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 March 31, 1996
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 May 13, 1996
--------------------- ---------------------------
$.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 ended March 31, 1996 and 1995 3
Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1995 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
March 31
----------------------
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE RELATED ASSETS
Interest Income
Mortgage Certificates, net $2,472 $3,838
Short-term Investments 10 29
Residual Interests (27) 932
Interest Only (IO) Bonds 120 424
Commercial Securitizations 0 27
Valuation Reserve Reduction 173 115
Gain on Sales of Investments 0 42
---------- ----------
Income from Mortgage Related Assets 2,748 5,407
---------- ----------
REAL ESTATE OPERATIONS
Rental and Other Income 1,010 363
Operating and Maintenance Expenses (338) (106)
Interest on Real Estate Notes Payable (433) (135)
Depreciation and Amortization (170) (93)
Property Taxes (91) (30)
---------- ----------
Loss from Real Estate Operations (22) (1)
---------- ----------
INTEREST AND CMO RELATED EXPENSES
Collateralized Mortgage Obligations
Interest 2,569 4,454
Administration Fees 20 38
Amortization of Deferred Bond Issuance Costs 51 65
Short-term Debt 44 143
---------- ----------
Total Interest and CMO Related Expenses 2,684 4,700
---------- ----------
OTHER EXPENSES
Management and Residual Interest Administration Fees 38 50
General and Administrative Expense 365 293
---------- ----------
Total Other Expenses 403 343
---------- ----------
Net Income (Loss) ($361) $363
========== ==========
- -----------------------------------------------------------------------------
Net Income (Loss) per Share Outstanding ($0.04) $0.04
Weighted Average Shares Outstanding 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>
March 31, December 31,
1996 1995
- ----------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Mortgage Related Assets
Mortgage Certificates, net $104,216 $109,752
Residual Interests 633 725
Interest Only (IO) Bonds 3,069 3,150
Commercial Securitizations 172 191
Reserve for Loss on Investments (4,105) (4,277)
-------- --------
Total Mortgage Related Assets 103,985 109,541
-------- --------
Operating Real Estate Assets 29,236 29,384
-------- --------
Other Assets
Cash and Cash Equivalents 256 198
Restricted Cash 2,748 2,728
Accrued Interest and Accounts Receivable 2,099 1,672
Deferred Bond Issuance Costs 1,363 1,414
Other Assets 314 310
-------- --------
Total Other Assets 6,780 6,322
-------- --------
Total Assets $140,001 $145,247
======== ========
- ---------------------------------------------------------------------------------------
LIABILITIES
Collateralized Mortgage Obligations, net $103,456 $108,438
Accounts Payable and Accrued Liabilities 760 593
Accrued Interest Payable 1,630 1,755
Notes Payable on Real Estate 20,313 20,362
Short-term Debt 2,176 2,118
-------- --------
Total Liabilities 128,335 133,266
-------- --------
SHAREHOLDERS' EQUITY
Common Stock, par value $.001 per share;
100,000,000 shares authorized; 8,105,880
shares issued and outstanding 8 8
Additional Paid-in Capital 74,696 74,696
Unrealized Loss on Investments (2,198) (2,244)
Retained Deficit (60,840) (60,479)
-------- --------
Total Shareholders' Equity 11,666 11,981
-------- --------
Total Liabilities and Shareholders' Equity $140,001 $145,247
======== ========
- ---------------------------------------------------------------------------------------
<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>
Three Months Ended
March 31,
---------------------------
1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ($361) $363
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 359 807
Valuation Reserve Provision (172) (115)
Increase (Decrease) in Accrued Interest and Accounts Receivable (427) 707
Decrease in Other Assets (4) (5)
Increase (Decrease) in Accounts Payable and Accrued Liabilities 167 45
Decrease in Accrued Interest Payable (125) (157)
----------- -----------
Net Cash Provided by (Used in) Operating Activities (563) 1,645
----------- -----------
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Short-term Debt 58 (178)
Increase in Notes Payable on Real Estate 0 8,067
Principal Payments on Notes Payable on Real Estate (49) 0
Principal Payments on CMO's (5,234) (6,040)
----------- -----------
Net Cash Used in Financing Activities (5,225) 1,849
----------- -----------
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Net Decrease (Increase) in Restricted Cash (20) 1,082
Investment in Real Estate Assets (19) (10,687)
Principal Reduction in Mortgage Certificates 5,647 4,133
Principal Reduction in Residual Interests 18 972
Principal Reduction in IO Bonds 201 377
Principal Reduction in Commercial Securitizations 19 48
----------- -----------
Net Cash Provided by Investment Activities 5,846 (4,075)
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 58 (581)
Cash and Cash Equivalents at Beginning of Period 198 1,718
----------- -----------
Cash and Cash Equivalents at End of Period $256 $1,137
=========== ===========
- -------------------------------------------------------------------------------------------------
<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,
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 ended March 31, 1996 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, 1995 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 - In 1995 the Company sold its economic
interest in TISMAC through the sale of the residual interest certificate
and optional redemption rights in the underlying trust. The Company has
retained its legal ownership of TISMAC. As a result of these transactions,
the Company no longer has risk or reward of ownership and therefore the
accounts of TISMAC are not included in the consolidated balance sheet at
December 31, 1995 and the results of operations of that company are
included in the 1995 consolidated statement of operations only through the
date of sale. 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.
Additionally, the consolidated financial statements include the accounts
underlying its interest in real estate partnerships.
Mortgage Certificates and CMOs - Mortgage certificates and CMO bonds
of consolidated Owner Trusts are carried at their outstanding principal
balance plus or minus any premium or discount, respectively.
Amortization of Premiums and Discounts - Premiums and discounts
related to mortgage certificates and CMOs are amortized to income using the
interest method over the stated maturity of the mortgage certificates or
CMOs.
Residual Interests and Interest Only (IO) Bonds - Residual Interests
held in bond form and Corporate Real Estate Mortgage Investment Conduit
("REMIC") Residual Interests, regardless of percentage ownership, are
Nonequity Residual Interests and, along with IO Bonds, are accounted for
under the Prospective method. Under this method, assets are carried at
cost and income is amortized over their estimated lives based on a method
which provides a constant yield. At the end of each quarter, the yield
over the remaining life of the asset is recalculated based on expected
future cash flows using current interest rates and mortgage prepayment
speeds. This new yield is then used to calculate the subsequent quarter's
financial statement income. Owner Trust Residuals are accounted for under
the equity method.
Operating Real Estate Assets - In accordance with Statement of
Financial Accounting No. 121 ("SFAS 121") - Accounting for Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of, the Company
values operating real estate assets at cost unless circumstances indicate
that cost cannot be recovered, in which case carrying value is reduced to
estimated fair value.
Operating real estate assets are depreciated using the straight-line
method over the estimated useful lives of the real estate assets. The
Company uses a 40 year estimated life for buildings and improvements and
either a 5 or 12 year life for furniture, fixtures and equipment depending
on the nature of the asset. Significant expenditures that improve or
extend the useful life of the asset are capitalized and depreciated over
their estimated useful lives.
All leases of real estate assets are classified as operating leases.
Rental income is recognized when contractually due based on the terms of
signed lease agreements which range in duration from month-to-month to one
year.
Restricted Cash - Restricted cash represents the cash balances of CMOs
in which the Company holds a Residual Interest and whose assets and
liabilities are consolidated with those of the Company. This cash is not
available to the Company or its creditors. Additionally, restricted cash
includes $131,197 in property tax impound accounts.
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 (loss) per share is based
upon the weighted average number of shares of Common Stock outstanding.
The common equivalent shares related to the 1995 Stock Option Plan are
antidilutive and therefore are not included in the weighted average number
of shares outstanding.
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.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 3 - Mortgage Certificates
Information is presented in the table below as of March 31, 1996 and
December 31, 1995 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>
March 31, 1996
Principal Amount of Fair Value of Cost Less
Residual Series Mortgage Certificates Mortgage Certificates Unamortized Discount
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CMOT 28 $ 85,776 $ 88,805 $ 84,305
TMAC 1986-1 19,945 20,855 19,911
- ---------------------------------------------------------------------------------------------
$105,721 $109,660 $104,216
=============================================================================================
December 31, 1995
CMOT 28 $ 90,046 $ 93,958 $ 88,501
TMAC 1986-1 21,260 22,230 21,251
- ---------------------------------------------------------------------------------------------
$111,306 $116,188 $109,752
=============================================================================================
</TABLE>
<PAGE>
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 March 31, Dec. 31,
Residual Series Price 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Nonequity Residual Interests
- ----------------------------
BT 88-1 $1,537 $377 $461
LFR-9 2,589 141 149
CMSC I 8,642 104 104
FHLMC 25 4,934 6 6
FHLMC 21 5,361 5 5
- -------------------------------------------------------------------
633 725
- -------------------------------------------------------------------
Unconsolidated Equity Residual Interests
- ----------------------------------------
TMAC 1986-2 67 0 0
TMAC 1987-3 165 0 0
- -------------------------------------------------------------------
Total Residual Interests $633 $725
===================================================================
</TABLE>
Securitized Residuals and Corporate REMIC Residual Interests - Both
Residual Interests held in bond form and Corporate REMIC Residual
Certificates are Nonequity Residual Interests and are accounted for under
the Prospective Method as described in Note 2. Certain characteristics of
the CMO Bonds in the Company's Residual Interests held in these forms are
on the following tables:
<PAGE>
<TABLE>
FIXED RATE RESIDUALS
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CMO Bond Data (100% of Issue)
-----------------------------------------------------------------
Name of Issuer TIS Initial Mar 31, 1996
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) 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 14,970 8.75% Apr 1, 2018
Feb 16, 1988 1-D 47,492 14,653 8.63% Apr 1, 2018
-------- -------
$100,000 $29,623
- -------------------------------------------------------------------------------------------------------------------------
2) L F Rothschild Nov 7, 1990 100.000% $2,589 A $ 11,000 $ 0 Zero Coupon Jan 1, 2019
Trust 9 B 22,000 0 Zero Coupon Jan 1, 2019
(LFR-9) C 54,000 9,509 Zero Coupon Jan 1, 2019
Dec 2, 1988 D 32,850 4,325 Zero Coupon Jan 1, 2019
E 30,000 0 Zero Coupon Jan 1, 2019
R 150 150 Residual Bond Jan 1, 2019
-------- -------
$150,000 $13,984
- -------------------------------------------------------------------------------------------------------------------------
3) Collateralized Dec 21, 1988 44.000% $4,462 I-1 $291,000 $ 0 7.95% Feb 1, 2009
Mortgage Mar 23, 1989 44.000% 4,180 I-2 194,000 13,611 9.45% May 1, 2013
Securities Corp. ------- ------ I-3(Z) 15,000 34,767 9.45% Feb 1, 2017
Series I (CMSC I) Subtotal 88.000% $8,642 -------- -------
Jan 28, 1987 ======= ====== $500,000 $48,378
- -------------------------------------------------------------------------------------------------------------------------
4) Federal Home Jun 22, 1989 55.000% $4,934 25-A $105,923 $ 0 9.00% Nov 15, 2018
Loan Mortgage 25-B 51,002 0 9.50% Nov 15, 2005
Corporation 25-C 53,028 0 9.50% Mar 15, 2011
Series 25 25-D 46,414 0 9.50% Feb 15, 2014
(FHLMC 25) 25-E 50,936 0 9.50% May 15, 2016
Dec 1, 1988 25-F 76,167 9,182 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 11 Residual Bond Feb 15, 2020
-------- --------
$500,000 $53,133
- -------------------------------------------------------------------------------------------------------------------------
5) Federal Home Jan 5, 1989 62.500% $5,361 21-A $ 140,645 $ 0 8.90% Jan 15, 1998
Loan Mortgage 21-B 216,267 0 8.90% Feb 15, 2004
Corporation 21-C 101,503 0 9.10% Jan 15, 2006
Series 21 21-D 93,376 0 9.25% Jun 15, 2007
(FHLMC 21) 21-E 122,951 0 9.35% Feb 15, 2009
Nov 30, 1988 21-F 240,408 0 9.45% Sep 15, 2011
21-Z 84,750 94,256 9.50% Jan 15, 2020
R 100 9 Residual Bond Jan 15, 2020
---------- --------
$1,000,000 $94,265
=========================================================================================================================
</TABLE>
Equity Residual Interests - The Company currently holds interests in
two Owner Trust Residuals. Although the underlying CMOs in these Residual
Interests are not liabilities of the Company, under the requirements of
generally accepted accounting principles, the Company consolidates assets
and liabilities of the Owner Trust Residuals when over 50% equity interest
in the trust is held by the Company.
On April 22, 1996, the Company sold its 100% equity residual interest
in TMAC CMO Trust 1986-1 for $450,000. This investment has been carried at
zero so that the entire amount of the sales proceeds will be reflected as a
gain on disposition of investments in the second quarter of 1996 and the
assets and liabilities of this Owner Trust Residual will no longer be
included in the consolidated financial statements.
Under the underlying bond indentures, the Company would never be
required to pay more than the outstanding principal balance to retire the
CMO Bonds. Therefore, the carrying value of these CMO Bonds are reasonable
estimates of their fair value to the Company. Certain characteristics of
the CMO Bonds in the Equity Residual Interests in which the Company holds
an interest at March 31, 1996 are set forth below:
<PAGE>
<TABLE>
EQUITY RESIDUAL INTERESTS
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CMO Bond Data (100% of Issue)
-----------------------------------------------------------------
Name of Issuer TIS Initial Mar 31, 1996
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 5,107 8.50% Dec 1, 2010
(CMOT 28) 100.000% $4,857 Z 39,500 82,103 8.45% Jun 1, 2017
May 29, 1987 ======== ====== -------- --------
$500,000 $87,210
- -------------------------------------------------------------------------------------------------------------------------
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 19,179 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 2,081 8.95% Feb 20, 2018
-------- ------ -------- --------
100.000% $1,695 $200,000 $21,260
- -------------------------------------------------------------------------------------------------------------------------
3) TMAC 1986-2 Jun 18, 1993 44.990% $67 2-A $ 72,600 $ 6,774 LIBOR+.60% Mar 20, 2018
Dec 10, 1986 2-B 27,400 2,557 25.11987% - Mar 20, 2018
-------- --------
$100,000 $ 9,331 (2.00959) x LIBOR
- -------------------------------------------------------------------------------------------------------------------------
4) TMAC 1987-3 Jun 18, 1993 44.767% $165 3-A $ 55,070 $ 186 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 1,104 8.58% Jul 20, 2013
3-E(Z) 9,495 21,153 9.00% Apr 20, 2018
-------- --------
$195,000 $22,443
- -------------------------------------------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations $140,244
=========================================================================================================================
</TABLE>
<PAGE>
CMO Collateral - The table below sets forth certain characteristics of
the mortgage collateral pledged to secure each CMO in which the Company
holds a Residual Interest.
<TABLE>
CMO COLLATERAL
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
CMO Collateral Data (100% of Issue)
-------------------------------------------------------------------------------
Weighted Mar 31, 1996 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% $85,776 9.10% 250.4
TMAC 1986-1 Fixed FHLMC 9.00% 19,945 10.00% 239.0
TMAC 1986-2 Fixed FHLMC 9.50% 9,331 10.10% 227.0
TMAC 1987-3 Fixed FHLMC 9.08% 22,443 9.80% 231.0
Nonequity Residual Interests
- ----------------------------
BT 88-1 Fixed GNMA 9.00% 28,286 9.50% 252.0
LFR-9 Fixed FNMA 9.50% 13,755 10.20% 266.0
CMSC I Fixed FNMA 9.50% 45,837 10.10% 234.2
FHLMC 25 Fixed FHLMC 9.50% 53,133 10.30% 262.8
FHLMC 21 Fixed FHLMC 9.50% 94,265 10.20% 264.8
=================================================================================================================
</TABLE>
<PAGE>
Note 5 - Interest Only (IO) Bonds
IO Bonds include both regular IO Bonds and Inverse IO Bonds.
Presented below is a schedule of the Company's IO Bonds.
<TABLE>
INTEREST ONLY (IO) BONDS
- ------------------------
(In thousands)
<CAPTION>
Book Value
--------------------------
Name and Issuer Purchase March 31, December 31,
and Series Price 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
FNMA Series 1992-123 Class S $8,203 $1,927 $2,112
Pru Home Mtg Corp Series 1992-7 4,776 899 796
Bear Stearns Mtg Sec Series 1992-1 2,720 243 242
- ------------------------------------------------------------------------------
$3,069 $3,150
==============================================================================
</TABLE>
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 Mar. 31, 1996 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 July 30, 1992 $8,203 FNMA 49.58 - $4,955 8.95% 304.0
Series 1992-123 (5.67 x
Class S LIBOR)
July 25, 1992
- -------------------------------------------------------------------------------------------------------------
2) Prudential Mar 27, 1992 $4,776 NON 0.5652% $57,196 8.81% 302.0
Home Mortgage AGENCY
Corporation
Series 1992-7
March 1, 1992
- -------------------------------------------------------------------------------------------------------------
3) Bear Stearns May 28, 1992 $2,720 NON 0.3714% $7,108 9.46% 234.0
Mortgage AGENCY
Securities, Inc.
Series 1992-1
May 1, 1992
=============================================================================================================
</TABLE>
<PAGE>
Note 6 - Operating Real Estate Assets
During the year ended December 31, 1995, the Company acquired four
multifamily housing properties in California's Central Valley. The
purchase price of these properties was $29,305,000. Capitalized costs
differ from the purchase price due to capitalization of acquisition costs.
At March 31, 1996, the carrying value of operating real estate assets (in
thousands) consisted of:
<TABLE>
<S> <C>
Land $ 4,990
Buildings and Improvements 24,036
Personal Property 754
---------
Total 29,780
Less Accumulated Depreciation (544)
---------
Net $29,236
=========
</TABLE>
<PAGE>
Note 7 - Notes Payable on Real Estate
As part of the 1995 acquisition of multifamily residential properties,
existing secured debt totaling $18,675,000 was assumed. Some of the
assumed debt remains in the name of the seller, but the Company is
servicing the debt and receives all of the economic benefits from the
properties. In addition, new secured debt of $1,815,000 was obtained. As
of March 31, 1996, notes payable on real estate consisted of:
<TABLE>
Principal Monthly
Balance Basis of Current Principal
March 31, Interest Interest Due and Interest
Property 1996 Rate Rate Date Payment
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shady Lane $1,380,278 Fixed 7.844% Dec. 1, 2014 $11,967
River Oaks 6,588,257 11th District 7.976% May 1, 1996 46,151
COFI + 3%
Villa San Marcos 6,034,494 1 year Treasury 8.375% Jan. 1, 1999 49,304
Bill + 3%
Four Creeks - I 1,810,236 Fixed 8.160% Dec. 1, 2005 13,521
Four Creeks - II 4,500,000 Prime Rate 9.750% June 30, 1996 36,562
+ 1.25%
- ------------------------------------------------------------------------------------------------
Total $20,313,265 $157,505
================================================================================================
</TABLE>
Note 8 - Short-Term Debt
Short-term debt is due within 360 days after the end of the quarter.
At March 31, 1996 the Company owed $2,176,000 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 March 31, 1996 was 6.89%. The debt was
collateralized by some of the Company's Nonequity Residual Interests and IO
Bonds whose fair values approximated $4,040,000.
<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). 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 $361,000, or $0.04 per share, for the
quarter ended March 31, 1996. This compares to net income of $363,000, or
$0.04 per share, for the quarter ended March 31, 1995. The Company did not
pay a dividend in the first quarter of either year.
Interest from mortgage certificates is a declining amount based on the
principal amount outstanding, which has been declining due to scheduled
amortizations and prepayments of the underlying mortgage loans. Interest
expense on CMOs also declines from year to year in proportion to the
declining principal amount outstanding. Therefore, the net interest margin
(interest 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 months ended March 31, 1996 as compared to the prior
year because of the sales in the third and fourth quarter of 1995 of a
significant portion of the portfolio of these investments. The sale of
these investments took place in order to fund the purchase of multifamily
real estate projects.
Real Estate operations showed a loss of $22,000 in the three months
ended March 31, 1996. However, cash flow (income from real estate
operations plus depreciation and amortization) was $148,000. The results
for the three months ended March 31, 1995 are not truly comparable as the
Company commenced its real estate operations during that quarter.
The Manager oversees the operations of the Company pursuant to a
management agreement. For the quarter ended March 31, 1996, the Company
incurred management fees of $38,042. This compares to management fees of
$27,045 and Residual Interest Administrative Fees of $22,500 for the first
quarter of 1995. The Residual Interest Administrative Fee was discontinued
as of January 1, 1996. Additionally, the Manager receives incentive
compensation of 10% of the amount by which the total return for any
calendar year exceeds 12%. The results for the period were such that there
was no incentive management fee in the first quarter of 1996.
Liquidity and Capital Resources
The Company uses cash flow from operations to provide working capital
to support its operations and for the payment of dividends to its
stockholders, and uses its other capital resources for the purchase of
Residual Interests, mortgage instruments, multifamily residential
properties and other mortgage-related assets.
The Company currently has agreements with two investment banking firms
to borrow funds under repurchase agreements. At March 31, 1996 the Company
had borrowings outstanding under these agreements totaling $2,176,000.
This debt was collateralized by some of the Company's Nonequity Residual
Interests and IO Bonds whose fair values approximated $4,040,000. The
Company's 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.
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings
-----------------
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
The following Form 8-K reports were filed during the quarter
ended March 31, 1996:
Current Report on Form 8-K under Item 5 - Other Events, dated
March 7, 1996 reporting the retirement of Harvie M. Merrill from
the Board of Directors of the Company.
Current Report on Form 8-K under Item 5 - Other Events, dated
March 28, 1996 reporting amendments to the By-Laws of the
Company.
<PAGE>
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
May 14, 1996 By: /s/ Lorraine O. Legg
- ------------------ -------------------------------
Date Lorraine O. Legg, President and
Chief Executive Officer
(Principal Executive Officer)
May 14, 1996 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 MARCH 31, 1996 AND THE CONDENSED CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,004
<SECURITIES> 108,090
<RECEIVABLES> 2,099
<ALLOWANCES> 4,105
<INVENTORY> 0
<CURRENT-ASSETS> 110,765
<PP&E> 29,780
<DEPRECIATION> 544
<TOTAL-ASSETS> 140,001
<CURRENT-LIABILITIES> 128,335
<BONDS> 0
<COMMON> 8
0
0
<OTHER-SE> 11,658
<TOTAL-LIABILITY-AND-EQUITY> 140,001
<SALES> 0
<TOTAL-REVENUES> 3,758
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,046
<INCOME-PRETAX> (361)
<INCOME-TAX> 0
<INCOME-CONTINUING> (361)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (361)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
