<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 10-Q
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10001
RYMAC MORTGAGE INVESTMENT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 25-1577534
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 North Fourth Street, Suite 813, Steubenville, Ohio 43952
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone No., Including Area Code) (800) 666-6960
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 twelve
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes xx No ____
Number of shares of common stock, $.01 par value, outstanding as
of November 7, 1994: 5,210,600
<PAGE>
RYMAC MORTGAGE INVESTMENT CORPORATION
FORM 10-Q
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1994 (unaudited)
and December 31, 1993 3
Consolidated Statements of Revenues and
Expenses (unaudited) for the three and
nine months ended September 30, 1994
and 1993 4
Consolidated Statements of Cash Flows
(unaudited) for the nine months ended
September 30, 1994 and 1993 5
Notes to Consolidated Financial Statements
(unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 16
PART II. OTHER INFORMATION 28
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 29
<PAGE>
<TABLE>
Part I. Financial Information
Item 1. Financial Statements
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share data)
<CAPTION>
September 30, 1994 December 31, 1993
(Unaudited)
<S> <C> <C>
ASSETS
Real estate investments:
Mortgage related investments plus net premiums
of $23 and $840 (note 4) $ 12,930 $ 65,248
Mortgage derivative securities less valuation
allowance of $162 for 1994 (notes 2 and 3) 3,264 7,161
16,194 72,409
Cash 3,160 1,695
Funds held by trustee 391 1,347
Receivables on mortgage related investments 256 5,139
Receivables on mortgage derivative securities 109 469
Receivables from sales of mortgage derivative
securities 1,150 -
Other assets 124 38
$ 21,384 $ 81,097
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Funding notes payable (note 5) $ 13,259 $ 44,892
CMOs payable (note 6) - 25,042
Accrued interest on funding notes
and CMOs payable 189 584
Notes payable (note 7) 834 3,814
Dividends payable - 208
Other liabilities 213 375
14,495 74,915
COMMITMENTS AND CONTINGENCIES (notes 2,3 and 7)
STOCKHOLDERS' EQUITY
Common stock: par value $.01 per share
50,000,000 shares authorized
5,210,600 issued and outstanding at September 30, 1994,
and December 31, 1993 52 52
Additional paid-in capital 43,985 43,985
Accumulated Deficit (note 8) (37,148) (37,855)
6,889 6,182
$ 21,384 $ 81,097
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Part I. Financial Information
Item 1. Financial Statements (continued)
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 3O, 1994 AND 1993
(amounts in thousands except share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
REVENUES
<S> <C> <C> <C> <C>
Interest:
Mortgage related investments $ 308 $ 2,163 $ 1,934 $ 7,832
Mortgage derivative securities 305 (5,748) 795 (16,241)
Provision for investment losses (88) - (186) -
Temporary investments 9 49 31 134
Gain(net) on the sale of mortgage
related investments 13 516 461 750
Gain on the sale of mortgage derivative
securities 490 - 490 -
Loss on investment in marketable equity
securities - (453) - (453)
Other 24 10 63 32
1,061 (3,463) 3,588 (7,946)
EXPENSES
Interest on funding notes payable 317 1,589 1,428 5,356
Interest on CMOs payable - 845 707 3,094
Interest on notes payable 27 74 102 316
General and Administrative 175 359 644 1,204
519 2,867 2,881 9,970
Net Income (loss) (note 8) $ 542 $ (6,330) $ 707 $(17,916)
Net Income (loss) per share $ 0.11 $ (1.22) $ 0.14 $ (3.44)
Weighted average number of common
shares outstanding 5,211,000 5,211,000 5,211,000 5,211,000
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Part I. Financial Information
Item 1. Financial Statements (continued)
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(amounts in thousands except share data)
<CAPTION>
1994 1993
<S> <C> <C>
Operating Activities:
Net Income (loss) (note 8) $ 707 $(17,916)
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of net premium on mortgage
related investments 817 130
Amortization of premiums on
mortgage derivative securities 1,103 22,900
Interest accrued and added to funding notes
payable 584 1,077
Decrease in interest receivable on
mortgage related investments 500 589
Decrease/(increase) in interest receivable on
mortgage derivative securities 309 (88)
Increase/(decrease) in accrued interest on
funding notes payable and CMOs payable (395) 541
Decrease in accrued expenses payable (370) (223)
Increase in other receivables (1,150) -
Gains on the sales of investments (490) -
Loss from investment in marketable equity
securities - 453
Other, net 76 2
Net cash provided by operating activities 1,691 7,465
Investing Activities:
Principal payments on mortgage related investments 55,884 66,664
Decrease/(increase) in funds held by trustee 956 (11,236)
Principal payments on funding notes payable (32,217) (30,697)
Principal payments on CMOs payable (25,042) (24,052)
Principal payments on mortgage derivative
securities 239 2,253
Proceeds from sales of investments 2,934 29
Net cash provided by investing activities 2,754 2,961
Financing Activities:
Net repayments of notes payable (2,980) (9,607)
Net cash used in financing activities (2,980) (9,607)
Net increase in cash 1,465 819
Cash at beginning of period 1,695 636
Cash at end of period $ 3,160 $ 1,455
Supplemental disclosure of cash flow information:
Interest paid (net of amounts added to funding
notes payable) $ 2,091 $ 7,255
Third quarter dividends declared $ - $ -
See notes to consolidated financial statements.
</TABLE>
<PAGE>
RYMAC MORTGAGE INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share data)
_________________________________________________________________
Note 1 - The Company
RYMAC Mortgage Investment Corporation ("RMIC") was incorporated in
Maryland on July 1, 1988. RMIC has two wholly-owned subsidiaries,
RYMAC Mortgage Investment I, Inc. ("RMI") and RYMAC Mortgage
Investment II, Inc. ("RMII"). RMIC, RMI and RMII are collectively
referred to hereafter as the "Company". At inception, the Company
issued 5,420,000 shares of its common stock. During 1990 and 1991,
the Company repurchased 209,400 shares of its common stock in
accordance with a stock repurchase program at costs ranging from
$6.75 to $7.63 per share.
In response to the Company's earnings difficulties and reduced cash
flows from its investment portfolio, the Company is currently
implementing actions to begin alternative investment activities and
is simultaneously evaluating several business combination proposals
that could effectively utilize the Company's tax loss position.
(See Management's Discussion and Analysis - "Investment Philosophy
and Investment Activities" and "Future Prospects"). To date,
actions necessary to begin the alternative investment activities
are incomplete and no successful business combination has been
negotiated. If the Company is unable to successfully institute any
of the above mentioned plans, the Company's ability to re-establish
an investment portfolio would be impaired, causing the Company to
evaluate actions that would include an orderly distribution of its
current cash balance and future excess cash receipts to
stockholders.
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of RMIC
and its wholly-owned subsidiaries RMI and RMII. All intercompany
balances and transactions have been eliminated in consolidation.
Mortgage Related Investments
Mortgage related investments are carried at their outstanding
principal balance, plus or minus the applicable premium or
discount. The net premium on mortgage related investments is
amortized over the estimated lives of the investments using the
interest method. (See note 4)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
On a quarterly basis through December 31, 1993, the Company made
adjustments to its mortgage related investments based upon
valuation estimates. Such valuations were conducted on an asset-
by-asset basis using assumptions that incorporated both market
expectations as to future mortgage prepayment speeds at each
valuation date and an estimate of future interest rates implied by
the yield curve at each valuation date.
The Company compared the results of such assumptions to other
relevant market data and made appropriate adjustments, as
necessary. The quarterly valuation process described herein
reduced the carrying value of mortgage related investments to $840
at December 31, 1993. The valuation methodology and the sale of
the ownership rights to three of these assets has reduced premiums
remaining to $23 as of September 30, 1994.
Mortgage Derivative Securities
Mortgage derivative securities have been recorded at cost and are
amortized over their estimated lives using the interest method.
(See note 3)
The Company had been applying Emerging Issues Task Force ("EITF")
Issue No. 89-4 "Accounting for a Purchased Investment in a
Collateralized Mortgage Obligation Instrument or in a Mortgage-
Backed Interest-Only Certificate" in its quarterly valuation of its
Mortgage Derivative Securities. EITF 89-4 requires a valuation
adjustment when, under market based assumptions as to future
mortgage prepayment speeds and interest rate levels, the nominal
cash flows expected from a Mortgage Derivative Security asset are
less than the current carrying value of the asset.
The Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standard No. 115 ("FASB-115"), "Accounting for Certain
Investments in Debt and Equity Securities," effective for fiscal
years beginning after December 15, 1993.
The Company elected to apply FASB-115 effective December 31, 1993.
FASB-115 requires that impaired investments be carried at fair
market value. The EITF has concluded that an impairment to value
under FASB-115 has occurred if the future cash flows, discounted at
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
a risk free rate (the yield associated with a U.S. Treasury
Security with a maturity approximating the average life of the
future cash flows from the Company's portfolio of investments), are
less than the investment's carrying value.
Federal Income Taxes
The Company has elected to be taxed as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). As a result, the Company generally will not be
subject to federal income taxation at the corporate level to the
extent it distributes annually at least 95% of its REIT taxable
income, as defined in the Code, to its stockholders and satisfies
certain other requirements. Accordingly, no provision has been
made for income taxes in the accompanying consolidated financial
statements.
Net Income (Loss) Per Share
Net income (loss) per share is computed based on the weighted
average number of common shares outstanding during the period.
_________________________________________________________________
Note 3 - Mortgage Derivative Securities
The Company's investments in mortgage derivative securities
currently consist of (i) a class or classes of collateralized
mortgage obligations ("CMOs") that either represents a regular
class of bonds or a residual class of bonds or (ii) interests in a
class or classes of mortgage-backed pass-through certificates that
either represent a regular class of certificates or a residual
class of certificates. For federal income tax purposes, a majority
of the Company's mortgage derivative securities represent interests
in real estate mortgage investment conduits ("REMICs"). CMOs are
mortgage-backed bonds which bear interest at a specific
predetermined rate or at a rate which varies according to a
specified relationship to a specific short term interest rate
index, such as the London interbank offered rate for one-month U.S.
dollar deposits ("LIBOR").
Most residual bonds are structured so as to entitle the holder to
receive a proportionate share of the excess (if any) of payments
received from the collateral pledged to secure such bonds and the
other related classes, together with the reinvestment income
thereon, over amounts required to make debt service payments on
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 3 - Mortgage Derivative Securities (continued)
such CMOs and to pay related administrative expenses. In
connection with these investments, the Company acquired no other
rights relating to the collateral pledged to secure its mortgage
derivative securities. Most residual certificates are structured
so as to entitle the Company to receive a specified percentage of
the distributions generated from the pool of assets comprising the
trust funds of which the certificates evidence an interest.
At September 30, 1994 and December 31, 1993, the Company had
investments in Mortgage Derivative Securities (computed in
accordance with FASB-115) as set forth below:
<TABLE>
<CAPTION>
PORTFOLIO OF MORTGAGE DERIVATIVE SECURITIES Sept. 30, December 31,
1994 1993
_______________________________________________________________________
<S> <C> <C>
Collateralized Mortgage Obligation Trust 39
("CMOT 39") $ - $ 466
Collateralized Mortgage Obligation Trust 46
("CMOT 46") - 81
Collateralized Mortgage Obligation Trust 47
("CMOT 47") 682 864
FNMA REMIC Trust 1988-7 ("FNMA 1988-7") 114 177
- Trust 1988-11 ("FNMA 1988-11") 415 467
- Trust 1988-14 ("FNMA 1988-14") - 843
- Trust 1990-09 Class H ("FNMA 1990-09") - 989
- Trust 1991-163 Class SA ("FNMA 1991-163") 788 930
FNMA Stripped Mortgage-Backed Securities
Trust 127 ("FNMA 127") - 646
FHLMC Multi-Class Mortgage Participation
Certificates
(Guaranteed)
- Series 2 ("FHLMC 2") 172 202
- Series 21 ("FHLMC 21") - 11
- Series 1235 Class L ("FHLMC 1235") 426 509
- Series 1248 Class H ("FHLMC 1248") 775 914
Cornerstone Mortgage Investment
Group II, Inc.
- Series 13 ("Cornerstone 13") 33 38
- Series 14 ("Cornerstone 14") 21 24
_______________________________________________________________________
$ 3,426 $ 7,161
_______________________________________________________________________
</TABLE>
The Company makes valuation adjustments at quarterly dates based
upon assumptions as to mortgage prepayment speeds, interest rates
and discount rates reflective of then current financial markets.
The Company adopted FASB-115 effective December 31, 1993. (See
note 2) FASB-115 incorporates a discounted cash flow valuation
approach whereas EITF 89-4 was based upon future expected
undiscounted cash flows.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 3 - Mortgage Derivative Securities (continued)
Under FASB-115, future cash flows are discounted at a rate
reflective of market yields for assets of the type held by the
Company. At December 31, 1993, the Company applied a discount rate
of 12% to the cash flows for its portfolio of Mortgage Derivative
Securities. In 1994 the Company established a valuation reserve
account.
During the third quarter, the Company sold four mortgage derivative
securities for a net gain of $490. During October 1994, the
Company sold an additional security for which the Company will
recognize a net gain of approximately $90. The proceeds from these
sales will be directed toward new business opportunities which the
Company is currently pursuing.
Substantially all of the Company's remaining mortgage derivative
securities have been pledged as collateral for repurchase
agreements as described in note 7.
_________________________________________________________________
Note 4 - Mortgage Related Investments
The Company's mortgage related investments consist of ownership
interests in certain classes of mortgage-backed securities issued
by Ryan Mortgage Acceptance Corporation IV and Ryland Mortgage
Securities Corporation (as described below).
On November 29, 1989, the Company purchased from Ryland Mortgage
Securities Corporation ("RMSC") certain insured mortgage loans and
other collateral owned by RMSC and pledged to secure RMSC's
Mortgage Collateralized Bonds Series 1989-6 (the "RMSC Bonds").
This mortgage related investment and other collateral were
purchased subject to the lien of the Indenture (the "RMSC
Indenture") between RMSC and Sovran Bank, N.A., the Trustee for the
RMSC Bonds (the "RMSC Trustee"), pursuant to which the RMSC Bonds
were issued and subject to the rights of the RMSC Trustee and the
bondholders thereunder. (See note 6) This mortgage related
investment grants to the Company certain additional rights with
respect to the RMSC Bonds, including rights with respect to
substitution of collateral, amendments of or supplements to the
RMSC Indenture, and calling of the RMSC Bonds.
On September 23, 1988, the Company purchased from Ryan Mortgage
Acceptance Corporation IV ("RYMAC IV"), certain GNMA certificates
and FNMA certificates and other collateral owned by RYMAC IV and
pledged to secure RYMAC IV's Mortgage Collateralized Bonds Series
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 4 - Mortgage Related Investments (continued)
3, 4, 7, 10, and 19 (collectively the "RYMAC IV Bonds"). (See note
5) These mortgage related investments and other collateral were
purchased subject to the lien of the Indenture between RYMAC IV and
the Trustee (the "RYMAC IV Indenture") pursuant to which the RYMAC
IV Bonds were issued and subject to the rights of the Trustee and
the bondholders thereunder. (See note 5) This series of five
purchase agreements grants to the Company certain additional rights
with respect to the RYMAC IV Bonds, such as the right, if any, to
substitute collateral, the right to direct the reinvestment of
collateral proceeds and the right to call the related RYMAC IV
Bonds.
During the first quarter of 1994, the Company sold its ownership
rights in the RYMAC IV Series 3 and 4 Bonds ("Series 3" and "Series
4", respectively), for a net gain of approximately $595. (See note
5) For the remaining RYMAC IV Bond Series 7, 10 and 19, it is not
currently anticipated that either call options or the contractual
assignment of the Company's rights will be available to the
Company. The Company assigned its ownership rights in the RMSC
Bonds to a third party during the second quarter for a net loss of
approximately $134.
At September 30, 1994 and December 31, 1993, the Company owned
mortgage related investments with aggregate outstanding principal
balances of $12,907 and $64,408, respectively, which provide for
monthly principal and interest payments. The RYMAC IV collateral
bears interest at rates ranging from 7.75% to 10.50% and have
scheduled maturity dates ranging from July 1, 2001 to April 1,
2017.
_________________________________________________________________
Note 5 - Funding Notes Payable
Funding notes payable represent limited recourse notes delivered to
RYMAC IV as partial payment for the purchase of mortgage related
investments and other collateral and have payment terms the same as
the related series of RYMAC IV Bonds. (See note 4) The funding
notes payable consisted of three and five multi-class series at
September 30, 1994 and December 31, 1993, respectively, having
stated maturities ranging from August 1, 2010 to May 1, 2017. The
classes of each series of funding notes payable bear interest at
fixed rates. The range of fixed rates at September 30, 1994 and
December 31, 1993 were 8.25% to 9.45% and 8.25% to 11.20%,
respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 5 - Funding Notes Payable (continued)
Principal and interest payments on the mortgage related investments
are used to make the monthly or quarterly payments on the funding
notes payable. In addition, prepayments of the underlying mortgage
related investments are passed through as prepayments of the
funding notes payable so that the funding notes payable may be
fully paid prior to their stated maturities.
During the first quarter of 1994, the Company sold its ownership
interest in the RYMAC IV Series 3 and 4 Bonds. (See note 4)
_________________________________________________________________
Note 6 - CMOs Payable
CMOs payable represented the RMSC Bonds. (See note 4) The RMSC
Bonds, secured by insured mortgage loans and other collateral,
consisted of one multi-class series with each class bearing
interest at fixed annual rates. The range of fixed rates at
December 31, 1993 was 9.80% to 9.85%. The RMSC Bonds were sold
during May 1994. (See note 4)
_________________________________________________________________
Note 7 - Notes Payable
At September 30, 1994, the Company was a party to seven separate
repurchase agreements for borrowings of $834 which are
collateralized by certain mortgage derivative securities. These
repurchase agreements bear interest at a rate of 5.75% and mature
on October 28, 1994. The October 1994 sale of an additional
mortgage derivative security resulted in the further reduction of
repurchase agreement borrowings to $635 from the $834 outstanding
as of September 30, 1994. At maturity dates, repurchase agreements
are typically renewed with the same dealer for additional periods
(from one to twelve months); however, due to the recent sale of
Kidder Peabody and Company ("Kidder Peabody"), the Company has been
advised that repurchase agreements would not be extended beyond
November 30, 1994. As a result, the Company is currently exploring
new borrowing opportunities for these securities. Should the
Company not secure new borrowing arrangements, the repurchase
agreements with Kidder Peabody would be repaid from the Company's
cash position.
At September 30, 1994, all $834 of such repurchase agreements were
outstanding with Kidder Peabody. These repurchase agreements were
secured by the pledge of mortgage derivative securities with a
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 7 - Notes Payable (continued)
carrying value of $3,372 and had an average weighted maturity of 27
days. At December 31, 1993, repurchase agreement borrowings were
$3,814 under twelve separate repurchase agreements at rates ranging
from 3.3% to 5.0% and maturities ranging from January 6, 1994 to
April 4, 1994. If the borrowings under the repurchase agreements
exceed a specified percentage of the collateral value, as
determined by the lenders in their sole discretion, the lenders
have the right to require either the repayment of a portion of the
borrowings prior to maturity or the delivery of additional
collateral.
The Company maintained a line of credit with a commercial bank for
$250 with an expiration of April 30, 1994, which availability was
subject to periodic valuations of the pledged collateral.
Amounts borrowed under this agreement were charged interest at a
rate of the prime rate plus 1.0%, and were collateralized by the
pledge of the Company's ownership interests in the RYMAC IV Bonds
and the RMSC Bonds. The availability under the line was limited to
the value of collateral pledged to the bank. At December 31, 1993,
no amounts were outstanding under the line. Upon expiration of the
agreement, the Company elected not to renew the line of credit.
The following summarizes information related to the Company's
short-term borrowings during the third quarter of 1994:
<TABLE>
<CAPTION>
Maximum Average Weighted
Weighted Amount Amount Average
Balance Average Outstanding Outstanding Interest
at End Interest During During Rate During
of Period Rate Period Period Period
<S> <C> <C> <C> <C> <C>
Repurchase
Agreements $ 834 5.75% $2,256 $2,012 5.25%
</TABLE>
__________________________________________________________________
Note 8 - Federal Income Taxes and Distributions
As described in note 2, the Company has elected to be treated, for
federal income tax purposes, as a REIT. As such, the Company is
required to distribute annually, in the form of dividends to its
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 8 - Federal Income Taxes and Distributions (continued)
stockholders, at least 95% of its taxable income. Because of the
provisions of the Code applicable to the type of investments made
by the Company, in the early years of the life of certain of the
Company's initial investments (particularly investments made in
connection with the Company's initial public offering, and to a
lesser degree during 1989) taxable income exceeded net income.
During the later years of such ownership, Net Income will exceed
REIT taxable income. The principal reason for such difference is
that the Company reports income from its portfolio of mortgage
related investments and mortgage derivative securities on the
interest method for financial reporting purposes; however, for
income tax purposes, the Company reports its proportionate share of
the difference between interest income generated by the collateral
and interest expense on the CMOs. More recent investments made by
the Company and investments currently available in the market are
typically structured so that taxable income and Net Income are
similar during each reporting period. Over the life of a
particular investment or security, taxable income and Net Income
will be equal. In reporting periods where taxable income exceeds
Net Income, stockholders' equity will be reduced by the amount of
dividends in excess of Net Income in such period and will be
increased by the excess of Net Income over dividends in future
reporting periods.
The Company's taxable losses for 1992 and 1993 aggregate
approximately $28 million. Further tax losses are likely in 1994.
During 1992 and 1993, the Company's investment in certain REMICs
produced excess inclusion income of $514 and $213, respectively.
Under the Code a REIT must generally distribute its excess
inclusion income to its stockholders even though it has losses or
deductions. Accordingly, if the Company were to report future
excess inclusion income, it would be required to distribute such
excess inclusion income as dividends even though it has an
estimated net operating loss carryforward approximating $28
million. The net operating losses can be carried forward to
offset ordinary income of the Company for fifteen years after such
loss is recognized.
The following table illustrates the reconciliation between Net
Income and Accumulated Deficit and the related per share data for
the three months ended September 30, 1994:
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 8 - Federal Income Taxes and Distributions (continued)
<TABLE>
<CAPTION>
1994
<S> <C>
Accumulated Deficit
at Beginning of Period $(37,690)
Net Income 542
Less: Dividends Declared -
Accumulated Deficit
at End of Period $(37,148)
Per Share:
Net Income $ 0.11
Dividends Declared $ -
</TABLE>
_________________________________________________________________
Note 9 - Employee Benefits
The Company's Board of Directors has established a Salary
Reduction-Simplified Employee Pension Program ("SAR-SEP") for its
full-time employees. A SAR-SEP is a minimal administration 408-K
Plan (similar to a 401-K) for companies with fewer than 25
employees.
For 1994, the Company has established a minimum contribution of 3%
of gross compensation. Company contributions to the plan may vary
and the Company is not required to continue the program. Employee
contributions are based upon established formulas under the
Employee Retirement Income Security Act ("ERISA") rules governing
408-K Plans.
In order to encourage Management to remain with the Company 1) to
diligently seek a business combination(s) that creates the maximum
current and future value for the Company's stockholders and 2) to
make the significant arrangements necessary to begin a profitable
new investment program, the Unaffiliated Directors adopted
incentive stock option and salary continuation programs for the
Company's Officers and Affiliated Director. Under the Stock Option
Program, options on 240,000 shares of the Company's common stock
were awarded at an exercise price of $0.75/share, exercisable over
the three year period ending July 1997. Salary continuance was
provided to the same Officers and Affiliated Director, allowing for
up to one year's base salary should an individual not be offered
employment by a surviving entity or find new employment within one
year of any such business combination.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
INVESTMENT PHILOSOPHY AND INVESTMENT ACTIVITIES (HISTORICAL)
Both the Company's historical and current portfolio of investments
is sensitive to changes in interest rates and mortgage prepayments.
The lowest mortgage interest rate levels in 20 years were reached
in 1992 and continued to 25 year lows in the fourth quarter of
1993, resulting in unprecedented mortgage refinancings and
therefore accelerated mortgage prepayments. As a result of the
high level and extended duration of these prepayments, earnings and
cash flows from the Company's current investments have been
adversely impacted. For a majority of the assets, earnings and
cash flows have been permanently impaired and will not recover even
as prepayments returned to more historical levels in the second and
third quarters of 1994. This permanent impairment is the direct
result of the massive level of paydowns on the mortgages
collateralizing the Company's investments. Since most of the
Company's assets represent the ownership of identified cash flows
in diverse CMO structures, prepayments of the underlying mortgage
collateral, especially of the magnitude and duration experienced
from early 1992 through early 1994, will permanently reduce cash
flows even when prepayment speeds slow. As an example, an
"interest only" type investment in a CMO collateralized by $100
million in mortgages produces only 20% of the original expected
cash flows when the underlying mortgage collateral prepays to a $20
million level.
During the period from the Company's inception in 1988 through
early 1992, mortgage interest rate levels and prepayment speeds
remained within levels existent from 1970 to early 1992.
Historically, cash received from the Company's portfolio of
mortgage related investments and mortgage derivative securities
(collectively, "Investments") represented interest and dividend
earnings and the return of investment principal (basis). Interest
and dividends were used to 1) pay operating expenses and 2) make
dividend distributions to stockholders. Cash flow amounts
representing returns of principal on investments were used to 1)
repay Company borrowings, including margin calls on repurchase
agreements, and 2) make suitable new investments for the Company's
portfolio.
However, between June of 1992 and early 1994, mortgage rates at
recent historical lows resulted in extraordinarily rapid and
sustained levels of residential mortgage prepayments. As a direct
result, the Company's Investments generated reduced interest and
dividend earnings and as the duration of high levels of prepayments
continued during such period, the Company's cash flows from returns
of investment principal and interest and dividend earnings have
also been severely impaired and were utilized to reduce the
Company's borrowings (including margin calls), pay operating
<PAGE>
expenses and fund minimal dividend distributions to stockholders.
This prolonged period of rapid prepayments resulted not only in
reduced cash flows due to the substantially diminished size of the
mortgage pools underlying the Company's Investments described above
but declining market values for the Company's Investments which
simultaneously reduced the financing value of such assets. (See
"Liquidity and Capital Resources") As such, during the second half
of 1992, all of 1993 and through the first nine months of 1994, the
Company has elected not to purchase any new assets. New purchases
of mortgage derivative securities are currently restricted to those
specifically approved by the Company's Board of Directors.
CURRENT MARKET AND FUTURE PROSPECTS FOR THE COMPANY
The future prospects for the Company are affected by mortgage
refinancing and prepayment activity. Since mid July 1994, the
Mortgage Bankers Refinancing Index, an indicator of mortgage
refinancing activity, has declined to levels below 114, a level not
reached since November 1990. The Index reached an all-time high
level of 1727 in September 1993. Fixed rate 30 year mortgages have
risen to a range of 9.00-9.25%, reducing refinancing applications
to a minor portion of new mortgage applications, as compared to 50-
70% of applications at points during the two year refinancing boom
of early 1992 through early 1994. Fixed rate 30 year mortgage
loans had been available at yields below 7% in the third and fourth
quarters of 1993.
As a result of the decline in refinancing activity described above,
mortgage prepayment speeds for most mortgage coupon levels have
fallen substantially since the first quarter of 1994. These
decreases in prepayment speeds and dealer projections of further
declines in prepayment levels should result in a stabilization of
the Company's remaining cash flows and improved market values on a
majority of its assets. However, the extended duration of
historically high and unprecedented prepayments has permanently
reduced the level of cash flows and earnings from the same assets;
thus the Company does not expect any significant increase in cash
flows or earnings from its current portfolio. Nevertheless, a
stabilization of cash flows will increase the time available to the
Company to evaluate and implement available opportunities.
During the third quarter and early fourth quarter of 1994 and as a
direct result of the substantial slowdown in prepayment speeds of
mortgages collateralizing the Company's investments, the Company
sold five mortgage derivative assets for approximately $3.5
million, representing a gain of approximately $600,000 over the
Company's carrying value for these same assets. After repayment of
related debt on these assets of approximately $1.7 million, the
Company increased its cash balances by $1.8 million.
<PAGE>
Simultaneously, the Company has reduced operating expenses in all
expenditure areas, particularly employment costs, consulting fees,
officer compensation, communications/information expenses and
Directors' fees (as of April 4, 1994, the annual fee payable to
members of the Company's Board of Directors was reduced to $1.00
per year). The Company has reduced operating expenses by
approximately 75% since early 1993. At such reduced expense
levels, the periodic cash flows from the Company's remaining assets
are in excess of the Company's operating expenses (including
Interest expense on notes payable) and normal principal
amortization requirements of its notes payable.
During the third quarter of 1994, the Company's Board of Directors
decided that the Company currently will not seek to make any new
investments involving residential mortgage backed derivatives or
residual positions. Additionally, the Company may selectively sell
additional assets from its portfolio if attractive price levels are
available.
The Company believes that reduced but stable cash flows from the
current portfolio, substantially reduced operating expenses and a
current cash reserve of approximately $4,500,000 will enable the
Company to 1) implement the new investment strategy described below
and 2) evaluate various business combinations currently under
discussion. If successful, both the new investment activity and a
potential business combination would add substantial earning assets
to the Company's investment portfolio. Any new assets are not
likely to be subject to the risks of mortgage prepayments.
With the expectation of a period of more stable mortgage market
performance, the Company expects to implement an alternative
investment activity involving the acquisition of tax sale
certificates mentioned in its second quarter 1994 Report on Form
10Q, and continues to evaluate several business combination
proposals that could effectively utilize its tax loss position and
add significant earning assets to the Company's balance sheet.
During the third quarter, the Company made substantial progress
toward implementation of a strategy of acquisition and financing of
tax sale certificates on residential and commercial properties.
Although the actions, approvals and authorizations necessary to
begin this alternative investment activity are incomplete and no
assurance can be given regarding the implementation of such
activities, as described below, substantial progress has been made
in 1) establishing the parameters of a program that would be
acceptable to the investment community and the structures that
would be necessary to implement the same; 2) retaining an
experienced and recognized acquisition and servicing agent; 3)
obtaining the necessary warehouse financing; 4) retaining a trustee
and back-up servicer; 5) obtaining an investment grade rating from
one of the recognized national rating agencies regarding the issue
of collateralized notes; 6) identifying an agent for placement of
<PAGE>
the collateralized notes and 7) engaging legal counsel for
preparation of documentation.
Acquisition of tax lien certificates will likely include
incremental borrowings by the Company and exposure to market risks.
It is the Company's intention to incur only non-recourse debt in
connection with any such investments by means of a pledge of the
underlying assets acquired and subordination of the Company's cash
investment in the new assets. The Company believes that use of
conservative underwriting standards should serve to mitigate market
risks in the newly acquired assets.
No assurances can be given regarding the successful implementation
of the Company's new investment activity, given its dependence upon
financial market conditions, the availability of assets that meet
established underwriting criteria, the final successful negotiation
of a servicing contract, the existence of market competition and
the successful placement of non-recourse debt.
Since the second quarter of 1994 and simultaneous with the
beginning of the current slowdown in mortgage prepayment speeds,
the Company has analyzed numerous potential business combinations.
At the current time the Company is conducting discussions with
several parties attempting to identify a value maximizing
opportunity. Although several of these discussions are positive in
tone, any business combination is subject to extensive negotiations
of an economic, financial, and legal nature, to changes in general
market conditions and to the attitudes and requirements of another
entity. If an attractive transaction is identified, stockholders
would be asked for approval to proceed through a proxy vote.
If the Company is unable to successfully institute its tax sale
certificates investment activity or a business combination, as
described above, the Company's ability to re-establish and conduct
an investment business would be significantly impaired. Under such
circumstances, the Company would consider an orderly liquidation of
its current assets and distribution of resulting net proceeds to
stockholders. The market for mortgage derivatives, which
represents the majority of the Company's investment portfolio, is
currently erratic and illiquid. Buyers of mortgage derivatives are
demanding excessive yields which often result in unsatisfactory
sale prices for these types of assets. Under these market
conditions, the Company believes that greater value to stockholders
could be produced through the periodic payout of cash flows
received from the assets in combination with specific asset sales
at future dates at improved prices.
As a result of operating losses, the Company accumulated
substantial tax loss carryforwards during 1992, 1993, and into
1994, currently estimated to be in excess of $31,000,000. Absent
the existence of future excess inclusion income (see "Dividend
Policy"), future cash flows from the Company's current portfolio of
<PAGE>
investments would represent, to a large degree, return of
investment principal (basis) to the Company and not taxable income
required to be distributed as dividends to stockholders.
Additionally, the Company's estimated tax loss carryforward of $31
million can be utilized to offset future taxable income generated
from newly contemplated activities before the Company's earnings
again become taxable and result in the requirement for dividend
payments. Should the contemplated investment activities be
successful, the Company would be in a tax position to use cash
flows to rebuild the Company's investment portfolio prior to
resuming taxable dividend payments.
DIVIDEND POLICY
In accordance with the Code, the Company is required to distribute
at least 95% of its taxable income to its stockholders each year in
order to maintain its status as a REIT. Dividends paid for a
fiscal year in excess of the Company's taxable income are reported
as a return of capital to the Company's stockholders, except as
provided below.
Some of the Company's investments constitute REMIC residual
interests. Certain of these residual interests may produce "excess
inclusion" income during the fiscal year. The Code requires that
excess inclusion income be included in a taxpayer's income even
though the taxpayer has losses that would otherwise offset such
income. As a result, the Company could have taxable income from
excess inclusions in a taxable year even though it has losses from
other investments that would normally be sufficient to offset the
amount of such excess inclusion income. The Company is required to
distribute the taxable income representing excess inclusions to
meet its 95% distribution requirement and to avoid a corporate
level tax on such income. When such income is distributed to a
stockholder, the stockholder will have taxable income, rather than
a return of capital, equal to its share of such excess inclusion
income during the fiscal year. The Company reported for fiscal
1993 that all distributions paid for 1993 represented excess
inclusion income. (See note 8 of Notes to Consolidated Financial
Statements) For a stockholder, generally, excess inclusion income
cannot be offset by losses.
On March 29, 1994, August 10, 1994 and November 7, 1994, the
Company announced that no dividends would be paid for the quarters
ended March 31, 1994, June 30, 1994 and September 30, 1994
respectively.
RESULTS OF OPERATIONS
The Company's Net Income increased from $(17,916,000) for the nine
month period ended September 30, 1993 to $707,000 for the nine
month period ended September 30, 1994, an increase of $18,623,000.
This increase in net income is primarily attributable to the
<PAGE>
following factors: 1) a decrease in asset valuation writedowns
from $17,975,000 during the first nine months of 1993 to only
$33,000 in the 1994 period, a positive change of $17,942,000, 2)
reduced earnings levels on Mortgage Derivative Securities of
$614,000 in the 1994 period, 3) a reduction in the Company's
operating expenses (includes "Interest on notes payable" and
"General and Administrative") by $774,000, 4) a net increase in
gains from asset sales of $654,000 and 5) a net increase of $92,000
in Mortgage related investments interest revenue and related
expense items, Interest on funding notes and CMO's payable.
At December 31, 1993, the Company first applied Financial
Accounting Standard No. 115 ("FASB-115"). FASB-115 requires that
impaired investments be carried at fair market value, and, as such,
all of the Company's Mortgage Derivative Securities were affected
at 1993 year end. Prior to the adoption of FASB-115, such
investments were carried at values equivalent to their estimated
future nominal monetary value, in accordance with EITF 89-4. (See
note 2 of Notes to Consolidated Financial Statements) With the
December 1993 fair value analysis on these investments, the Company
was able to recognize in 1994's first nine months a rate of return
of 12% on these same investments.
Statement of Revenues and Expenses
Net Income (loss), as calculated in accordance with generally
accepted accounting principles ("GAAP") and as presented in the
accompanying consolidated financial statements, was $707,000, or
$0.14 per share, for the nine months ended September 30, 1994 as
compared with $(17,916,000), or $(3.44) per share, for the nine
months ended September 30, 1993 and $542,000, or $.0.11 per share,
for the three months ended September 30, 1994 as compared with
$(6,330,000), or $(1.22) per share, for the three months ended
September 30, 1993.
The primary reason for the significant difference in income between
periods results from the writedown of assets during the three and
nine month periods ended September 30, 1993. Such adjustments
totalled $6,016,000 and $17,975,000, respectively, for the three
and nine month periods ended September 30, 1993. Writedowns of
$33,000 were required for the nine month period ended September 30,
1994, none of which related to the three month period ended
September 30, 1994.
GAAP requires the Company to periodically evaluate its Investments
based upon current and expected future mortgage prepayment speeds,
interest rates and market discount rates. (See note 2 of Notes to
Consolidated Financial Statements) Such valuation adjustments are
reflected as a reduction of interest revenues in the Company's
Consolidated Statements of Revenues and Expenses. The assumptions
used to value assets at the end of each quarter take into
consideration the actual mortgage prepayment speeds experienced for
<PAGE>
each asset through the end of the quarterly period, market
expectations of future prepayment speeds for the mortgages backing
each asset, and effective for quarterly dates of December 31, 1993
and later, the application of a market discount rate to future cash
flows. If prepayment speeds were to increase to levels higher than
current market expectations, market expectations of future mortgage
prepayment speeds increase beyond current anticipated levels, or
the market discount rate applied was increased, additional
reductions in the value of the Company's Investments could be
necessary.
The Company derives its income (loss) primarily from its
investments in Mortgage Derivative Securities. The Company's
portfolio contains several types of mortgage derivative securities.
For each security that the Company purchases, it receives the right
to certain designated cash flows from these securities. Due to the
nature of these securities, income calculated in accordance with
the Code ("Taxable Income") and income calculated in accordance
with GAAP ("Net Income") are not always identical for any
particular period, particularly when mortgage prepayment speeds are
unusually high, as had been the case from early 1992 to early 1994,
or unusually low.
The substantial differences between Taxable Loss and Net Income
(loss) are reflected in the following table:
Nine Months Ended September 30,
1994 1993
Net Income (loss) $ 707,000 $(17,916,000)
Estimated Taxable Loss $(3,700,000) $( 6,650,000)
Net Income (loss) per share $ 0.14 $(3.44)
Estimated Taxable Loss
per share $(0.71) $(1.28)
In addition to the absence of significant asset writedowns in the
first nine months of 1994, the other factors contributing to the
increases in Net Income for the three and nine month periods ended
September 30, 1994 are 1) an increase in the gains recognized from
sales of assets, 2) a substantial decrease in interest expense on
funding notes, CMOs and notes payable and 3) a substantial
reduction in general and administrative expenses. These changes,
when combined with the decrease in interest revenue on mortgage
related investments, provided for the substantial increase in the
Company's Net Income.
Interest revenue on Mortgage Related Investments decreased from
$2,163,0000 and $7,832,000 for the three and nine months ended
September 30, 1993 to $308,000 and $1,934,000 for the three and
<PAGE>
nine months ended September 30, 1994, as a result of the
substantial reduction in Mortgage Related Investments on the
Company's Balance Sheet for these periods discussed below.
Interest revenue on Mortgage Derivative Securities was $(5,748,000)
and $(16,241,000) for the three and nine months ended September 30,
1993 as compared to $305,000 and $795,000 for the three and nine
months ended September 30, 1994. The increase in interest revenue
on Mortgage Derivative Securities was attributable to writedowns of
$17,650,000 which occurred for 1993's first nine months, of which
$5,899,000 related to the third quarter of 1993. These writedowns
are deducted from Mortgage Derivative Securities interest revenues.
There were no writedowns during the third quarter of 1994 and only
$33,000 in writedowns during the first nine months of 1994.
In regard to Mortgage Related Investments, during the nine months
ended September 30, 1993, the Company recorded gains of $750,000
from early redemptions of RYMAC IV Series 1 during the first
quarter of 1993 and RYMAC IV Series 2 during the third quarter of
1993, while for the nine months ended September 30, 1994, the
Company recorded net gains of $461,000 on the sale of its ownership
rights in RYMAC IV Series 3 and 4 and the RMSC Bonds. This net
gain of $461,000 represents a loss of $134,000 on the RMSC Bonds
during the second quarter of 1994 and a gain of $595,000 on the
RYMAC IV Series 3 and 4 Bonds during the first quarter of 1994.
The difference in sales gains on the Company's Mortgage Related
Investments represents a decrease in Net Income of $289,000 for the
nine months ended September 30, 1994.
For the nine month period ended September 30, 1994, the Company
recognized gains of $490,000 from the sale of Mortgage Derivative
Securities, all of which occurred during the third quarter of 1994.
No such sales occurred during the comparable period in 1993.
Additionally, during 1993 the Company liquidated its TIS holdings
at a loss of $453,000, while no such losses from Marketable Equity
Securities sales occurred in 1994's first nine months. In total,
asset sales gains in 1994's first nine months were $951,000,
$490,000 of which occurred in the third quarter of 1994. Asset
sales gains for 1993's first nine months were $297,000, of which
$63,000 occurred during the three months ended September 30, 1993.
As such, asset sales gains increased Net Income by $440,000 and
$654,000 for the three and nine month periods ended September 30,
1994 as compared to the three and nine month periods ended
September 30, 1993. Excluding all sales gains, the Company would
have reported $39,000 in net income instead of $542,000 for the
three months ended September 30, 1994 and a net loss of $297,000
for the nine months ended September 30, 1994 as compared to net
income of $707,000.
Interest expense on Funding Notes and CMOs Payable decreased from
$8,450,000 to $2,135,000 for the nine months ended September 30,
1993 and 1994, respectively, and from $2,434,000 to $317,000 for
the three months ended September 30, 1993 and 1994, respectively,
<PAGE>
as a result of the offsetting balance sheet decline of Funding
Notes and CMOs Payable discussed below. Nine month operating
expenses (includes "Interest on notes payable" and "General and
Administrative") decreased from $1,520,000 for 1993 to $746,000 for
the comparable period in 1994, while operating expenses also
declined for the three months ended September 30, 1993 and 1994
from $433,000 to $202,000, respectively. These decreases between
periods of $774,000 and $231,000 were the result of reduced
Interest expense on notes payable of $214,000 and $47,000,
respectively, as the Company repaid substantial amounts under
repurchase agreements during 1993 and 1994, and a reduction in
General and Administrative Expenses of $560,000 and $184,000,
respectively, as the Company reduced costs in response to the
deterioration of its investment portfolio.
Commencing with the second quarter of 1994, the Company
established a Provision for Investment Losses by means of periodic
charges to earnings. For the second quarter, such charge was for
$98,000 upon which writedowns of $33,000 were applied relating to
the remaining basis of two Mortgage Derivative Securities. During
the third quarter, this balance was increased by $88,000. The
Company will evaluate the Reserve quarterly and consider additions
to the Reserve as appropriate. Asset writedowns, could be
necessary in future quarters should 1) mortgage prepayment speeds
increase to levels higher than current market expectations, 2)
market expectations of future mortgage prepayment speeds increase
beyond current dealer anticipated levels, or 3) the market discount
rate applied in the valuation process increases.
Balance Sheet
The Company's assets declined during the nine month period ended
September 30, 1994 by $59,713,000, to a total of $21,384,000 at
September 30, 1994. This decrease is attributable to the Company's
Mortgage Related Investments declining during the nine month period
from $65,248,000 to $12,930,000, a decrease of $52,318,000. This
reduction is primarily the result of 1) the sale, during February
and June 1994, of the ownership rights to the RYMAC IV Bond Series
3 and 4 and the RMSC Bonds, respectively, in order to take
advantage of market premiums on the underlying mortgage collateral
of each of these series (such sales reduced Mortgage Related
Investments by approximately $40,755,000), 2) substantial
prepayments on collateral underlying the Company's three remaining
Mortgage Related Investments and 3) to a much lesser extent,
regularly scheduled principal payments on the underlying mortgage
collateral. Such prepayments and scheduled principal payments
further reduced Mortgage Related Investments by approximately
$11,563,000.
These asset reductions were matched by a corresponding decrease in
the related liability accounts, Funding Notes Payable and CMOs
Payable, from $69,934,000 to $13,259,000, or a decrease of
<PAGE>
$56,675,000, as returned principal on the underlying mortgages was
used to retire outstanding obligations secured by such mortgages or
in the case of the Company's sales of ownership rights, the
liability accounts are no longer the obligation of the Company.
Mortgage Derivative Securities decreased from $7,161,000 at
December 31, 1993 to $3,264,000 at September 30, 1994, a decrease
of $3,897,000, reflecting 1) a basis reduction of $2,444,000 due to
the sale of four Mortgage Derivative Securities during the third
quarter, 2) the amortization of premium, 3) minor writedowns of
assets and 4) the return of principal basis of the assets held in
this category.
Funds held by trustee decreased from $1,347,000 at December 31,
1993 to $391,000 at September 30, 1994. This category of assets
represents the receipt of monthly mortgage payments awaiting
further payment (reduction) of Funding Notes Payable at a future
date.
Receivables on Mortgage Related Investments and Mortgage Derivative
Securities declined from $5,608,000 at December 31, 1993 to
$365,000, a decrease of $5,243,000, reflective of the substantial
drop in the corresponding assets, Mortgage Related Investments and
Mortgage Derivative Securities, of $56,215,000.
A new asset category was established for "Receivables from sales of
mortgage derivative securities," as the record date for sales
occurred prior to the end of the third quarter. No similar
category was necessary for 1993.
Notes Payable decreased from $3,814,000 at December 31, 1993 to
$834,000 at September 30, 1994. At both dates, Notes Payable
consists solely of repurchase agreements outstanding. Such
$2,980,000 decrease in borrowings was the result of continued
severe dealer margin calls under repurchase agreements during the
first six months of the year and the repayment of $1,728,000
related to the sale of assets in the third quarter. All reductions
in Notes Payable were made in cash.
The Company's Accumulated Deficit declined from $(37,855,000) at
December 31, 1993 to $(37,148,000) at September 30, 1994. Since
the Company declared no dividend distribution for 1994's first
three quarters, its total Net Income of $707,000 served to reduce
its Accumulated Deficit.
EXPENSES AND USE OF BORROWED FUNDS
Operating expenses (Interest on Notes Payable and General and
Administrative) were $746,000 for the nine months ended September
30, 1994 versus $1,520,000 for the nine months ended September 30,
1993, a decline of $774,000. The components of this decrease in
Operating expenses include: 1) significantly reduced interest costs
<PAGE>
on Notes Payable, which decreased from $316,000 in 1993's first
nine months to $102,000 for 1994's first nine months, as Notes
Payable on the Balance Sheet declined from $5,226,000 to $834,000
between September 30, 1993 and September 30, 1994 primarily due to
dealer margin calls, and 2) a decrease of General and
Administrative Expenses from $1,204,000 in 1993's first nine months
to $644,000 in 1994's corresponding period, a decline of $562,000
as part of an extensive expense reduction program on the part of
the Company in response to the deterioration of its investment
portfolio.
The Company has used the proceeds from repurchase agreements to
fund a portion of its portfolio of Mortgage Derivative Securities.
(See notes 3 and 7 of Notes to Consolidated Financial Statements
and "Liquidity and Capital Resources") The Company had maintained
a line of credit used to fund day-to-day operating needs and in
past periods to also temporarily fund acquisitions of new
investments pending negotiation of repurchase agreements or
awaiting return of invested principal. During 1993 the Company
reduced its line of credit availability from $5,000,000 to $250,000
(see "Liquidity and Capital Resources") due to its ability to use
available collateral more efficiently in repurchase agreement
financings. In the second half of 1993 and through the first four
months of 1994, the Company had no borrowings under its $250,000
line of credit. The line of credit expired at April 30, 1994 and
was not renewed by the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a party to various repurchase agreements, the
proceeds of which have been used to acquire Mortgage Derivative
Securities. (See notes 3 and 7 of Notes to Consolidated Financial
Statements) At December 31, 1993 and September 30, 1994, the
Company had outstanding under repurchase agreements $3,814,000,
with maturities ranging from January 6, 1994 to April 4, 1994, and
$834,000 with maturities at October 28, 1994. The repurchase
agreements are secured by substantially all of the Company's
Mortgage Derivative Securities. The repurchase agreements bear
interest at a rate of 5.75% at September 30, 1994 and are adjusted
periodically according to current market levels.
The Company had maintained a line of credit with a commercial bank
for $250,000 which expired on April 30, 1994 and, at the Company's
election, was not renewed. The Company's decision to allow its
line of credit to expire was based upon the sale during the first
half of 1994 of the ownership rights to three of the assets used to
collateralize the line of credit and the insignificant borrowing
value that the remaining collateral would support.
At September 30, 1994, the total amount borrowed by the Company was
$834,000 while at December 31, 1993 the total amount borrowed was
<PAGE>
$3,814,000. Such borrowings represented 12% and 62%, respectively,
of stockholders' equity at September 30, 1994 and December 31,
1993. The Company is currently subject to a limitation on the
amount of total borrowings of $25,000,000 pursuant to a policy
adopted by its Board of Directors in March 1992, although such
amount is substantially in excess of the Company's currently
available credit sources.
During the period from June 8, 1992 through July 18, 1994, the
Company was subject to various margin calls from the dealers with
whom it had repurchase agreements. These margin calls, totalling
$19,900,000, are the result of periodic dealer revaluations of the
Mortgage Derivative Securities pledged by the Company to secure
such borrowings. The extraordinarily high level of mortgage
prepayments in the marketplace during the majority of this period
and instability of the mortgage markets caused dealers to reassess
the value of their collateral and call upon the Company to reduce
its borrowings outstanding. The Company met all such repayment
requirements primarily through either the use of cash flows from
its portfolio of investments or the pledging of unencumbered
assets. Since late July 1994, the substantial slowdown in actual
and dealer forecasted prepayment speeds has produced a slight
improvement in dealer valuations of the Company's pledged Mortgage
Derivative Securities. As such, several assets have provided
incremental borrowed amounts to the Company. Future repayment of
margin calls, if any, would be met through the use of the Company
cash balances or current cash flows from the Company's portfolio of
investments. Any failure to meet any such margin calls could
result in the liquidation of the margined collateral.
During the third quarter and October of 1994, the Company sold five
Mortgage Derivative Securities. Since all of these Mortgage
Derivative Securities were subject to repurchase agreement
financing, their sales required the repayment in full of associated
borrowed amounts. The payoff of these five repurchase agreements
totaled $1,728,000 and reduced repurchase agreement borrowings to
$634,000 as of late October 1994.
At September 30, 1994, the Company has pledged substantially all of
its Mortgage Derivative Securities to secure repurchase agreement
outstandings. Since dealers have reduced the financing value of
these Mortgage Derivative Securities to minimum levels through
margin calls, the Company believes that cash flows from the
Company's current investment portfolio will be sufficient to enable
the Company to meet its current and anticipated liquidity needs.
As mentioned above, recently, Wall Street dealers have reduced
substantially their estimates of future prepayments on the mortgage
collateral underlying the Company's Mortgage Derivative Securities,
resulting in an increase in financing value on several of the
Company's assets. At the current time, this increased financing
value represents a source of additional liquidity to the Company.
<PAGE>
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included as part of
this Form 10-Q.
10.1 Stock Option Plan
(b) Reports on Form 8-K
None
<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.
RYMAC MORTGAGE INVESTMENT CORPORATION
BY: /s/ Richard R. Conte
Richard R. Conte, Chairman of the
Board, Chief Executive Officer and
Principal Financial Officer
Dated: November 7, 1994
RYMAC MORTGAGE INVESTMENT CORPORATION
EXHIBITS
filed with
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
Commission File No. 1-10001
<PAGE>
RYMAC MORTGAGE INVESTMENT CORPORATION
EXHIBIT INDEX
Exhibits files with Quarterly Report on Form 10-Q
For the Quarterly Period Ended September 30, 1994
Exhibit
No. Description
10.1 Stock Option Plan
27.1 Financial Data Schedule
<PAGE>
RYMAC MORTGAGE INVESTMENT CORPORATION
STOCK OPTION PLAN
1. Purpose.
1.1 General. The purpose of the RYMAC Mortgage Investment
Corporation Stock Option Plan (the "Plan") is to secure for RYMAC
Mortgage Investment Corporation, a Maryland corporation (the
"Company") and its stockholders the benefits of the additional
incentive inherent in the ownership of the Company's common
stock, par value $0.01 per share (the "Common Stock"), by
selected employees of the Company who are important to the
success and growth of the business of the Company and to help the
Company secure and retain the services of such persons.
1.2 Form of Awards. Awards under the Plan are in the form
of stock options (the "Options"), all as more fully described
herein. Options granted under the Plan are intended to be
"nonqualified stock options" subject to the provisions of Section
83 of the Internal Revenue Code of 1986, as amended (the "Code"),
and are not intended to qualify as "incentive stock options"
within the meaning of Section 422 of the Code.
2. Compensation Committee.
2.1 Administration. The Plan shall be administered by a
committee (the "Compensation Committee") of the Board of
Directors of the Company (the "Board of Directors"), consisting
of three or more directors, each of whom shall be a
"disinterested person" (within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act")); however, the mere fact that a Compensation
Committee member shall fail to qualify under this requirement
shall not invalidate any award made by the Compensation Committee
which award is otherwise validly made under the Plan. The
Compensation Committee shall have the power to authorize the
issuance of the Company's Common Stock pursuant to the exercise
of Options granted under the Plan. The members of the
Compensation Committee shall be appointed, and may be removed at
any time either with or without cause, by resolution adopted by
the Board of Directors. Any vacancy on the Compensation
Committee, whether due to action of the Board of Directors or due
to any other cause, may be filled, and shall be filled if
<PAGE>
required to maintain a Compensation Committee of at least three
members, by resolution adopted by the Board of Directors.
2.2 Procedures. The Compensation Committee shall select one
of its members as Chairman and shall adopt such rules and
regulations as it shall deem appropriate concerning the
administration of the Plan. A majority of the whole Compensation
Committee shall constitute a quorum, and the acts of a majority
of the members of the Compensation Committee present at a meeting
at which a quorum is present, or acts approved in writing by all
of the members of the Compensation Committee, shall be the acts
of the Compensation Committee.
2.3 Interpretation. The Compensation Committee shall have
full power and authority to interpret the provisions of the Plan
and agreements evidencing awards granted under the Plan, and to
determine any and all questions arising under the Plan. The
Compensation Committee's decisions shall be final and binding on
all participants in the Plan.
2.4 Non-Uniform Determinations. The Compensation Committee's
determinations under the Plan need not be uniform and may be made
by it selectively among persons who receive, or are eligible to
receive, awards under the Plan (whether or not such persons are
similarly situated). Without limiting the generality of the
foregoing, the Compensation Committee shall be entitled, among
other things, to make non-uniform and selective determinations,
and to enter into non-uniform and selective award agreements as
to (i) the persons to receive awards under the Plan, and (ii) the
treatment of leaves of absence pursuant to Paragraph 7.3.
3. Shares Subject to Awards.
3.1 Number of Shares. Subject to the provisions of Paragraph
11 (relating to adjustments upon changes in capitalization), the
sum of (i) the number of shares of Common Stock subject at any
one time to outstanding Options granted under the Plan and (ii)
the number of shares of Common Stock theretofore issued or
delivered pursuant to the exercise of Options granted under the
Plan, shall not exceed 260,000. If and to the extent that
Options granted under the Plan terminate, expire or are cancelled
for any reason without such Options having been exercised, new
awards may be granted under the Plan with respect to the shares
of Common Stock covered by such terminated, expired or cancelled
awards; provided that the granting and terms of such new awards
shall in all respects comply with the provisions of the Plan.
3.2 Character of Shares. Shares of Common Stock deliverable
upon the exercise of options granted under the Plan will be
either newly issued or previously outstanding Common Stock held
in the Company's treasury or Common Stock purchased on the open
market or from shareholders by the Company for such purpose.
<PAGE>
4. Grant of Awards.
The Compensation Committee shall determine, within the
limitations of the Plan, the persons to whom awards are to be
granted (each, an "Optionee"), the number of shares covered by
such award and the Option exercise price, provided that the
aggregate number of shares subject to Options granted under the
Plan to any such Optionee in any calendar year shall not exceed
150,000, subject to the provisions of Paragraph 11. Each award
granted under the Plan shall be evidenced by a written agreement
between the Company and the Optionee substantially in the form
attached as Exhibit A.
5. Eligible Participants.
Awards may be granted under the Plan to such officers,
directors and executive, managerial or professional employees,
and to any consultant of the Company ("key personnel") as the
Committee shall from time to time in its sole discretion select;
provided, however, that directors who are not employees of the
Company shall not be eligible to receive awards under the Plan.
For all purposes under the Plan (i) the time at which an
award is granted, in the case of the grant of an award to an
Optionee, shall be deemed to be the effective date of such grant,
and (ii) a "prospective employee" shall be a person who holds an
outstanding offer of employment on specific terms from the
Company.
6. Option Exercise Price.
Subject to Paragraph 11 and the other provisions of this
Paragraph 6, the Option exercise price of each share of Common
Stock purchasable under any Option granted under the Plan shall
be as set forth in the applicable award agreement. With respect
to each grant of an Option made to an Optionee who on the date of
such grant is a director of the Company, the Option exercise
price of each share of Common Stock purchasable under such Option
shall not be less than the fair market value of a share of Common
Stock on the effective date of such grant.
7. Exercisability and Duration of Awards.
7.1 Determination of Compensation Committee; Acceleration.
Each award granted under the Plan shall be exercisable at such
time or times, or upon the occurrence of such event or events,
and in such amounts, as the Compensation Committee shall specify
in the award agreement; provided, however, that subsequent to the
grant of an award, the Compensation Committee, at any time before
the expiration of such award, may accelerate the time or times at
which such award may be exercised in whole or in part.
<PAGE>
7.2 Acceleration of Awards in Certain Circumstances.
(a) Acceleration for Change of Control: Notwithstanding
any contrary provision of the Plan, upon the occurrence of a
Change of Control prior to the date on which an Option
expires:
(i) Each Option which has not theretofore vested
and become exercisable shall immediately vest and
become exercisable; provided, however, that no
Option may be exercised until six months after the
date of grant of such Option.
(ii) In the case of any Option which has vested
and become exercisable solely as a result of a
Change of Control due to approval by the
shareholders of the Company of a Business
Combination, any exercise by an Optionee shall be
conditioned upon, and deemed to occur immediately
prior to, consummation of the Business
Combination; provided, however, that,
notwithstanding the provisions of this Section
7.2(a)(ii), an Optionee may at any time exercise
any Option rights in accordance with the other
provisions of this Plan.
(b) Definition of Change of Control. A "Change of
Control" shall mean:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20 percent
or more of either the then-outstanding Common
Stock or the combined voting power of the then-
outstanding voting securities of the Company
entitled to vote generally in the election of
directors; or
(ii) Individuals who, as of the date hereof,
constitute the Board of Directors (the "Incumbent
Board") cease for any reason to constitute at
least a majority of the Board of Directors;
provided, however, that if any individual becomes
a director subsequent to the date hereof whose
election, or nomination for election by the
Company's shareholders, was approved by a vote of
at least a majority of the directors then
comprising the Incumbent Board, then such
individual shall be considered as though such
<PAGE>
individual were a member of the Incumbent Board;
or
(iii) Approval by the shareholders of the Company
of a reorganization, merger or consolidation, a
complete dissolution or liquidation of the
Company, or the sale or other disposition of all
or substantially all of the assets of the Company.
7.3 Automatic Termination. The unexercised portion of any
award granted under the Plan shall automatically and without
notice terminate and become null and void at the time of the
earliest to occur of the following:
(a) the expiration of ten years from the date on which
such award was granted;
(b) the expiration of three months from the date of
termination of the Optionee's employment (other than a
termination described in subparagraph (c) or (d) below);
provided, that if the Optionee shall die during such
three-month period, the time of termination of the
unexercised portion of any such award shall not be
determined under this subparagraph (b);
(c) the expiration of six months following the
issuance of letters testamentary or letters of
administration to the executor or administrator of a
deceased Optionee, if the Optionee's death occurs either
during his employment or during the three-month period
following the date of termination of such employment (other
than a termination described in subparagraph (d) below), but
in no event later than one year after the Optionee's death;
(d) the termination of the Optionee's employment if
such termination constitutes or is attributable to a breach
by the Optionee of an employment or consulting agreement
with the Company, or if the Optionee is discharged or his or
her services are terminated for cause; or
(e) the expiration of such period of time or the
occurrence of such event as the Compensation Committee in
its discretion may provide upon the granting of such Option.
Any employment agreement approved or ratified by the
Compensation Committee may modify the foregoing provisions of
this Paragraph 7.3 (other than subparagraph (a) above). Subject
to the terms of any such employment agreement, the Compensation
Committee or the Board of Directors shall have the right to
determine what constitutes cause for discharge or termination of
services, whether the Optionee has been discharged or his or her
services terminated for cause and the date of such discharge or
<PAGE>
termination of services and such determination of the
Compensation Committee or the Board shall be final and
conclusive. An Optionee shall be deemed to have terminated
employment when he no longer is employed by the Company. The
Compensation Committee may in its discretion determine (i)
whether any leave of absence constitutes a termination of
employment within the meaning of the Plan, and (ii) the impact,
if any, of any such leave of absence on awards under the Plan
theretofore made to an Optionee who takes such leave of absence.
Except for purposes of Paragraph 5, references herein to an
individual's employment as an employee of the Company shall
include all periods during which such individual serves as a
director of the Company, but is not otherwise a common law
employee.
8. Exercise of Awards; Certain Legal and Other Restrictions.
8.1 Exercise. Options granted under the Plan shall be
exercised by the Optionee (or by his or her executors or
administrators, as provided in Paragraph 9) as to all shares
covered thereby, by the giving of written notice of exercise to
the Company as to the number of Options to be exercised (and the
number of shares of Common Stock to be thereby purchased),
accompanied by payment of the full purchase price for any shares
being purchased. Payment of such purchase price shall be made by
check payable to the Company. Notice of exercise, accompanied by
payment of the purchase price, shall be delivered to the Company
at its principal business office or such other office as the
Compensation Committee may from time to time direct, and shall be
in such form, and containing such further provisions consistent
with the provisions of the Plan, as the Compensation Committee
may from time to time prescribe. The date of exercise shall be
the date of the Company's receipt of such notice. The Company
shall transfer the shares so purchased to the Optionee (or such
other person exercising the Option pursuant to Paragraph 9) as
soon as practicable, and within a reasonable time thereafter such
transfer shall be evidenced on the books of the Company. No
Optionee or other person exercising an Option shall have any of
the rights of a stockholder of the Company with respect to shares
subject to an Option granted under the Plan until due exercise
and full payment has been made as provided above. No adjustment
shall be made for cash dividends or other rights for which the
record dates is prior to the date of such due exercise and full
payment. In no event may any Option granted hereunder be
exercised for a fraction of a share.
8.2 Withholding Tax. Whenever under the Plan shares of
Common Stock are to be delivered upon exercise of an Option, the
Company shall be entitled to require as a condition of delivery
that the Optionee remit or, in appropriate cases, agree to remit
when due an amount sufficient to satisfy all current or estimated
<PAGE>
future federal, state and local withholding tax requirements
relating thereto.
8.3 Restrictions on Delivery and Sale of Shares. Each
Option granted under the Plan is subject to the condition that if
at any time the Compensation Committee, in its discretion, shall
determine that the listing, registration or qualification of the
shares covered by such Option upon any securities exchange or
under any state or federal law is necessary, or desirable as a
condition of or in connection with, the granting of such Option
or the purchase or delivery of shares thereunder, the delivery,
of any or all shares pursuant to exercise of the Option may be
withheld unless and until such listing, registration or
qualification shall have been effected. If a registration
statement is not in effect under the Securities Act of 1933 with
respect to the shares of Common Stock purchasable under Options
then-outstanding, the Compensation Committee may require, as a
condition of exercise of any Option, that the Optionee represent
in writing that the shares received upon exercise of the Option
are being acquired for investment and not with a view to
distribution and disposition except pursuant to an effective
registration statement, unless the Company shall have received an
opinion of counsel that such disposition is exempt from such
requirement under the Securities Act of 1933. The Company may
endorse on certificates representing shares issued upon the
exercise of an Option such legends referring to the foregoing
representations or restrictions or any other applicable
restrictions on resale as the Company, in its discretion, shall
deem appropriate.
9. Non-Transferability of Awards.
No award granted under the Plan or any right evidenced
thereby shall be transferable by the Optionee other than by will
or by the laws of descent and distribution, and an award may be
exercised, during the lifetime of an Optionee, only by such
Optionee. In the event of an Optionee's death during his or her
employment by the Company, or during the three-month period
following the date of termination of such employment, his or her
award shall thereafter be exercisable by his or her executors or
administrators in accordance with the provisions of Paragraph
7.3.
10. Right to Terminate Employment.
Nothing in the Plan or in any award granted under the Plan
shall confer upon any Optionee the right to continue as an
employee or a consultant of the Company or affect the right of
the Company to terminate the Optionee's employment at any time,
subject, however, to the provisions of any agreement of
employment or consultancy between the Optionee and the Company.
<PAGE>
11. Adjustment Upon Changes in Capitalization, etc.
In the event of any stock split, dividend, distribution,
combination, reclassification or recapitalization that changes
the character or amount of the Company's outstanding Common Stock
while any portion of any Option theretofore granted under the
Plan is outstanding but unexercised, the Compensation Committee
shall make such adjustments in the character and number of shares
subject to such Option and in the Option exercise price as shall
be equitable and appropriate in order to make the Option, as
nearly as may be practicable, equivalent to such Option
immediately prior to such change.
If any merger, consolidation or similar transaction affects
the Common Stock subject to any unexercised award theretofore
granted under the Plan, the Compensation Committee or any
surviving or acquiring corporation shall take such action as is
equitable and appropriate to substitute a new Option for such
award or to assume such award in order to make such new or
assumed award as nearly as may be practicable equivalent to the
old award.
If any such change or transaction shall occur, the number
and kind of shares for which awards may thereafter be granted
under the Plan shall be adjusted to give effect thereto.
12. Amendment, Expiration and Termination of the Plan.
12.1 General. Awards may be granted under the Plan at any
time and from time to time prior to the tenth anniversary of the
effective date of the Plan as set forth in Paragraph 13 of the
Plan (the "Expiration Date"), on which date the Plan will expire
except as to awards then-outstanding under the Plan. Such
outstanding awards shall remain in effect until they have been
exercised, terminated or have expired. The Plan may be
terminated, modified or amended by the Board of Directors at any
time prior to the Expiration Date, except that no such amendment
shall impair any rights or obligations under any award
theretofore made under the Plan without the consent of the person
to whom such award was made
12.2 Modification. No modification, extension, renewal or
other change in any award granted under the Plan shall be made
after the grant of such award, unless the same is consistent with
the provisions of the Plan. With the consent of the Optionee and
subject to the terms and conditions of the Plan (including
Paragraph 12.1), the Compensation Committee may amend outstanding
award agreements with any Optionee, including, without imitation,
any amendment which would (i) accelerate the time or times at
which the award may be exercised and/or (ii) extend the scheduled
expiration date of the award. Without limiting the generality of
the foregoing, the Compensation Committee may, but solely with
<PAGE>
the Optionee's consent, agree to cancel any award under the Plan
and issue a new award in substitution therefore provided that the
award so substituted shall satisfy all of the requirements of the
Plan as of the date such new award is made.
13. Governing Law. The Plan shall be governed by and
construed in accordance with the laws of the State of Maryland
and the Code.
14. Effective Date of Plan. The Plan shall become
effective on September 29, 1994, the date of its adoption by the
Board of Directors.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Report on Form 10-Q for the quarterly period ended September 30, 1994,
and is qualified in its entirety by reference to such financial statments.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 3,551
<SECURITIES> 16,194
<RECEIVABLES> 1,639
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,454
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,384
<CURRENT-LIABILITIES> 1,236
<BONDS> 13,259
<COMMON> 52
0
0
<OTHER-SE> 6,837
<TOTAL-LIABILITY-AND-EQUITY> 21,384
<SALES> 0
<TOTAL-REVENUES> 3,774
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 644
<LOSS-PROVISION> 186
<INTEREST-EXPENSE> 2,237
<INCOME-PRETAX> 707
<INCOME-TAX> 0
<INCOME-CONTINUING> 707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 707
<EPS-PRIMARY> $0.14
<EPS-DILUTED> $0.14
</TABLE>
