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. 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 10, 1995
--------------------- ---------------------------
$.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, 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 6. Exhibits and Reports on Form 8-K 15
<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 Nine Months Ended
September 30 September 30
---------------------- ----------------------
1995 1994 1995 1994
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MORTGAGE RELATED ASSETS
Interest
Mortgage Certificates, net $3,615 $4,222 $11,182 $14,332
Short-term Investments 43 37 93 97
Residual Interests 25 1,148 1,515 2,563
Interest Only (IO) Bonds 145 598 935 1,724
Commercial Securitizations 34 25 89 25
Valuation Reserve Reduction 158 (200) 381 (200)
Gain (Loss) on Sales of Investments (1,267) 0 (1,241) 0
Other 0 47 0 47
---------- ---------- ---------- ----------
Income from Mortgage Related Assets 2,753 5,877 12,954 18,588
---------- ---------- ---------- ----------
REAL ESTATE OPERATIONS
Rental and Other Income 631 1,396
Operating and Maintenance Expenses (270) (523)
Depreciation and Amortization (150) (345)
Interest on Real Estate Notes Payable (254) (537)
Property Taxes (61) (117)
---------- ----------
Loss from Real Estate Operations (104) (126)
---------- ----------
INTEREST AND CMO RELATED EXPENSES
Collateralized Mortgage Obligations
Interest 3,686 4,702 12,093 14,523
Administration Fees 34 35 118 120
Deferred Bond Issuance Costs 93 117 228 268
Short-term Debt 82 144 360 371
---------- ---------- ---------- ----------
Total Interest and CMO Related Expenses 3,895 4,998 12,799 15,282
---------- ---------- ---------- ----------
OTHER EXPENSES
Management and Residual Interest Administration Fees 50 59 165 166
General and Administrative 323 326 930 974
---------- ---------- ---------- ----------
Total Other Expenses 373 385 1,095 1,140
---------- ---------- ---------- ----------
Net Income (Loss) ($1,619) $494 ($1,066) $2,166
========== ========== ========== ==========
------------------------------------------------------------------------------------------------------
Net Income (loss) per Share Outstanding ($0.20) $0.06 ($0.13) $0.27
Dividends Declared per Share $0.00 $0.02 $0.00 $0.02
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>
Sept. 30, December 31,
1995 1994
--------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Mortgage Related Assets
Mortgage Certificates, net $147,513 $163,817
Residual Interests 709 8,675
Interest Only (IO) Bonds 4,384 9,794
Commercial Securitizations 197 1,194
Reserve for Loss on Investments (4,436) (4,818)
----------- -----------
Total Real Estate Investments 148,367 178,662
----------- -----------
Operating Real Estate Assets 21,340 395
----------- -----------
Other Assets
Cash and Cash Equivalents 158 1,718
Restricted Cash 2,662 2,920
Accrued Interest and Accounts Receivable 3,157 2,658
Deferred Bond Issuance Costs 2,089 2,317
Other Assets 84 287
----------- -----------
Total Other Assets 8,150 9,900
----------- -----------
Total Assets $177,857 $188,957
=========== ===========
--------------------------------------------------------------------------------
LIABILITIES
Collateralized Mortgage Obligations, net $145,727 $161,894
Payable to Affiliate 0 30
Accounts Payable and Accrued Liabilities 376 252
Accrued Interest Payable 2,136 2,363
Notes Payable on Real Estate 14,084 0
Short-term Debt 2,982 8,325
----------- -----------
Total Liabilities 165,305 172,864
----------- -----------
SHAREHOLDERS' EQUITY
Common Stock, par value $.001 per share;
100,000,000 shares authorized; 8,105,880
shares issued and outstanding 8 8
Additional Paid-in Capital 74,696 74,696
Unrealized Loss on Investments (3,186) (711)
Retained Deficit (58,966) (57,900)
----------- -----------
Total Shareholders' Equity 12,552 16,093
----------- -----------
Total Liabilities and Shareholders' Equity $177,857 $188,957
=========== ===========
--------------------------------------------------------------------------------
<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,
--------------------------
1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ($1,066) $2,166
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization of Operating Real Estate Assets 345 0
Other Depreciation and Amortization 1,219 384
Valuation Reserve Provision 382 200
Gain on Sales of Investments (1,241) 0
Proceeds from Sales of Investments 8,904 0
Decrease (Increase) in Accrued Interest and Accounts Receivable (499) 5,383
Decrease (Increase) in Prepaid Expenses 198 (114)
Decrease in Payable to Affiliate (30) 0
Decrease in Accounts Payable and Accrued Liabilities 124 52
Decrease in Accrued Interest Payable (227) (1,237)
----------- -----------
Net Cash Provided by Operating Activities 8,109 6,834
----------- -----------
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in Short-term Debt (5,343) (2,878)
Increase in Notes Payable on Real Estate 14,084 0
Principal Payments on CMO's (17,567) (100,058)
----------- -----------
Net Cash Used in Financing Activities (8,826) (102,936)
----------- -----------
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Net Decrease in Restricted Cash 258 14,941
Increase in Real Estate Assets (21,268) 0
Investment in Commercial Securitizations 0 (982)
Principal Reduction in Mortgage Certificates 16,719 80,824
Principal Reduction in Residual Interests 1,191 504
Principal Reduction in IO Bonds 2,159 2,125
Principal Reduction in Commercial Securitizations 98 23
----------- -----------
Net Cash Provided (Used in) by Investment Activities (843) 97,435
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (1,560) 1,333
Cash and Cash Equivalents at Beginning of Period 1,718 680
----------- -----------
Cash and Cash Equivalents at End of Period $158 $2,013
=========== ===========
-----------------------------------------------------------------------------------------------
<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 and its partnership interests in real
estate assets. 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, 1995 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, 1994 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, 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.
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. In addition, the consolidated
financial statements include the accounts underlying its interests in real
estate partnerships.
Mortgage Certificates and CMOs - Mortgage certificates and CMO bonds
of consolidated Owner Trusts are carried at their outstanding principal
balance plus or minus any premium or discount, respectively.
Amortization of Premiums and Discounts - Premiums and discounts
related to mortgage certificates and CMOs are amortized to income using the
interest method over the stated maturity of the mortgage certificates or
CMOs.
Residual Interests and Interest Only (IO) Bonds - Residual Interests
held in bond form and Corporate Real Estate Mortgage Investment Conduit
("REMIC") Residual Interests, regardless of percentage ownership, are
Nonequity Residual Interests and, along with IO Bonds, are accounted for
under the Prospective method. Under this method, assets are carried at
cost and income is amortized over their estimated lives based on a method
which provides a constant yield. At the end of each quarter, the yield
over the remaining life of the asset is recalculated based on expected
future cash flows using current interest rates and mortgage prepayment
speeds. This new yield is then used to calculate the subsequent quarter's
financial statement income. Owner Trust Residuals are accounted for under
the equity method.
Restricted Cash - Restricted cash represents the cash balances of CMOs
in which the Company holds a Residual Interest and whose assets and
liabilities are consolidated with those of the Company. This cash is not
available to the Company or its creditors.
Income Taxes - The Company has elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended. As a REIT, the Company must
distribute at least 95% of its taxable income to its shareholders. No
provision has been made for income taxes in the accompanying consolidated
financial statements as the Company is not subject to federal income taxes.
The loss reported in the accompanying financial statements may be greater
or less than the taxable loss because some income and expense items are
reported in different periods for income tax purposes. Over the life of a
Residual Interest or IO Bond, total taxable income will equal total
financial statement income. However, the timing of income recognition may
differ between the two from year to year.
Net Income (Loss) Per Share - Net income 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.
Reclassifications - Certain reclassifications have been made to the
prior year financial statements to conform to the September 30, 1995
presentation. Such reclassifications do not affect net income as reported.
<PAGE>
Note 3 - Mortgage Certificates
Information is presented in the table below as of September 30, 1995
and December 31, 1994 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 5 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, 1995
Principal Amount of Fair Value of Cost Less
Residual Series Mortgage Certificates Mortgage Certificates Unamortized Discount
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CMOT 28 $93,974 $97,234 $92,362
TMAC 1986-1 22,428 23,297 22,449
TISMAC 1989-1 33,388 36,434 32,702
- ---------------------------------------------------------------------------------------------
$149,790 $156,965 $147,513
=============================================================================================
December 31, 1994
CMOT 28 $103,378 $101,472 $101,604
TMAC 1986-1 25,496 24,998 24,206
TISMAC 1989-1 38,805 40,781 38,007
- ---------------------------------------------------------------------------------------------
$167,679 $167,251 $163,817
=============================================================================================
</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 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonequity Residual Interests
- ----------------------------
DBLU $ 5,169 $ 0 $ 65
FNMA 88-22 10,387 0 1,753
PB-4 10,523 0 2,593
CMSC I 8,642 104 104
PB-7 3,994 0 487
FHLMC 21 5,361 5 6
ML-38 1,306 0 478
OXFORD 3F 1,382 0 0
FHLMC 25 4,934 6 6
LFR-9 2,589 159 187
DBLS 2,424 0 482
BT 88-1 1,537 435 382
RYLAND 62 3,039 0 573
CMSC 88-2 2,554 0 525
PB-5 16,112 0 1,034
- ----------------------------------------------------------------------------------------
709 8,675
- ----------------------------------------------------------------------------------------
Unconsolidated Equity Residual Interests
- ----------------------------------------
TMAC 1986-2 67 0 0
TMAC 1987-3 165 0 0
- ----------------------------------------------------------------------------------------
Total Residual Interests $709 $8,675
========================================================================================
</TABLE>
During the nine months ended September 30, 1995, the Company sold
certain of its nonequity residual interests as follows (in thousands):
<TABLE>
<CAPTION>
Residual Series Sales Price Book Value Gain (Loss)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pru-Bache CMO Trust 7 $ 342 $ 343 ($ 1)
CMSC 1988-2 395 375 20
Pru-Bache CMO Trust 5 775 1,161 (386)
Ryland Acceptance 62 325 458 (133)
Drexel Burnham Series U 50 57 (7)
Drexel Burnham Series S 300 305 (5)
Pru-Bache CMO Trust 4 1,335 1,992 (657)
FNMA Series 1988-22 925 1,089 (164)
Merrill Lynch 38 500 499 1
Oxford Trust III 300 (1) 301
- ----------------------------------------------------------------------------------------
Total $5,247 $6,278 ($1,031)
========================================================================================
</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. 30,1995 Current Weighted
Average Collateral Weighted Average
Residual Pass- Principal Average Remaining
Residual Interest Type of Through Balance Coupon Months to
Series Type Collateral Rate ($000) Rate Maturity
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Residual Interests
- -------------------------
CMOT 28 Fixed FNMA 8.50% $93,947 9.10% 256.4
TMAC 1986-1 Fixed FHLMC 9.00% 22,428 10.00% 245.0
TISMAC 1989-1 Fixed GNMA I 10.00% 33,388 10.50% 279.9
TMAC 1986-2 Fixed FHLMC 9.50% 10,412 10.10% 233.0
TMAC 1987-3 Fixed FHLMC 9.08% 24,795 9.80% 237.0
Nonequity Residual Interests
- ----------------------------
CMSC I Fixed FNMA 9.50% 50,666 10.10% 240.2
FHLMC 21 Fixed FHLMC 9.50% 107,381 10.20% 270.8
FHLMC 25 Fixed FHLMC 9.50% 67,149 10.30% 252.8
LFR-9 Fixed FNMA 9.50% 61,177 10.20% 272.0
BT 88-1 Fixed GNMA 9.00% 15,675 9.50% 258.0
=================================================================================================================
</TABLE>
<PAGE>
<TABLE>
EQUITY RESIDUAL INTERESTS
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CMO Bond Data (100% of Issue)
-----------------------------------------------------------------
Name of Issuer TIS Initial Sept. 30,1995
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 16,471 8.50% Dec 1, 2010
(CMOT 28) 100.000% $4,857 Z 39,500 78,741 8.45% Jun 1, 2017
May 29, 1987 -------- ------ -------- --------
$500,000 $95,212
- -------------------------------------------------------------------------------------------------------------------------
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 21,349 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 2,170 8.95% Feb 20, 2018
-------- ------ -------- --------
100.000% $1,695 $200,000 $23,519
- -------------------------------------------------------------------------------------------------------------------------
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 0 10.00% Nov 1, 2017
Series 1989-1 1-C 14,260 13,900 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 Bond Jul 1, 2019
-------- --------
$200,000 $33,387
- -------------------------------------------------------------------------------------------------------------------------
4) TMAC 1986-2 Jun 18, 1993 44.990% $67 2-A $ 72,600 $ 7,559 LIBOR+.60% Mar 20, 2018
Dec 10, 1986 2-B 27,400 2,853 25.11987% - Mar 20, 2018
-------- -------- (2.00959) x LIBOR
$100,000 $10,412
- -------------------------------------------------------------------------------------------------------------------------
5) TMAC 1987-3 Jun 18, 1993 44.767% $165 3-A $ 55,070 $ 659 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 3,904 8.58% Jul 20, 2013
3-E(Z) 9,495 20,232 9.00% Apr 20, 2018
-------- --------
$195,000 $24,795
- -------------------------------------------------------------------------------------------------------------------------
Total $187,325
Less Residual Bond 600
- -------------------------------------------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations $186,725
=========================================================================================================================
</TABLE>
<PAGE>
<TABLE>
NONEQUITY RESIDUAL INTERESTS
FIXED RATE RESIDUALS
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CMO Bond Data (100% of Issue)
-----------------------------------------------------------------
Name of Issuer TIS Initial Sept. 30,1995
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 20,187 9.45% May 1, 2013
Securities Corp. ------- ------ I-3(Z) 15,000 33,180 9.45% Feb 1, 2017
Series I (CMSC I) Subtotal 88.000% $8,642 -------- -------
Jan 28, 1987 $500,000 $53,367
- -------------------------------------------------------------------------------------------------------------------------
2) 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 84,750 107,370 9.50% Jan 15, 2020
R 100 11 Residual Bond Jan 15, 2020
---------- --------
$1,000,000 $107,381
- -------------------------------------------------------------------------------------------------------------------------
3) 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 17,224 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 12 Residual Bond Feb 15, 2020
-------- --------
$500,000 $61,176
- -------------------------------------------------------------------------------------------------------------------------
4) L F Rothschild Nov 7, 1990 100.000% $2,589 A $ 11,000 $ 0 Zero Coupon Jan 1, 2019
Trust 9 B 22,000 0 Zero Coupon Jan 1, 2019
(LFR-9) C 54,000 10,530 Zero Coupon Jan 1, 2019
Dec 2, 1988 D 32,850 5,387 Zero Coupon Jan 1, 2019
E 30,000 0 Zero Coupon Jan 1, 2019
R 150 150 Residual Bond Jan 1, 2019
-------- -------
$150,000 $16,067
- -------------------------------------------------------------------------------------------------------------------------
5) 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 15,818 8.75% Apr 1, 2018
Feb 16, 1988 1-D 47,492 16,641 8.63% Apr 1, 2018
-------- -------
$100,000 $32,459
=========================================================================================================================
</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 Sept. 30, December 31,
and Series Price 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FNMA SMBS Trust 7 Class 2 IO $9,541 $0 $2,564
Pru Home Mtg Corp Series 1992-7 4,776 961 1,350
Sears Mtg Sec Corp Series 1992-6 2,611 0 651
Bear Stearns Mtg Sec Series 1992-1 2,720 250 363
FNMA SMBS Trust 4 Class 2 IO 2,909 0 738
FNMA Series 1992-123 Class S 8,203 1,965 2,221
FHLMC Series 1993-1483 Class SA 3,071 1,208 1,407
FHLMC-G Series 24 Class SK 998 0 500
- ------------------------------------------------------------------------------
$4,384 $9,794
==============================================================================
</TABLE>
During the nine months ended September 30,1995, the Company sold
certain of its interest only bonds as follows (in thousands):
<TABLE>
<CAPTION>
Name and Issuer and Series Sales Price Book Value Gain (Loss)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sears Mtg Sec Corp Series 1992-6 $ 200 $ 411 $ (211)
FNMA SMBS Trust 7 Class 2 IO 475 1,366 (891)
FNMA SMBS Trust 4 Class 2 IO 1,709 418 1,291
FHLMC-G Series 24 Class SK 256 773 (517)
- ----------------------------------------------------------------------------------------
Total $2,640 $2,968 $ (328)
========================================================================================
</TABLE>
<PAGE>
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. 30,1995 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) Prudential Mar 27, 1992 $4,776 NON 0.5570% $62,940 8.80% 308.0
Home Mortgage AGENCY
Corporation
Series 1992-7
March 1, 1992
- -------------------------------------------------------------------------------------------------------------
2) Bear Stearns May 28, 1992 $2,720 NON 0.4424% $7,604 9.52% 241.0
Mortgage AGENCY
Securities, Inc.
Series 1992-1
May 1, 1992
- -------------------------------------------------------------------------------------------------------------
3) FNMA July 30, 1992 $8,203 FNMA 49.58 - $5,328 8.95% 311.0
Series 1992-123 (5.67 x
Class S LIBOR)
July 25, 1992
- -------------------------------------------------------------------------------------------------------------
4) FHLMC Mar 30, 1993 $3,071 FHLMC 22.00% $5,208 8.53% 315.0
Series 1993-1483
Class S A
March 30, 1993
=============================================================================================================
</TABLE>
Note 6 - Commercial Securitizations
Presented below is a schedule of the commercial securitizations owned
by the Company:
<TABLE>
<CAPTION>
(In thousands) Book Value
--------------------------
Purchase Sept. 30, December 31,
Issuer and Series Price 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CS First Boston 1994-CFB1 $975 $ 0 $ 944
Prudential Securities Series 1993-6 250 197 250
- ------------------------------------------------------------------------------
Total $197 $1,194
==============================================================================
</TABLE>
During the nine months ended September 30, 1995, the CS First Boston
bond was sold for $1,017,216 and a gain of $117,898.
<PAGE>
Note 7 - Operating Real Estate Assets and Notes Payable on Real Estate
During the nine months ended September 30, 1995, the Company acquired
three multifamily housing properties in California's Central Valley. The
purchase price of these properties was $20,479,000 and existing secured
debt totaling $14,084,000 was assumed. The debt has a variable interest
rates which, at September 30, 1995, averaged 8.738%. Required monthly
payments of principal and interest total $107,422. At September 30, 1995
the carrying value of operating real estate assets in thousands consisted
of:
<TABLE>
<S> <C>
Land $ 3,930
Buildings and Improvements 17,016
Personal Property 407
Deposits for Real Estate Purchases 788
Other Real Estate Assets 538
-------
Total 22,679
Less Accumulated Depreciation (1,339)
-------
Net $21,340
=======
</TABLE>
Note 8 - Short-Term Debt
Short-term debt is due within 360 days after the end of the quarter.
At September 30, 1995 the Company owed $2,892,000 under one repurchase
agreement. 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, 1995 was 7.375%. The debt was
collateralized by some of the Company's Nonequity Residual Interests and IO
Bonds whose fair values approximated $4,762,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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). In addition the Company invests in
multifamily housing properties.
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.
In 1995 the Company changed its investment focus from investments in
Residual Interests of CMOs and other mortgage-related assets to multifamily
real estate. As a result, it sold a number of its nonequity residual
interests, interest only bonds and a commercial securitization in order to
fund the purchase of multifamily real estate projects.
The Company's net income from Residual Interests of CMOs and other
mortgage-related assets is sensitive to changes in mortgage prepayments and
interest rates. The Company attempts to reduce the prepayment and interest
rate risks by purchasing mortgage-related assets which have characteristics
and yields that complement the characteristics and yields of existing
assets. The Company's net income from multifamily real estate is sensitive
to local real estate market conditions, cost of maintenance of its
properties and interest rates on its secured debt.
RESULTS OF OPERATIONS
The Company had a net loss of $1,619,000, or $0.20 per share, and
$1,066,000, or $0.13 per share, for the quarter and nine months ended
September 30, 1995, respectively. This compares to net income of $494,000,
or $0.06 per share, and $2,166,000, or $0.27 per share, respectively, for
the quarter and nine months ended September 30, 1994. The Company did not
pay a dividend in the nine months ended September 30, 1995, but declared a
dividend of $0.02 per share in the nine months ended September 30, 1994.
Interest from mortgage certificates is a declining amount based on the
principal amount outstanding, which has been declining due to scheduled
amortizations and prepayments of the underlying mortgage loans. Interest
expense on CMOs also declines from year to year in proportion to the
declining principal amount outstanding. Therefore, the net interest margin
(interest from mortgage certificates less interest on CMOs) remained
essentially constant between the two years.
Income from Residual Interests and Interest Only bonds declined
sharply in the three and nine months ended September 30, 1995 as compared
to the prior year because of the sale in July 1995 of a significant portion
of the portfolio of these investments. As a result of these sales, the
Company incurred a loss of $1,267,000 in the three months ended September
30, 1995 and $1,241,000 in the nine month period. This loss for the nine
months ended September 30, 1995 (in thousands) was composed of:
<TABLE>
<CAPTION>
Investment Selling Price Carrying Value Gain (Loss)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Residual Interests $ 5,247 $ 6,278 $ (1,031)
Interest Only Bonds 2,640 2,968 (328)
Commercial Securitizations 1,017 899 118
- ----------------------------------------------------------------------------------------
Total $8,904 $10,145 $ (1,241)
========================================================================================
</TABLE>
The sale of these investments took place in order to fund the purchase of
multifamily real estate projects. The losses were incurred because of an
increase in mortgage interest rates between June 30, 1995 and the dates of
sale.
Real estate operations showed small losses in the quarter and nine
months ended September 30, 1995 although cash flow (income from real estate
operations plus depreciation and amortization) was positive.
The Manager oversees the operations of the Company pursuant to a
management agreement. For the quarter ended September 30, 1995, the
Company incurred management fees of $28,134 and Residual Interest
Administration Fees of $21,500. This compares to management fees of
$31,795 and Residual Interest Administrative Fees of $25,000 for 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, multifamily residential
properties and other mortgage-related assets.
The Company currently has agreements with an investment banking firm
to borrow funds under repurchase agreements. At September 30, 1995 the
Company had borrowings outstanding under these agreements totaling
$2,982,000. This debt was collateralized by some of the Company's
Nonequity Residual Interests and IO Bonds whose fair values approximated
$4,762,000. The Company other borrowings are notes payable secured by
multifamily housing properties as described in note 7.
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.
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
The Company filed no reports on Form 8-K during the quarter
ended September 30, 1995.
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
Date: November 10, 1995 BY: /s/ Lorraine O. Legg
----------------- -------------------------------
Lorraine O. Legg, President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 10, 1995 BY: /s/ John E. Castello
----------------- -------------------------------
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, 1995 AND THE CONDENSED CONSOLIDATED
STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,820
<SECURITIES> 148,367
<RECEIVABLES> 3,157
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 156,517
<PP&E> 22,679
<DEPRECIATION> 1,339
<TOTAL-ASSETS> 177,857
<CURRENT-LIABILITIES> 19,578
<BONDS> 145,727
<COMMON> 8
0
0
<OTHER-SE> 12,544
<TOTAL-LIABILITY-AND-EQUITY> 177,857
<SALES> 0
<TOTAL-REVENUES> 14,350
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,336
<INCOME-PRETAX> (1,066)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,066)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,066)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
