<PAGE>
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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 1-10004
TIS MORTGAGE INVESTMENT COMPANY
(Exact name of Registrant as specified in its Charter)
Maryland 94-3067889
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
655 Montgomery Street 94111
San Francisco, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (415) 393-8000
______________________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at May 9, 1997
--------------------- --------------------------
$.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, 1997 and 1996 3
Condensed Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996 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 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------
1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE RELATED ASSETS
Interest Income
Mortgage Certificates, net $ 1,601 $ 2,472
Short-term Investments 0 10
Residual Interests 9 (27)
Interest Only (IO) Bonds 74 120
Valuation Reserve Reduction 104 173
---------- -------
Income from Mortgage Related Assets 1,788 2,748
---------- -------
INTEREST AND CMO RELATED EXPENSES
Collateralized Mortgage Obligations
Interest 1,695 2,569
Administration Fees 17 20
Amortization of Deferred Bond Issuance Costs 21 51
Short-term Debt 47 44
---------- -------
Total Interest and CMO Related Expenses 1,780 2,684
---------- -------
REAL ESTATE OPERATIONS
Rental and Other Income 986 1,010
Operating and Maintenance Expenses (322) (338)
Interest on Real Estate Notes Payable (438) (433)
Depreciation and Amortization (241) (170)
Property Taxes (83) (91)
---------- -------
Loss from Real Estate Operations (98) (22)
---------- -------
OTHER EXPENSES
Management Fees 0 38
---------- -------
General and Administrative Expense 328 365
---------- -------
Total Other Expenses 328 403
---------- -------
Net Loss ($418) ($361)
========== =======
- ------------------------------------------------------------------------------------
Net Loss per Share Outstanding ($0.05) ($0.04)
Weighted Average Shares Outstanding 8,106 8,106
- ------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
- -----------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Mortgage Related Assets
Mortgage Certificates, net $ 70,186 $ 72,703
Residual Interests 414 436
Interest Only (IO) Bonds 2,651 2,695
Commercial Securitizations 184 183
Reserve for Loss on Investments (2,893) (2,997)
------------- -------------
Total Mortgage Related Assets 70,542 73,020
------------- -------------
Operating Real Estate Assets, net 29,006 28,945
------------- -------------
Other Assets
Cash and Cash Equivalents 47 82
Restricted Cash 1,134 1,272
Accrued Interest and Accounts Receivable 679 668
Deferred Bond Issuance Costs, net 577 598
Other Assets 793 988
------------- -------------
Total Other Assets 3,230 3,608
------------- -------------
Total Assets $102,778 $105,573
============= =============
- -----------------------------------------------------------------------------------------
LIABILITIES
Collateralized Mortgage Obligations, net $ 67,785 $ 70,259
Accounts Payable and Accrued Liabilities 394 449
Accrued Interest Payable 1,018 1,056
Notes Payable on Real Estate 20,547 20,373
Short-term Debt 2,281 2,418
------------- -------------
Total Liabilities 92,025 94,555
------------- -------------
SHAREHOLDERS' EQUITY
Common Stock, par value $.001 per share;
100,000,000 shares authorized; 8,105,880
shares issued and outstanding 8 8
Additional Paid-in Capital 74,696 74,696
Unrealized Loss on Investments (1,989) (2,142)
Retained Deficit (61,962) (61,544)
------------- -------------
Total Shareholders' Equity 10,753 11,018
------------- -------------
Total Liabilities and Shareholders' Equity $102,778 $105,573
============= =============
- -----------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
TIS MORTGAGE INVESTMENT COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($ 418) ($ 361)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 134 186
Depreciation of Operating Real Estate Assets 181 173
Valuation Reserve Provision (104) (172)
Increase in Accrued Interest and Accounts Receivable (11) (427)
Decrease (Increase) in Other Assets 191 (4)
Increase (Decrease) in Accounts Payable and Accrued Liabilities (55) 167
Decrease in Accrued Interest Payable (38) (125)
-------- --------
Net Cash Used in Operating Activities (120) (563)
-------- --------
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Short-term Debt (137) 58
Increase in Notes Payable on Real Estate 17,400 0
Notes Payable on Real Estate Retired (17,201) 0
Principal Payments on Notes Payable on Real Estate (25) (49)
Principal Payments on CMO's (2,627) (5,234)
-------- --------
Net Cash Used in Financing Activities (2,590) (5,225)
-------- --------
- ---------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Net Decrease (Increase) in Restricted Cash 137 (20)
Investment in Real Estate Assets (242) (19)
Principal Reduction in Mortgage Certificates 2,561 5,647
Principal Reduction in Residual Interests 36 18
Principal Reduction in IO Bonds 184 201
Principal Reduction in (Additions to) Commercial Securitizations (1) 19
-------- --------
Net Cash Provided by Investment Activities 2,675 5,846
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (35) 58
Cash and Cash Equivalents at Beginning of Period 82 198
-------- --------
Cash and Cash Equivalents at End of Period $ 47 $ 256
======== ========
- ---------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<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 of a normal recurring nature considered necessary for
a fair presentation have been made. Operating results for the quarter ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the entire year. These condensed consolidated financial statements
should be read in conjunction with the Company's Form 10-K for the year ended
December 31, 1996.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OVERALL METHODS OF ACCOUNTING - On May 31, 1990, the Emerging Issues
Task Force of the Financial Accounting Standards Board reached a consensus
(Issue 89-4) for a uniform method of accounting for Residual Interests in
collateralized mortgage obligations ("CMOS"). The consensus, among other
things, required Residual Interests to be classified either as "equity" (and be
accounted for under the Equity Method) or as "nonequity" (and be accounted for
under a level yield method referred to as the Prospective Method). The methods
described in issue 89-4 are essentially the same as those used by the Company.
ACCOUNTING CHANGE - In accordance with Financial Accounting Standards
Board Standard No. 115 ("SFAS 115") - Accounting for Certain Investments in Debt
and Equity Securities, the Company classifies its investments as either trading
investments, available-for-sale investments or held-to-maturity investments.
The Company is not in the business of trading its 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 April 1996 the Company sold its
economic interest in TMAC CMO Trust 1986-1 through the sale of the residual
interest certificate and optional redemption rights in the underlying trust. As
a result, the accounts of TMAC CMO Trust 1986-1 are not included in the
consolidated balance sheets and the results of operations of the trust are
included in the 1996 consolidated statement of operations only through the date
of sale. In addition, under generally accepted accounting principles, the
Company consolidates assets and liabilities of Owner Trust Residuals when over
50% equity interest in the trust is held by the
6
<PAGE>
company. The portion of equity interest of each such Owner Trust Residual not
owned by the Company is accounted for as minority interest. Additionally, the
condensed consolidated financial statements include the accounts underlying its
interest in real estate partnerships.
MORTGAGE CERTIFICATES AND CMOS - Mortgage certificates and CMO bonds
of consolidated owner trusts are carried at their outstanding principal balance
plus or minus any premium or discount, respectively.
AMORTIZATION OF PREMIUMS AND DISCOUNTS - Premiums and discounts
related to mortgage certificates and CMOs are amortized to income using the
interest method over the stated maturity of the mortgage certificates or CMOs.
RESIDUAL INTERESTS AND INTEREST ONLY (IO) BONDS - Residual Interests
held in bond form and Corporate Real Estate Mortgage Investment Conduit
("REMIC") Residual Interests, regardless of percentage ownership, are Nonequity
Residual Interests and, along with IO Bonds, are accounted for under the
Prospective method. Under this method, assets are carried at cost and income is
amortized over their estimated lives based on a method which provides a constant
yield. At the end of each quarter, the yield over the remaining life of the
asset is recalculated based on expected future cash flows using current interest
rates and mortgage prepayment speeds. This new yield is then used to calculate
the subsequent quarter's financial statement income. Owner Trust Residuals are
accounted for under the equity method.
OPERATING REAL ESTATE ASSETS - In accordance with Statement of
Financial Accounting No. 121 ("SFAS 121") - Accounting for Impairment of Long-
Lived Assets and for Long-lived Assets to be Disposed Of, The Company values
operating real estate assets at cost unless circumstances indicate that cost
cannot be recovered, in which case carrying value is reduced to estimated fair
value. In management's opinion, as of March 31, 1997, the carrying value of
real estate assets did not exceed their estimated fair value.
Operating real estate assets are depreciated using the straight-line
method over the estimated useful lives of the real estate assets. The Company
uses a 40 year estimated life for buildings and improvements and either a 5 or
12 year life for furniture, fixtures and equipment depending on the nature of
the asset. Significant expenditures that improve or extend the useful life of
the asset are capitalized and depreciated over their estimated useful lives.
All leases of real estate assets are classified as operating leases.
Rental income is recognized when contractually due based on the terms of signed
lease agreements which range in duration from month-to-month to one year.
RESTRICTED CASH - Restricted cash represents the cash balances of CMOs
in which the Company holds a Residual Interest and whose assets and liabilities
are consolidated with those of the company. This cash is not available to the
Company or its creditors.
INCOME TAXES - The Company has elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended. As a REIT, the Company must
distribute at least 95% of its taxable income to its shareholders. No provision
has been made for income taxes in the accompanying consolidated financial
statements as the Company is not subject to federal income taxes. The loss
reported in the accompanying financial statements may be greater or less than
the taxable loss because some income and expense items are reported in different
periods for income tax purposes. Over the life of a Residual Interest or IO
Bond, total taxable income will equal total financial statement income.
However, the timing of income recognition may differ between the two from year
to year.
NET LOSS PER SHARE - Net loss per share is based upon the weighted
average number of shares of Common Stock outstanding. The common equivalent
shares related to the 1995 Stock Option Plan are antidilutive and therefore are
not included in the weighted average number of shares outstanding. In March
1997, the Financial Accounting Standards Board issued Statement of Financial
Account No. 128 ("SFAS No. 128") - Earnings Per Share. SFAS No. 128 requires
the disclosure of basic earnings per share and modifies existing guidance for
computing fully diluted earnings per share. Under the new standard, basic
earnings per share is computed as earnings divided by weighted average shares,
excluding the dilutive effects of stock options and other potentially dilutive
securities. The effective date of SFAS No. 128 is December 15, 1997 and early
adoption is not permitted. The Company intends to adopt SFAS No. 128 during the
quarter and year ended December 31, 1997. Had the
7
<PAGE>
provisions of SFAS No. 128 been applied to the Company's results of operations
for the quarters ended March 31, 1997 and 1996, the Company's basic earnings per
share would have been the same as those reported.
STATEMENT OF CASH FLOWS - For purposes of the statement of cash flows,
the Company considers only highly liquid instruments with original maturities of
three months or less to be cash equivalents.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 3 - MORTGAGE CERTIFICATES
Information is presented in the table below as of March 31, 1997 and
December 31, 1996 with respect to the fair value of the mortgage certificates
collateralizing those CMO Bonds where the residual interests are accounted for
under the equity method and the Company owns more than a 50% interest in the
trust. See the CMO Collateral chart in note 4 for additional information on the
mortgage collateral. The Company is not able to sell the mortgage collateral,
and therefore realize any gain until the CMO Bonds which are collateralized by
the mortgages mature or are called in accordance with the underlying bond
indenture.
MORTGAGE CERTIFICATES
- ---------------------
(In thousands)
<TABLE>
<CAPTION>
Principal Amount of Fair Value of Cost Less
Residual Series Mortgage Certificates Mortgage Certificates Unamortized Discount
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MARCH 31, 1997
CMOT 28 $71,411 $73,129 $70,186
DECEMBER 31, 1996
CMOT 28 $73,973 $76,677 $72,703
</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.
NONEQUITY RESIDUAL INTERESTS
- ----------------------------
(In thousands)
<TABLE>
<CAPTION>
Book Value
--------------------------
Purchase March 31, December 31,
Residual Series Price 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonequity Residual Interests
- ----------------------------
BT 88-1 $1,537 $188 $210
LFR-9 2,589 113 113
CMSC I 8,642 104 104
FHLMC 25 4,934 5 5
FHLMC 21 5,361 4 4
- ------------------------------------------------------------------------------
414 436
- ------------------------------------------------------------------------------
Unconsolidated Equity Residual Interests
- ----------------------------------------
TMAC 1986-2 67 0 0
TMAC 1987-3 165 0 0
- ------------------------------------------------------------------------------
Total Residual Interests $414 $436
==============================================================================
</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
8
<PAGE>
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:
<TABLE>
<CAPTION>
FIXED RATE RESIDUALS
- ---------------------------------------------------------------------------------------------------------------------------------
CMO BOND DATA (100% OF ISSUE)
--------------------------------------------------------------------
NAME OF ISSUER TIS INITIAL MAR 31, 1997
AND SERIES/ TIS PURCHASE PRINCIPAL PRINCIPAL
CMO ISSUE PURCHASE TIS % PRICE BOND BALANCE BALANCE BOND STATED
DATE DATE OWNERSHIP ($000) CLASS ($000) ($000) COUPON MATURITY
- ---------------------------------------------------------------------------------------------------------------------------------
<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 13,742 8.75% Apr 1, 2018
Feb 16, 1988 1-D 47,492 10,760 8.63% Apr 1, 2018
--------------------------------
$ 100,000 $24,502
- ---------------------------------------------------------------------------------------------------------------------------------
2) L F Rothschild Nov 7, 1990 100.000% $2,589 A $ 11,000 $ 0 Zero Coupon Jan 1, 2019
Trust 9 B 22,000 0 Zero Coupon Jan 1, 2019
(LFR-9) C 54,000 7,980 Zero Coupon Jan 1, 2019
Dec 2, 1988 D 32,850 2,663 Zero Coupon Jan 1, 2019
E 30,000 0 Zero Coupon Jan 1, 2019
R 150 150 Residual Bond Jan 1, 2019
--------------------------------
$ 150,000 $10,793
- --------------------------------------------------------------------------------------------------------------------------------
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-2 194,000 154 9.45% May 1, 2013
------- --------
Securities Corp. Subtotal 88.000% $8,642 I-3(Z) 15,000 38,170 9.45% Feb 1, 2017
======= ========
--------------------------------
Series I (CMSC I) $ 500,000 $38,324
Jan 28, 1987
- ----------------------------------------------------------------------------------------------------------------------------------
4) Federal Home Jun 22, 1989 55.000% $4,934 25-A $ 105,923 $ 0 9.00% Nov 15, 2018
Loan Mortgage 25-B 51,002 0 9.50% Nov 15, 2005
Corporation 25-C 53,028 0 9.50% Mar 15, 2011
Series 25 25-D 46,414 0 9.50% Feb 15, 2014
(FHLMC 25) 25-E 50,936 0 9.50% May 15, 2016
Dec 1, 1988 25-F 76,167 0 9.50% Dec 15, 2018
25-G 43,940 42,633 9.50% Feb 15, 2020
25-H 72,490 0 7.90% Feb 15, 2020
R 100 9 Residual Bond Feb 15, 2020
--------------------------------
$ 500,000 $42,642
- ----------------------------------------------------------------------------------------------------------------------------------
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 73,900 9.50% Jan 15, 2020
R 100 7 Residual Bond Jan 15, 2020
--------------------------------
$1,000,000 $73,907
==================================================================================================================================
</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.
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
9
<PAGE>
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, 1997 are set forth below:
<TABLE>
<CAPTION>
EQUITY RESIDUAL INTERESTS
---------------------------------------------------------------------------------------------------------------------------------
CMO BOND DATA (100% OF ISSUE)
---------------------------------------------------------------------
NAME OF ISSUER TIS INITIAL MAR 31, 1997
AND SERIES/ TIS PURCHASE PRINCIPAL PRINCIPAL
CMO ISSUE PURCHASE TIS % PRICE BOND BALANCE BALANCE BOND STATED
DATE DATE OWNERSHIP ($000) CLASS ($000) ($000) COUPON MATURITY
- ----------------------------------------------------------------------------------------------------------------------------------
<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 100.000% $4,857 C 108,300 0 8.50% Dec 1, 2010
======= ======
(CMOT 28) Z 39,500 72,041 8.45% Jun 1, 2017
-------------------------------
May 29, 1987 $500,000 $72,041
- ----------------------------------------------------------------------------------------------------------------------------------
2) TMAC 1986-2 Jun 18, 1993 44.990% $ 67 2-A $ 72,600 $ 5,632 LIBOR+.60% Mar 20, 2018
Dec 10, 1986 2-B 27,400 2,126 25.11987% - Mar 20, 2018
-------------------------------
$100,000 $ 7,758 (2.00959) x LIBOR
- ----------------------------------------------------------------------------------------------------------------------------------
3) TMAC 1987-3 Jun 18, 1993 44.767% $ 165 3-A $ 55,070 $ 0 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 0 8.58% Jul 20, 2013
3-E(Z) 9,495 17,957 9.00% Apr 20, 2018
-------------------------------
$195,000 $17,957
- ----------------------------------------------------------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations $97,756
==================================================================================================================================
</TABLE>
10
<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>
<CAPTION>
CMO COLLATERAL
- -----------------------------------------------------------------------------------------------------------------------
CMO COLLATERAL DATA (100% OF ISSUE)
-------------------------------------------------------
WEIGHTED MAR 31, 1997 CURRENT WEIGHTED
AVERAGE COLLATERAL WEIGHTED AVERAGE
RESIDUAL PASS- PRINCIPAL AVERAGE REMAINING
RESIDUAL INTEREST TYPE OF THROUGH BALANCE COUPON MONTHS TO
SERIES TYPE COLLATERAL RATE ($000) RATE MATURITY
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Residual Interests
- -------------------------
CMOT 28 Fixed FNMA 8.50% $71,411 9.11% 230
TMAC 1986-2 Fixed FHLMC 9.50% 7,332 10.10% 219
TMAC 1987-3 Fixed FHLMC 9.08% 17,957 9.82% 216
Nonequity Residual Interests
- ----------------------------
BT 88-1 Fixed GNMA 9.00% 23,774 9.50% 223
LFR-9 Fixed FNMA 9.50% 10,656 10.21% 243
CMSC I Fixed FNMA 9.50% 37,040 10.13% 213
FHLMC 25 Fixed FHLMC 9.50% 41,564 10.33% 239
FHLMC 21 Fixed FHLMC 9.50% 73,908 10.21% 239
=======================================================================================================================
</TABLE>
NOTE 5 - INTEREST ONLY (IO) BONDS
IO Bonds include both regular IO Bonds and Inverse IO Bonds. Presented
below is a schedule of the Company's IO Bonds.
INTEREST ONLY (IO) BONDS
- ------------------------
(In thousands)
<TABLE>
<CAPTION>
Book Value
------------------------------------------
Name and Issuer Purchase March 31, December 31,
and Series Price 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FNMA Series 1992-123 Class S $8,203 $1,730 $1,753
Pru Home Mtg Corp Series 1992-7 4,776 699 708
Bear Stearns Mtg Sec Series 1992-1 2,720 222 234
- -----------------------------------------------------------------------------------------------------------------------
$2,651 $2,695
=======================================================================================================================
</TABLE>
11
<PAGE>
Certain characteristics of the Company's IO Bonds are on the following
table:
<TABLE>
<CAPTION>
INTEREST ONLY BONDS
- -------------------------------------------------------------------------------------------------------------------
COLLATERAL DATA (% OF IO HELD BY TIS)
---------------------------------------------------------------------
WEIGHTED MAR. 31, 1997 CURRENT WEIGHTED
NAME OF ISSUER TIS AVERAGE COLLATERAL WEIGHTED AVERAGE
AND SERIES/ TIS PURCHASE PASS PRINCIPAL AVERAGE REMAINING
CMO ISSUE PURCHASE PRICE TYPE OF THROUGH BALANCE COUPON MONTHS TO
DATE DATE ($000) COLLATERAL RATE TO IO ($000) RATE MATURITY
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1) FNMA July 30, 1992 $8,203 FNMA 49.58 - $ 4,242 8.95% 290
Series 1992-123 (5.67 x
Class S LIBOR)
July 25, 1992
- -------------------------------------------------------------------------------------------------------------------
2) Prudential Mar 27, 1992 $4,776 NON 0.5652% $47,738 8.79% 289
Home Mortgage AGENCY
Corporation
Series 1992-7
March 1, 1992
- -------------------------------------------------------------------------------------------------------------------
3) Bear Stearns May 28, 1992 $2,720 NON 0.3714% $ 6,243 9.83% 237
Mortgage AGENCY
Securities, Inc.
Series 1992-1
May 1, 1992
===================================================================================================================
</TABLE>
NOTE 6 - OPERATING REAL ESTATE ASSETS
During the year ended December 31, 1995, the Company acquired four
multifamily housing properties in California's Central Valley. The properties
were purchased either in the form of direct ownership of the real property or in
the form of an interest in a partnership that directly owns the real property.
Capitalized costs differ from the purchase price due to capitalization of
acquisition costs. The carrying value of operating real estate assets at March
31, 1997 and December 31, 1996 is presented in the following table:
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands) 1997 1996
-------------------------------------------------------------
<S> <C> <C>
Land $ 5,024 $ 4,990
Buildings and improvements 24,185 24,036
Personal property 1,052 993
---------------------------
Total 30,261 30,019
Less accumulated depreciation
and amortization (1,255) (1,074)
---------------------------
Net $29,006 $28,945
===========================
</TABLE>
At March 31, 1997, the Company's four multifamily properties had an
overall occupancy of 95%.
12
<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. In addition, new secured
debt of $1,815,000 was obtained in 1995 secured by Four Creeks-I. In August
1996, the River Oaks and Four Creeks - II mortgage notes payable matured and
were retired using the proceeds from a new mortgage note in the principal amount
of $11,235,000 (the "Interim Note"). On March 24, 1997, the Company obtained
permanent financing with an insurance company (the "Permanent Financing"). The
total loan proceeds from the Permanent Financing amounted to $17,400,000 and,
after certain costs and fees, were used to retire the then outstanding principal
and interest on the Interim Note of $11,235,000 and the mortgage note on Villa
San Marcos of $5,965,884. The Permanent Financing comprises three deeds of trust
and an assignment of rents on Four Creeks - II, River Oaks and Villa San Marcos.
The mortgages comprising the Permanent Financing may not be retired during the
first five years and are subject to a prepayment penalty if prepaid after the
5th year. The following table summarizes the debt outstanding on the properties
as of March 31, 1997 and December 31, 1996. The Shady Lane loan remains in the
name of the seller of the property and will until refinanced but the Company is
servicing the debt and receives all of the economic benefits from the property.
<TABLE>
<CAPTION>
Principal Balance Interest Monthly
----------------- Basis of Rate Principal
March 31, December 31, Interest Mar. 31, Due and Interest
Property 1997 1996 Rate 1997 Date Payment
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shady Lane $ 1,351,821 $ 1,358,576 Fixed 8.375% Dec. 1, 2004 $ 11,967
River Oaks 6,431,250 6,665,796 Fixed 8.36% Apr. 30, 2007 51,181
Villa San Marcos 6,975,000 5,980,626 Fixed 8.31% Apr. 30, 2007 55,274
Four Creeks - I 1,795,198 1,799,034 Fixed 8.16% Dec. 1, 2005 13,521
Four Creeks - II 3,993,750 4,569,204 Fixed 8.31% Apr. 30, 2007 31,649
- ------------------------------------------------------------------------------------------------------
Total $20,547,019 $20,373,236 $163,592
======================================================================================================
</TABLE>
NOTE 8 - SHORT-TERM DEBT
At March 31, 1997 the Company's short-term borrowings totaled
$2,417,500 which consisted of $2,280,500 under repurchase agreements with Bear
Stearns & Co. and Paine Webber and $250,000 of interim financing provided by its
principal banker. The repurchase agreement borrowings had a weighted average
interest rate of 7.25%; the bank borrowing had an interest rate of 10%. The
repurchase agreements had initial terms of one month, are renewed on a month-to-
month basis, are collateralized by some of the Company's nonequity Residual
Interests and IO Bonds whose fair values approximated $2 million and have a
floating rate of interest which is tied to the one month LIBOR rate. The bank
interim financing is unsecured and is renewable on a month-to-month basis. The
Company has no committed lines of credit.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
Prior to 1995, the Company primarily invested in the Residual Interests of
CMOs and other mortgage related assets. The mortgage collateral underlying the
CMOs in the Company's portfolio of Residual Interests are mortgage-backed
certificates issued by the Government National Mortgage Association (GNMA), the
Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage
Corporation (FHLMC). In 1995 the Company changed its investment focus from
investments in Residual 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 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 income from mortgage related assets is sensitive to changes
in mortgage prepayments and interest rates. The Company attempts to reduce the
prepayment and interest rate risks by purchasing mortgage-related assets which
have characteristics and yields that complement the characteristics and yields
of existing assets. The Company's income from multifamily real estate is
sensitive to local real estate market conditions, cost of maintenance of its
properties and interest rates on its secured debt.
RESULTS OF OPERATIONS
The company had a net loss of $418,000, or $0.05 per share, for the quarter
ended march 31, 1997. this compares to a net loss of $361,000, or $0.04 per
share, for the quarter ended march 31, 1996. 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
income from mortgage certificates less interest expense on CMOs) remained
essentially constant between the two years. As a result of the sale of the
residual interest in TMAC CMO Trust 1986-1 in April 1996, interest from mortgage
certificates and interest on CMOs declined significantly in the three months
ended March 31, 1997 because the accounts of this Owner Trust Residual are no
longer included in the condensed consolidated financial statements. In the
quarter ended March 31, 1996, interest income included $518,000 and interest
expense included $438,000 from TMAC CMO Trust 1986-1.
Income from Residual Interests and Interest Only bonds was $83,000 in the
three months ended March 31, 1997 as compared to $93,000 in the prior year
period as the underlying portfolio remained relatively constant between periods.
Real Estate operations showed a loss of $98,000 and $22,000 in the three
months ended March 31, 1997 and 1996, respectively. However, operating income
from real estate operations before depreciation and amortization was $143,000
and $148,000 in the three months ended March 31, 1997 and 1996, respectively.
Depreciation of operating real estate assets increased in the three months ended
March 31, 1997 compared to the first quarter of 1996 as a result of capital
improvements. Otherwise real estate operations were relatively comparable
between the respective periods.
On June 27, 1996, the Board of Directors announced that as of July 1, 1996
the Company became a self-administered Real Estate Investment Trust and was no
longer managed by TIS Financial Services, Inc. Prior to that date, the Manager
oversaw the operations of the Company pursuant to a management agreement. As a
result, for the quarter ended March 31, 1997, the Company incurred no management
fees. In the first quarter of 1996, the Company incurred management fees of
$38,000.
14
<PAGE>
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, 1997 the Company had
borrowings outstanding under these agreements totaling $2,030,500. This debt
was collateralized by some of the Company's Nonequity Residual Interests and IO
Bonds whose fair values approximated $4 million. In addition, the Company has
obtained interim financing from its principal banker totaling $250,000. The
bank borrowings are unsecured and are renewable on a month-to-month basis.
The Company's cash flows for the three months ended March 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
-----------------------------------------------------
<S> <C> <C>
Used in Operating Activities ($ 119) ($ 563)
Used in Financing Activities (2,590) (5,225)
Provided by Investment Activities 2,674 5,846
----------------
Net Increase (Decrease) in
Cash and Cash Equivalents ($ 35) $ 58
================
</TABLE>
At March 31, 1997, the Company has unrestricted cash and cash
equivalents of $82,000.
Over the twelve months ended March 31, 1998, schedule principal
maturities on the notes payable on real estate amount to $272,000 and are
expected to be funded by cash flow from the Company's multifamily residential
properties. During the three months ended March 31, 1997 and 1996, the income
from real estate operations before depreciation and amortization amounted to
$143,000 and $148,000, respectively. The Company has no significant commitments
for capital expenditures relating to the real estate operations over the twelve
months ended March 31, 1998 and anticipates that any capital expenditures or
repair and maintenance activities would be funded from cash generated from real
estate activities.
Over the twelve months ended March 31, 1998, the Company anticipates
that cash inflows from mortgage related assets will approximate the cash
outflows associated with the underlying collateralized mortgage obligations.
However, management can provide no assurances of such mortgage related cash
flows as such cash flows are subject to interest rate changes, prepayment risks
and other uncertainties.
The Company has no committed lines of credit. Management of the Company
believes that cash flows from operations and the availability of repurchase
agreements are sufficient to enable the Company to meet its current and
anticipated future liquidity requirements including payment of dividends to its
stockholders, which must equal at least 95% of the Company's taxable income in
order for the Company to qualify as a REIT.
DIVIDEND REINVESTMENT PLAN
The Company has a Dividend Reinvestment and Share Purchase Plan designed to
enable shareholders to have their dividends from the Company automatically
invested in additional shares of the Company. Mellon Securities Trust Company,
which is unaffiliated with the Company, acts as the Plan Administrator. The
purpose of the Plan is to provide shareholders with a convenient and economical
way of investing dividends in additional shares of the Company's Common Stock.
These shares will be purchased on the open market or, at the direction of the
Company's Board of Directors, directly from the Company at a 3% discount from
the open market price. The Company has registered 1,000,000 Common shares for
possible issuance under the plan. The impact on liquidity from the Dividend
Reinvestment and Share Purchase Plan, if any, is expected to be immaterial.
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
No reports on Form 8-K were filed during the quarter ended March
31, 1997.
15
<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, 1997 BY:
------------ -------------------------------
Date Lorraine O. Legg, President and
Chief Executive Officer
(Principal Executive Officer)
MAY 14, 1997 BY:
------------ --------------------------------
Date John E. Castello, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,181
<SECURITIES> 70,542
<RECEIVABLES> 679
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 30,261
<DEPRECIATION> 1,255
<TOTAL-ASSETS> 102,778
<CURRENT-LIABILITIES> 3,693
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 10,745
<TOTAL-LIABILITY-AND-EQUITY> 102,778
<SALES> 0
<TOTAL-REVENUES> 2,774
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,412
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,780
<INCOME-PRETAX> (418)
<INCOME-TAX> 0
<INCOME-CONTINUING> (418)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (418)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
