstanding.
Statement of Cash Flows - For purposes of the statement of cash flows,
the Company considers only highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Note 3 - Mortgage Certificates
Information is presented in the table below as of September 30, 1994
and December 31, 1993 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.
<TABLE>
MORTGAGE CERTIFICATES
(In thousands)
<CAPTION>
September 30, 1994
Principal Amount of Fair Value of Cost Less
Residual Series Mortgage Certificates Mortgage Certificates Unamortized Discount
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CMOT 28 $107,082 $107,149 $105,287
TMAC 1986-1 26,010 26,606 24,673
TISMAC 1989-1 41,629 44,582 40,774
- ----------------------------------------------------------------------------------------------
$174,721 $178,337 $170,734
==============================================================================================
December 31, 1993
CMOT 28 $153,880 $162,103 $152,080
TMAC 1986-1 36,461 39,414 34,938
TISMAC 1989-1 64,316 70,888 62,997
- ----------------------------------------------------------------------------------------------
$254,657 $272,405 $250,015
==============================================================================================
</TABLE>
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.
<TABLE>
NONEQUITY RESIDUAL INTERESTS
(In thousands)
<CAPTION>
Book Value
Purchase September 30, December 31,
Residual Series Price 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonequity Residual Interests
- ----------------------------
DBLU $ 5,169 $ 69 $ 138
FNMA 88-22 10,387 1,674 1,679
PB-4 10,523 2,590 2,828
CMSC I 8,642 105 105
PB-7 3,994 453 419
FHLMC 21 5,361 6 19
ML-38 1,306 1,081 1,814
OXFORD 3F 1,382 0 3
FHLMC 25 4,934 7 11
LFR-9 2,589 186 219
DBLS 2,424 412 453
BT 88-1 1,537 414 658
RYLAND 62 3,039 558 644
CMSC 88-2 2,554 499 575
PB-5 16,112 1,404 2,354
- ------------------------------------------------------------------------------------
9,458 11,919
Unconsolidated Equity Residual Interests
- ----------------------------------------
TMAC 1986-2 67 0 0
TMAC 1987-3 165 0 0
- ------------------------------------------------------------------------------------
Total Residual Interests $9,458 $11,919
====================================================================================
</TABLE>
<PAGE>
Certain characteristics of the Company's residual interests are presented
in the following tables:
<TABLE>
CMO COLLATERAL
<CAPTION>
- --------------------------------------------------------------------------------------------------------
CMO Collateral Data (100% of Issue)
---------------------------------------------------
Weighted Sept. 30, 1994 Current Weighted
Residual Pass- Principal Average Remaining
Residual Interest Type of Through Balance Coupon Months to
Series Type Collateral Rate ($000) Rate Maturity
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Residual Interests
- -------------------------
CMOT 28 Fixed FNMA 8.50% $107,082 9.10% 268.4
TMAC 1986-1 Fixed FHLMC 9.00% 26,132 10.00% 257.0
TISMAC 1989-1 Fixed GNMA I 10.00% 41,629 10.50% 290.9
TMAC 1986-2 Fixed FHLMC 9.50% 12,120 10.10% 245.0
TMAC 1987-3 Fixed FHLMC 9.08% 29,981 9.80% 249.0
Nonequity Residual Interests
- ----------------------------
DBLU Variable GNMA I 10.00% 65,200 10.50% 276.0
FNMA 88-22 Variable FNMA 9.50% 27,744 10.10% 284.3
PB-4 Variable GNMA I 10.00% 44,238 10.50% 281.1
CMSC I Fixed FNMA 9.50% 59,861 10.10% 252.2
PB-7 Fixed GNMA I 10.00% 66,619 10.50% 284.7
FHLMC 21 Fixed FHLMC 9.50% 126,409 10.20% 282.8
ML-38 Fixed FNMA 9.50% 26,235 10.20% 285.5
OXFORD 3F Fixed FHLMC 8.50% 77,374 9.10% 264.0
FHLMC 25 Fixed FHLMC 9.50% 73,253 10.30% 280.8
LFR-9 Fixed FNMA 9.50% 19,162 10.20% 284.0
DBLS Fixed FNMA 10.00% 45,283 10.60% 277.0
BT 88-1 Fixed GNMA 9.00% 36,343 9.50% 270.0
RYLAND-62 Fixed GNMA 10.00% 33,456 10.50% 278.4
CMSC 88-2 Fixed FHLMC 10.50% 26,766 11.30% 221.0
PB-5 Fixed FNMA 9.50% 25,884 10.10% 274.8
========================================================================================================
</TABLE>
<PAGE>
<TABLE>
EQUITY RESIDUAL INTERESTS
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
CMO Bond Data (100% of Issue)
---------------------------------------------------------------
Name of Issuer TIS Initial Sept.30, 1994
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
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1) 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 --------- ------ C 108,300 36,097 8.50% Dec 1, 2010
(CMOT 28) 100.000% $4,857 Z 39,500 72,424 8.45% Jun 1, 2017
-------- --------
May 29, 1987 $500,000 $108,521
- ---------------------------------------------------------------------------------------------------------------------
2) TMAC 1986-1 Dec 27, 1988 16.964% $442 1-A $ 98,500 $ 0 7.92% Nov 20, 2010
Nov 6, 1986 Jan 6, 1989 23.214% 607 1-B 50,000 25,045 8.89% Feb 20, 2018
Jan 11, 1989 20.536% 538 1-C 41,750 0 8.95% Feb 20, 2013
Jun 18, 1993 39.286% 108 1-D(Z) 9,750 2,682 8.95% Feb 20, 2018
-------- ------ -------- -------
100.000% $1,695 $200,000 $27,727
- ---------------------------------------------------------------------------------------------------------------------
3) TIS Mortgage Jun 29, 1989 100.000% $1,302 1-A $ 10,100 $ 0 10.00% Mar 1, 2016
Acceptance Corp. 1-B 29,030 7,881 10.00% Nov 1, 2017
Series 1989-1 1-C 14,260 14,260 10.00% Aug 1, 2018
(TISMAC 89-1) 1-D 18,887 18,887 10.00% Jul 1, 2019
June 29, 1989 1-E 63,590 0 10.00% Jun 1, 2016
1-F 63,533 0 10.00% Jul 1, 2019
R 600 600 Residual Jul 1, 2019
-------- -------
$200,000 $41,628
- ---------------------------------------------------------------------------------------------------------------------
4) TMAC 1986-2 Jun 18, 1993 44.990% $67 2-A $ 72,600 $ 8,799 LIBOR+.60% Mar 20, 2018
Dec 10, 1986 2-B 27,400 3,321 25.11987%- Mar 20, 2018
-------- ------- (2.00959) x LIBOR
$100,000 $12,120
- ---------------------------------------------------------------------------------------------------------------------
5) TMAC 1987-3 Jun 18, 1993 44.767% $165 3-A $ 55,070 $ 1,656 LIBOR+.60% Apr 20, 2013
Mar 30, 1987 3-B 72,135 0 7.50% Apr 20, 2009
3-C 18,535 0 8.31% Jan 20, 2011
3-D 39,765 9,815 8.58% Jul 20, 2013
3-E(Z) 9,495 18,509 9.00% Apr 20, 2018
-------- -------
$195,000 $29,980
- ---------------------------------------------------------------------------------------------------------------------
Total $219,976
Less Residual Bond 600
- ---------------------------------------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations $219,376
===============================================================================================================
</TABLE>
<TABLE>
NONEQUITY RESIDUAL INTERESTS
VARIABLE RATE RESIDUALS
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
CMO Bond Data (100% of Issue)
----------------------------------------------------------------------
Name of Issuer TIS Initial Sept.30,1994
and Series/ TIS Purchase Principal Principal
CMO Issue Purchase TIS % Price Bond Balance Balance Bond Bond Stated
Date Date Ownership ($000) Class ($000) ($000) Coupon Cap Maturity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1) Drexel Aug 30, 1988 20.267% $5,169 U-1 $135,000 $25,038 9.30% Jun 1, 2017
Burnham U-2 40,000 40,000 10.00% Sep 1, 2018
Lambert CMO U-3F 87,500 0 LIBOR+.95% 14.25% Sep 1, 2018
Trust Series U U-4AV 10,000 0 Zero Coupon Jun 1, 2015
(DBLU) U-5AV 27,500 0 Zero Coupon Sep 1, 2018
Aug 30, 1988 U-6 750 163 Residual Bond Sep 1, 2018
-------- -------
$300,750 $65,201
- ----------------------------------------------------------------------------------------------------------------------------
2) FNMA Series Aug 30, 1988 40.000% $10,387 22-A $146,140 $20,273 COFI+1.25% 13.00% Aug 25,2018
1988-22 22-B 53,820 7,466 Zero Coupon Aug 25,2018
(FNMA 88-22) 22-R 40 6 Residual Bond Aug 25,2018
Aug 30, 1988 -------- -------
$200,000 $27,745
- ----------------------------------------------------------------------------------------------------------------------------
3) Prue Bache Aug 29, 1988 33.571% $10,523 4-A $160,440 $33,826 COFI+1.25% 13.00% Sep 1, 2018
CMO Trust 4 4-B 49,420 10,419 Zero Coupon Sep 1, 2018
(PB-4) R 140 30 Residual Bond Sep 1, 2018
Aug 29, 1988 -------- -------
$210,000 $44,275
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
FIXED RATE RESIDUALS
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CMO Bond Data (100% of Issue)
---------------------------------------------------------
Name of Issuer TIS Initial Sept.30, 1994
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
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1) 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 34,385 9.45% May 1, 2013
Securities Corp. Subtotal ------- ------ I-3(Z) 15,000 30,222 9.45% Feb 1, 2017
Series I (CMSC I) 88.000% $8,642 -------- -------
Jan 28, 1987 $500,000 $64,607
- --------------------------------------------------------------------------------------------------------------
2) Prue Bache Dec 29, 1988 29.000% $3,994 7-A $ 20,080 $ 0 9.75% Sep 1, 2000
CMO Trust 7 7-B 40,410 0 9.50% Mar 1, 2009
(PB-7) 7-C 19,460 0 9.60% Aug 1, 2011
Dec 29, 1988 7-D 12,000 0 Zero Mar 1, 2013
7-E 37,880 155 9.70% Jan 1, 2015
7-F 35,690 35,690 9.83% May 1, 2017
7-G(Z) 10,360 0 9.50% Feb 1, 2018
7-H 30,830 30,830 9.00% Jan 1, 2019
7-I 51,930 0 9.00% Jan 1, 2019
7-J 41,510 0 9.63% Jan 1, 2019
R 100 0 Residual Jan 1, 2019
-------- -------
$300,250 $66,675
- --------------------------------------------------------------------------------------------------------------
3) 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 84,750 126,396 9.50% Jan 15, 2020
R 100 13 Residual Jan 15, 2020
---------- --------
$1,000,000 $126,409
- --------------------------------------------------------------------------------------------------------------
4) Merrill Lynch Jan 6, 1989 100.000% $1,306 A $ 51,810 $ 0 9.05% Oct 27, 2012
Series 38 B 36,200 2,385 9.45% Dec 27, 2016
(ML-38) C 7,400 7,400 9.45% Aug 27, 2017
Nov 30, 1988 D 16,400 16,400 9.45% Nov 27, 2018
E 31,610 0 9.10% Mar 27, 2016
F 18,580 0 9.15% Sep 27, 2017
G 38,000 0 9.40% Nov 27, 2018
H 50 50 Residual Nov 27, 2018
---------- --------
$200,050 $26,235
- --------------------------------------------------------------------------------------------------------------
5) Oxford Feb 29, 1989 100.000% $1,382 F-1 $ 51,600 $ 0 7.19% Nov 20, 2001
CMO Trust III F-2 112,000 0 7.98% Oct 20, 2010
Series F F-3 15,000 0 8.32% Jul 20, 2011
(OXFORD 3F) F-4 83,500 0 8.45% Oct 20, 2014
May 28, 1987 F-5 90,000 29,393 8.45% May 20, 2017
F-6 48,000 48,000 8.45% Jun 20, 2018
-------- -------
$400,100 $77,393
- --------------------------------------------------------------------------------------------------------------
6) 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 29,298 9.50% Dec 15, 2018
25-G 43,940 43,940 9.50% Feb 15, 2020
25-H 72,490 0 7.90% Feb 15, 2020
R 100 15 Residual Feb 15, 2020
-------- -------
$500,000 $73,253
- --------------------------------------------------------------------------------------------------------------
7) L F Rothschild Nov 7, 1990 100.000% $2,589 A $ 11,000 $ 0 Zero Cpn. Jan 1, 2019
Trust 9 B 22,000 0 Zero Cpn. Jan 1, 2019
(LFR-9) C 54,000 11,330 Zero Cpn. Jan 1, 2019
Dec 2, 1988 D 32,850 8,542 Zero Cpn. Jan 1, 2019
E 30,000 0 Zero Cpn. Jan 1, 2019
R 150 150 Residual Jan 1, 2019
-------- -------
$150,000 $20,022
- --------------------------------------------------------------------------------------------------------------
8) Drexel Burnham Apr 16, 1991 33.328% $2,424 S-1 $ 96,500 $ 0 8.50% Apr 1, 2011
Lambert S-2 75,000 46,116 9.00% Aug 1, 2018
Series S S-3 68,500 0 9.00% Feb 1, 2014
(DBLS) S-4(Z) 10,000 0 9.50% Aug 1, 2018
September 30, 1988 S-5 625 115 Residual Aug 1, 2018
-------- -------
$250,625 $46,231
- --------------------------------------------------------------------------------------------------------------
9) 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 17,128 8.75% Apr 1, 2018
Feb 16, 1988 1-D 47,492 20,709 8.63% Apr 1, 2018
-------- -------
$100,000 $37,837
- --------------------------------------------------------------------------------------------------------------
10) Ryland May 29, 1991 42.000% $3,039 62-A $ 58,355 $23,365 8.85% May 1, 2018
Acceptance 62-B 31,365 0 9.00% Jul 1, 2009
Corp 4 62-C 6,000 0 8.85% Dec 1, 2009
Series 62 62-D 12,880 0 7.50% Feb 1, 2011
(RYLAND 62) 62-E 32,000 0 9.05% Nov 1, 2012
Jan 28, 1988 62-F 9,400 10,053 8.00% Mar 1, 2018
62-R 200 38 Residual Mar 1, 2018
-------- -------
$150,200 $33,456
- --------------------------------------------------------------------------------------------------------------
11) Collateralized Jun 4, 1991 46.000% $2,554 A $ 84,680 $ 0 9.15% Oct 20, 2018
Mortgage B 100,500 26,766 8.80% Apr 20, 2019
Securities Corp. C 14,820 0 9.90% Apr 20, 2019
Series 1988-2 -------- -------
(CMSC 88-2) $200,000 $26,766
March 31, 1988
- --------------------------------------------------------------------------------------------------------------
12) Prue Bache Sept 29, 1988 100.000% $16,112 5-A $ 30,130 $ 0 9.00% Aug 1, 2005
CMO Trust 5 5-B 45,830 0 LIBOR+0.5% Oct 1, 2012
(PB-5) 5-C 21,250 0 7.05% Oct 1, 2014
Sept 29, 1988 5-D 28,640 0 7.75% Nov 1, 2016
5-E 34,229 25,893 8.25% Oct 1, 2018
5-F 6,181 0 Zero Oct 1, 2018
5-G 6,980 0 Zero Oct 1, 2018
5-H 26,026 0 LIBOR+1.0% Oct 1, 2018
R 800 0 Residual Oct 1, 2018
-------- -------
$200,066 $25,893
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Note 5 - IO and PO Bonds
IO Bonds include both regular IO Bonds and Inverse IO Bonds. Presented below is
a schedule of the Company's IO Bonds.
<TABLE>
INTEREST ONLY (IO) BONDS
(In thousands)
<CAPTION>
Book Value
--------------------------------
Name and Issuer Purchase September 30, December 31,
and Series Price 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
FNMA SMBS Trust 7 Class 2 IO $9,541 $ 2,705 $ 1,918
Pru Home Mtg Corp Series 1992-7 4,776 1,230 1,135
Sears Mtg Sec Corp Series 1992-6 2,611 597 568
Bear Stearns Mtg Sec Series 1992-1 2,720 290 437
FNMA SMBS Trust 4 Class 2 IO 2,909 736 623
FNMA Series 1992-123 Class S 8,203 2,795 4,044
FHLMC Series 1993-1483 Class SA 3,071 1,958 2,441
FHLMC-G Series 24 Class SK 998 733 1,046
- ---------------------------------------------------------------------------------
$11,044 $12,212
=================================================================================
</TABLE>
The Company currently holds no PO Bonds nor does it have commitments to
purchase additional IO or PO Bonds. Certain characteristics of the
Company's IO Bonds are on the following table:
<TABLE>
INTEREST ONLY BONDS
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Collateral Data (% of IO held by TIS)
---------------------------------------------------------------------
Weighted Sept.30, 1994 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
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1) FNMA SMBS Feb 21, 1992 $4,576 FNMA 8.500% $7,868 9.17% 258.0
Trust 7 Mar 16, 1992 4,965
Class 2 IO ------
April 1, 1987 $9,541
- ------------------------------------------------------------------------------------------------------------------
2) Prudential Mar 27, 1992 $4,776 NON 0.5776% $68,860 8.81% 323.0
Home Mortgage AGENCY
Corporation
Series 1992-7
March 1, 1992
- ------------------------------------------------------------------------------------------------------------------
3) Sears Mar 30, 1992 $2,611 NON 0.0181% $79,520 8.4011% 324.0
Mortgage AGENCY
Securities
Corporation
Series 1992-6
March 25, 1992
- ------------------------------------------------------------------------------------------------------------------
4) Bear Stearns May 28, 1992 $2,720 NON 0.5184% $8,757 9.61% 254.0
Mortgage AGENCY
Securities, Inc.
Series 1992-1
May 1, 1992
- ------------------------------------------------------------------------------------------------------------------
5) FNMA SMBS June 18, 1992 $2,909 FNMA 9.500% $2,190 10.09% 254.0
Trust 4
Class 2 IO
March 2, 1987
- ------------------------------------------------------------------------------------------------------------------
6) FNMA July 30, 1992 $8,203 FNMA 49.58 - $6,008 8.96% 325.0
Series 1992-123 (5.67 x
Class S LIBOR)
July 25, 1992
- ------------------------------------------------------------------------------------------------------------------
7) FHLMC Mar 30, 1993 $3,071 FHLMC 35.4% - $5,600 8.50% 332.0
Series 1993-1483 (4 x LIBOR)
Class S A
March 30, 1993
- ------------------------------------------------------------------------------------------------------------------
8) FHLMC-G Nov 30, 1993 $ 998 GNMA 8.0 % - $10,000 7.00% 343.0
Series 24 LIBOR
Class S K
October 12, 1993
==================================================================================================================
</TABLE>
Note 6 - Multifamily Mortgage Bond
On June 27, 1994 the Company purchased an 8.1731% interest in CS First
Boston Mortgage Securities Corp. Commercial Mortgage Pass-Through
Certificates Series 1994-CFB1, Subordinated Class F Certificate. The
Company purchased $1,500,000 of principal for $982,000 (65.47%). The Bond
will pay interest at a variable rate with an initial rate of 6.4769%. The
principal is backed by Commercial mortgages, primarily multifamily
adjustable rate mortgages, and the bond is rated "B" by Duff & Phelps.
This bond matures on January 25, 2028.
Note 7 - Short-Term Debt
Short-term debt is due within 360 days after the end of the quarter. At
September 30, 1994, the Company owed $8,867,000 under two repurchase
agreements. All of the borrowings had initial terms of one month, are
renewed on a month-to-month basis and have a floating rate of interest
which is tied to the one month LIBOR rate. The weighted average interest
rate of these borrowings at September 30, 1994 was 6.00%. The debt was
collateralized by some of the Company's Nonequity Residual Interests and IO
Bonds whose fair values approximated $19,000,000.
Note 8 - Commitments
The Company has committed to purchase for $250,000 from Prudential
Securities of America deeply discounted Multifamily Pass Through
Certificates with combined face amounts of approximately $4,500.000.
Closing is scheduled for December 10, 1994.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
The Company primarily invests 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).
The Company is not in the business of selling its real estate
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 real estate 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 net income 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.
RESULTS OF OPERATIONS
The Company had net income of $494,000, or $0.06 per share, and
$2,166,000, or $0.27 per share, for the quarter and nine months ended
September 30, 1994, respectively. This compares to a net loss of
$6,301,000, or $0.77 per share, and $14,701,000, or $1.81 for the quarter
and nine months ended September 30, 1993, respectively. The Company did
not pay any dividends in the first nine months of 1994, but did declare a
dividend of $0.02 per share payable December 30, 1994. The Company
declared and paid dividends of $0.05 per share for each quarter of 1993.
The dramatic improvement in earnings in 1994 as compared to 1993 is
primarily attributable to the change in accounting principle described in
Note 2 which significantly reduced the amortized cost of many of the
Company's CMO Ownership Interests. As a result, earnings from these assets
improved in the first two quarters of 1994 and the need for additional
write-downs which existed throughout 1992 and 1993 no longer existed. In
addition, first half of 1994 results reflect a lowering of mortgage
prepayment expectations from prior periods due to a higher mortgage
interest rate environment in the period. The National Mortgage Home owner
Commitment Rate for 30 year U.S. mortgages was 8.82% at September 30, 1994
as compared to 7.13% at December 31, 1993 and 6.95% at September 24, 1993.
The net losses for the quarter and nine months ended September 30,
1993 were primarily due to significant increases in both actual mortgage
prepayments and the forecast of future prepayments over the levels that
existed at the end of the previous quarter. This resulted in downward
adjustment in the carrying value of some of the Company's mortgage-related
assets of $4,860,000 in the first quarter, $2,067,000 in the second quarter
and $4,671,000 in the third quarter.
The Manager oversees the operations of the Company pursuant to a
management agreement. For the quarter ended September 30, 1994, the
Company incurred management fees of $31,795 and Residual Interest
Administration Fees of $25,000. This compares to management fees of
$46,167 and Residual Interest Administrative Fees of $27,500 for the third
quarter of 1993. A major portion of the management fee is the incentive
fee which varies based on the earnings performance of the Company. The
incentive management fee is equal to 25% of the amount by which the
Company's annualized return on equity, calculated using taxable income,
exceeds the ten-year US Treasury rate plus 1%. The results for the period
were such that there was no incentive management fee in the third quarter
of 1994.
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 and other mortgage-related assets.
The Company currently has agreements with several investment banking
firms to borrow funds under repurchase agreements. At September 30, 1994
the Company had borrowings outstanding under these agreements totaling
$8,867,000. This debt was collateralized by some of the Company's
Nonequity Residual Interests and IO Bonds whose fair values approximated
$19,000,000. The Company did not have any other outstanding borrowings.
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 2. Changes in Securities
---------------------
Not Applicable
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
ITEM 5. Other Information
-----------------
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
The Company filed no reports on Form 8-K during the quarter ended
September 30, 1994.
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 8, 1994 BY: /s/ Lorraine O. Legg
- ------------------------ --------------------------------
Date Lorraine O. Legg, President and
Chief Executive Officer
(Principal Executive Officer)
November 8, 1994 BY: /s/ John E. Castello
- ------------------------- --------------------------------
Date John E. Castello,
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1994 AND THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 5,054
<SECURITIES> 192,195
<RECEIVABLES> 2,906
<ALLOWANCES> 4,052
<INVENTORY> 0
<CURRENT-ASSETS> 191,049
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 198,890
<CURRENT-LIABILITIES> 181,219
<BONDS> 0
<COMMON> 8
0
0
<OTHER-SE> 17,663
<TOTAL-LIABILITY-AND-EQUITY> 198,890
<SALES> 0
<TOTAL-REVENUES> 18,788
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,528
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 14,894
<INCOME-PRETAX> 2,166
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,166
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
