<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1994 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
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 (I.R.S. Employer Identification No.)
jurisdiction of incorporation
or organization)
100 N. Fourth Street, Suite 813, P.O. Box 250, Steubenville, OH 43952
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (800) 666-6960
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 American Stock Exchange, Inc.
Title of each class Name of exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
None
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 (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 X No ___
As of March 29, 1995, 5,210,600 shares of RYMAC Mortgage Investment
Corporation common stock were outstanding, and the aggregate market value
of the shares held by non-affiliates (based upon the closing price of the
common stock on that date as reported on the American Stock Exchange
Composite Tape) was approximately $5,536,262.
Documents Incorporated by Reference:
Registrant's 1995 definitive Proxy Statement to be filed with the
Securities and Exchange Commission no later than 120 days after the end of
the registrant's fiscal year.
<PAGE>
PART I
Item 1. Business
(A) General Development of Business.
RYMAC Mortgage Investment Corporation (the "Company") was
incorporated in the State of Maryland on July 1, 1988. Prior to
1994, the Company was primarily engaged in making investments in
mortgage derivative securities and, to a lesser extent, mortgage
related investments. Two wholly-owned, limited purpose finance
subsidiaries of the Company, RYMAC Mortgage Investment I, Inc.
("RMI I") and RYMAC Mortgage Investment II, Inc. ("RMI II"), hold
certain mortgage related investments. The Company also generates
revenues from other sources, such as interest earnings on certain
investments of the Company and sales of certain investments of the
Company.
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 long as the Company qualifies as a
REIT, dividends paid to stockholders will be allowed as a deduction
for purposes of determining income subject to federal corporate
income tax. As a result, the Company will not be subject to such
tax on that portion of its net income that is distributed to
stockholders. (See "Federal Income Taxation of the Company and
Stockholders")
(B) Current Business Environment.
No new investments have been added to the Company's
portfolio since May 1992. During the period from the Company's
inception in 1988 through early 1992, mortgage interest rate levels
and prepayment speeds remained within ranges existent from 1970 to
early 1992. Historically, cash received from the Company's
investments represented interest and dividend earnings and the
return of investment principal (basis). However, from June of 1992
to early 1994, mortgage rates declined to levels lower than those
existent for the prior twenty years, resulting in extraordinarily
rapid and sustained levels of residential mortgage prepayments. As
a direct result, the Company's investments generated sharply
reduced interest and dividend earnings and as the duration of high
levels of prepayments continued, the Company's cash flows from
returns of investment principal and interest and dividend earnings
were also severely impaired and sufficient only to reduce the
Company's borrowings (including margin calls), pay operating
expenses and fund dividend distributions to stockholders during the
second half of 1992, all of 1993 and 1994. As a result, the
Company's investment strategy has been modified and the Company is
investigating other business alternatives to the business currently
conducted by the Company. Operating and capital losses incurred
during 1992 through 1994 have resulted in tax losses estimated
currently at $35,000,000. Such tax losses can be carried forward
and utilized to offset future taxable income generated from current
or contemplated activities before Company earnings are taxable or,
as a REIT, result in dividend distributions. The Company is
currently investigating the implementation of investment activity
in tax sale certificates and is conducting discussions with a
number of entities regarding business combinations. Both the new
investment activity and any business combination could make
effective use of the Company's tax loss position. (See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations")
(C) Narrative Description of Business.
1. Management of Operations. The Company's investment
policy is controlled by its Board of Directors (the "Board of
Directors"). The By-laws of the Company provide that, except in
the case of a vacancy, a majority of the members of the Board of
Directors and of any committee of the Board of Directors must not
be employed by, or otherwise affiliated with, the Company or its
former manager.
2. Operating Policies and Strategies. Unprecedented
high levels of mortgage refinancings resulting in prepayment of the
Company's assets for all of 1992 and 1993 and continuing into the
early part of 1994, have caused the Company to incur large
operating losses. The extended duration of these prepayments has
permanently reduced cash flows and earnings from these same assets
and caused the Company to consider alternative investment policies
and strategies, including the purchase and financing of tax sale
certificates, the selective purchase of mortgage derivative
securities available periodically at attractive prices and
evaluation of potential business combinations. (See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Current Market and Future Prospects for the Company")
During the three year period ended December 31, 1994, the
Company incurred tax losses estimated at $35 million. Of this, it
is estimated that $30 million represents operating losses while $5
million represents capital losses related to sales of assets. Tax
losses may be carried forward for a period of up to 15 years from
the date of occurrence. The Company's tax loss positions can be
utilized to offset future taxable income before the Company's
earnings again become taxable, or, as a REIT, result in required
dividend distributions. Should its future activities be
successful, the Company would be in a position to reinvest cash
flows into suitable assets.
Historically, the Company generated revenues primarily
from investments in mortgage derivative securities ("Mortgage
Derivative Securities"). The Company's investments in Mortgage
Derivative Securities currently consist of (i) a class or classes
of collateralized mortgage obligations ("CMOs") (as defined below)
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. These securities
entitle the Company to receive a portion of the cash flow from the
Mortgage Collateral (as defined below) underlying the CMOs or
mortgage-backed pass-through certificates. For federal income tax
purposes, a majority of the Company's Mortgage Derivative
Securities represent interests in real estate mortgage investment
conduits ("REMICs"). A CMO is a security issued in one or more
classes ("CMO Classes") collateralized by a specific group of
mortgage loans or mortgage certificates guaranteed by GNMA, FNMA
or FHLMC (collectively, the "Mortgage Certificates" and together
with the mortgage loans, the "Mortgage Collateral") and evidences
the right of the investors to cash flows from the assets underlying
such CMO. The Company had also generated revenues from Mortgage
Related Investments (as defined below) and had purchased for its
portfolio shares of common stock of companies engaged in businesses
similar to the Company's.
In addition, or as an alternative, the Company, with the
approval of a majority of the Unaffiliated Directors, may adopt
investment strategies which, among other things, could involve the
acquisition of non-real estate related assets. Such strategies, if
adopted, could result in the Company being unable to qualify as a
REIT under the Code. The failure to qualify as a REIT could have
severe adverse tax consequences for the Company. (See "Federal
Income Taxation of the Company and Stockholders") However, the
adverse tax consequences may be substantially mitigated by the
Company's net operating losses.
The Company may elect to purchase or otherwise reacquire,
shares of its Common Stock, par value $.01 per share ("Common
Stock"), if, in the opinion of the Board of Directors, such
purchases can be made upon favorable terms that can be expected to
result in an increase in distributions or value to the remaining
stockholders without adversely affecting the ability of the Company
to maintain its qualification as a REIT under the Code. The
Company did not purchase any shares of Common Stock during calendar
1994 nor does it anticipate any purchase of shares during calendar
1995.
The Company previously utilized borrowings to purchase
certain of the investments described above and contemplates the use
of borrowings to purchase future investments. During 1994, the
Company elected to allow its bank line of credit to expire and
repaid in full all outstanding repurchase agreements with Wall
Street dealers. Since November 30, 1994, the Company has had no
outstanding borrowings. (See "Capital Resources")
3. Types of Investments. Historically, the Company's
portfolio of assets has included:
(a) Mortgage Related Investments. In its first fifteen
months of operations, the Company's primary source of income was
its mortgage related investments, wherein the Company purchased
from issuers of CMOs the right to receive the cash flow of the CMO
after debt service payments on the CMO are made ("Mortgage Related
Investments").
(b) Mortgage Derivative Securities. Although Mortgage
Related Investments still constitute a portion of the Company's
portfolio, the Company's portfolio also includes other investments,
consisting of Mortgage Derivative Securities such as IOs, Inverse
IOs, PAC and TAC IOs, POs, IOettes, Floating Rate and Inverse
Floating Rate Bonds, Z Bonds, MBSs, and Residual Bonds, as defined
below.
1) An IO is an interest only class. An IO entitles the
holder to receive the interest portion of the cashflow from the
underlying mortgage-backed security. These securities are bearish
in nature and thus show improved performance as prepayment speeds
slow and interest rates rise.
2) An Inverse IO is created by dividing a fixed rate
bond class into floating and inverse floating rate components based
upon a market interest rate index, such that, at any time the sum
of the interest payments to the two classes is no greater than the
coupon on the fixed rate bond. As the index rises, more interest
is required in the floating rate component and therefore less is
available to the inverse floating rate holder. In a rising
interest rate environment, the lower coupon payments due the
Inverse IO holder are to some degree offset by the IO structure of
the security. With rising rates, slower prepayments will enable
the Inverse IO holder to recognize a decreased coupon on an
outstanding balance for a longer period. An Inverse IO does not
guarantee the par face of the bond, unlike an Inverse Floating Rate
Bond (see 7 below), and is usually sold with nominal principal face
amount but at a premium.
3) A PAC (Planned Amortization Class) IO is an IO with
a fixed coupon calculated on a nominal principal balance that is
protected within a band of prepayment rates. This prepayment band
offers more average life assurance than a pure IO strip. A TAC
(Targeted Amortization Class) IO is similar to a PAC IO except that
the band of prepayment rates is much narrower. This narrower band
makes the average life of a TAC IO more sensitive to prepayment
speeds than a PAC IO.
4) A PO is a principal only class. A PO entitles the
holder to receive the principal portion of the underlying mortgage-
backed security. These securities are sold at a discount to face
and benefit when interest rates fall and prepayment rates rise.
5) An IOette represents an interest only strip from a
portion of the interest component of an underlying mortgage backed
security. This security is bearish in nature as it shows improved
performance as prepayments slow (interest rates rise).
6) A Floating Rate Bond is a CMO bond on which the
interest rate paid to bondholders fluctuates with changes in an
interest rate index, such as the London Interbank Offered Rate
("LIBOR"), and is usually reset monthly.
7) An Inverse Floating Rate Bond contains a coupon that
fluctuates inversely with changes in a floating rate index such as
LIBOR. As the index decreases, the formula used to set the coupon
on this bond results in an increased yield. Typically, this type
of Mortgage Derivative Security is purchased at or near the face
amount of the bond. Although the face amount of principal will
always be returned, it may be faster than expected due to an
increase in prepayment speeds usually associated with lower
interest rates.
8) A Z, or accrual, bond is a bond class that does not
receive payments of interest until certain other classes of bonds
are retired. Until the Z bond begins receiving interest payments,
the amount of interest due is accrued, or added, to the principal
amount of the bond.
9) An MBS, or Mortgage Backed Security, is a security
backed by an undivided interest in a pool of mortgage loans. The
cash flow from the mortgage loans is used to pay principal of, and
interest on, the securities. The most commonly recognized MBSs are
issued through the following three governmental entities: GNMA;
FNMA; and FHLMC.
10) Residual Bonds, in general, entitle the holder to
receive all or a portion of the residual cash flow from an
underlying CMO after payment of principal and interest on all other
bond classes and other expenses related to administration of the
CMO.
4. Investment Portfolio. During the year ended December
31, 1994, the Company purchased no additional investments. (See
"Current Business Environment" above, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations")
The information presented below with respect to each of
the Mortgage Derivative Securities and Mortgage Related Investments
held by the Company at December 31, 1994, was provided to the
Company either by the issuer of the related CMO or obtained from
the Bloomberg Financial System ("Bloomberg"). The Company did not
participate in the issuance of such CMOs and is relying on the
respective CMO Issuers and Bloomberg regarding the accuracy of the
information provided. The Company believes, however, that such
information is accurate. In reading the information presented
below, only information regarding CMO classes whose structure and
balance affect the performance of the Company's investment in the
related Mortgage Derivative Security or Mortgage Related Investment
is shown. For investments where no information is shown for other
CMO classes, the performance of the Company's investment relates
solely to prepayment speeds on the underlying Mortgage Collateral.
<TABLE>
<CAPTION>
Collateralized Mortgage Obligations
Underlying Mortgage Related Investments
Held on December 31, 1994
Principal
Initial Amount Company's
Principal as of Issue Date/ Percentage
Name of Issuer CMO Amount Dec. 31, 1994 Interest Stated First Optional Ownership
and Series Class (In Thousands) (In Thousands) Rate Maturity Redemption Date Interest
<S> <C> <C> <C> <C> <C> <C> <C>
RYMAC IV
Series 7 7-C $11,000 $ 210 8.550% 08/01/10 07/29/86 100%
7-Z(1) 1,500 3,205 9.400 08/01/16 Later of 08/01/01
or date Class 7-C
fully paid
Series 10 09/30/86 100%
10-Z(1) 4,000 6,980 9.450 10/01/16 Later of 10/01/01
or date Class 10-C
fully paid
Series 19 19-B 4,550 2,143 8.250 05/01/17 04/23/87 100%
05/01/97
(Notes to table appear on page 11)
</TABLE>
<TABLE>
<CAPTION>
Collateralized Mortgage Obligations
Underlying Mortgage Derivative Securities
Held on December 31, 1994
Principal
Initial Amount Company's
Principal as of Issue Date/ Percentage
Name of Issuer CMO Amount Dec. 31, 1994 Interest Stated First Optional Ownership
and Series Class (In Thousands) (In Thousands) Rate Maturity Redemption Date Interest
<S> <C> <C> <C> <C> <C> <C> <C>
FNMA
REMIC 7-C $ 49,000 $ 3,571 7.650% 01/25/12 04/29/88 15%
Trust 1988-7 7-F 122,000 2,381 (3) 01/25/12 No optional redemp- of Class
7-Z(1) 20,000 36,967 9.250 04/25/18 tion permitted 7-R
7-R 700 92 (5) 04/25/18
FNMA
REMIC 11-A(2) 56,000 21,244 8.550 05/25/18 05/25/88 22%
Trust 1988-1111-B(2) 6,700 2,542 (3) 05/25/18 No optional redemp- of Class
11-C 88,200 3,233 (3) 05/25/18 tion permitted 11-R
11-D 49,100 1,800 (4) 05/25/18
11-R 20 7 (5) 05/25/18
FHLMC
Series 1248 H 186 42 (3) 03/15/22 03/30/92 10.8%
Date amount of certif-
icates is less than 1%
of original amount
FNMA
REMIC Trust SA 1,360 312 (3) 12/25/21 12/30/91 12.87%
1991-163 No optional redemp- of Class SA
tion permitted
FHLMC
Series 2 03/30/88 100%
2-Z(1) 19,260 32,279 9.300 03/15/19 No optional redemp- of Class 2-R
2-R 100 2 2,668.240(5) 03/15/19 tion permitted
(Notes to table appear on page 11)
</TABLE>
<TABLE>
<CAPTION>
Collateralized Mortgage Obligations
Underlying Mortgage Derivative Securities
Held on December 31, 1994
Principal
Initial Amount Company's
Principal as of Issue Date/ Percentage
Name of Issuer CMO Amount Dec. 31, 1994 Interest Stated First Optional Ownership
and Series Class (In Thousands) (In Thousands) Rate Maturity Redemption Date Interest
<S> <C> <C> <C> <C> <C> <C> <C>
FHLMC
Series 21 11/30/88 37.5%
21-Z(1) $ 84,750 $121,225 9.500% 01/15/20 Date amount of multi- of Class
21-R 100 12 (5) 01/15/20 class bonds is less 21-R
than 1% of original
amount
Cornerstone A-1 20,009 5,593 9.250 08/30/18 08/25/88 100%
Mortgage Interest Date amount of cer- of Interest
Investment Receipts None None (6) 08/30/18 tificates is less Receipts
Group II, than 10% of original
Inc. amount
Series 13
Series 14 A-1 15,012 3,195 9.250 09/30/18 09/25/88 100%
Interest Date amount of cer- of Interest
Receipts None None (6) 09/30/18 tificates is less Receipts
than 10% of original
amount
PaineWebber L-4(2) 114,200 48,846 8.950 07/01/18 06/30/88 17.8%
CMO Trust L-5 185 185 (5) 07/01/18 No optional redemp- of Class L-5
Series L tion permitted
(Notes to table appear on page 11)
</TABLE>
<TABLE>
<CAPTION>
<S><C>
NOTES TO TABLE
(1) A Class of "Compound Interest Bonds" or "Accrual Certificates" on which interest accrues and is added
to the principal amount of such CMO Class but on which interest and principal is not paid until all CMO
Classes having an earlier stated maturity are fully paid.
(2) A Scheduled Amortization Class on which principal is paid on a preferred basis with respect to other
CMO Classes in a specified amount, to the extent funds are available.
(3) A CMO Class whose interest rate varies based on a specified relationship to the 30-day London Interbank
Offered Rate for U.S. Dollar deposits ("LIBOR"), the 1 Year Treasury Index or the 3 Month Treasury Index,
subject to a maximum interest rate. The interest rate at December 31, 1994 on Class 7-F of FNMA REMIC Trust
1988-7 was 5.10%. The maximum interest rate payable on such CMO Class is 12.25%. The interest rates at
December 31, 1994 on Class 11-B and 11-C of the FNMA REMIC Trust 1988-11 were 6.18% and 6.48%, respectively,
with maximum interest rates payable of 12.75% and 14.0%, respectively. The interest rate at December 31,
1994 on Class H of FHLMC Series 1248 was 3,971.02% with a maximum interest rate payable of 9,340.65%. The
interest rate at December 31, 1994 on Class SA of the FNMA REMIC Trust 1991-163 was 449.80% with a maximum
interest rate payable of 1,034.80%.
(4) Zero coupon Bond that does not bear interest.
(5) Residual Bonds.
(6) Beneficial ownership of undivided interests in 2.105263% of all future interest payments to be made on
the GNMA certificates underlying the related CMO.
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth certain information with respect to the collateral underlying such CMO(1):
Collateral Descriptions
Type of Remaining Weighted Weighted Average
Mortgage Principal Amount Average Scheduled
Issuer Certificates of Mortgage Pass-Through Remaining Term
and Securing Certificates Rate of to Maturity
Series the CMO (In Thousands) Mortgage Certificates (Years:Months)
<S> <C> <C> <C> <C>
RYMAC IV
Series 7 FNMA $ 3,456 9.26% 20:3
Series 10 FNMA 6,897 9.60 19:3
Series 19 FNMA 2,077 8.63 20:7
FNMA
REMIC Trust
1988-7 FNMA 43,012 9.50 21:6
REMIC Trust
1988-11 FNMA 28,825 9.00 21:11
REMIC Trust
1991-163 FNMA 124,498 9.00 24:5
FHLMC
Series 2 FHLMC 32,281 9.50 18:0
Series 21 FHLMC 121,237 9.50 22:3
Series 1248 FHLMC 74,253 9.00 22:8
Cornerstone
Mortgage
Investment
Group II, Inc.
Series 13 GNMA 5,597 9.50 22:10
Series 14 GNMA 3,198 9.50 22:10
PaineWebber
Series L FNMA 49,019 9.00 21:3
TOTAL PORTFOLIO WEIGHTED AVERAGE PASS-THROUGH RATE 9.22
(1) Information on those RYMAC IV CMOs which did not have a payment date on January 1, 1995 is as of the payment date
for such CMOs that preceded January 1, 1995. All other information is as of January 1, 1995.
</TABLE>
<PAGE>
5. Cash Flow from Investments. The Company's return on
its investments has been substantially affected by a number of
factors, including short-term interest rates to the extent that
such rates affect certain of its investments, and the rates of
prepayment of the underlying Mortgage Collateral. The rate at
which principal payments occur on pools of single-family loans is
influenced by a variety of economic, geographic, social and other
factors. In general, however, mortgage loans are likely to be
subject to higher prepayment rates if prevailing interest rates are
significantly below the interest rates on the mortgage loans, as
was the case during the time period of early 1992 to early 1994.
Conversely, in the event that interest rates are near or above the
interest rate on the mortgage loans, the rate of prepayment would
be expected to decrease as has been the case since the second
quarter of 1994. The extended duration of unprecedented high
levels of prepayments during the early 1992 to early 1994 time
period caused permanent impairment to the cash flow levels of a
majority of the Company's assets, to such an extent that a return
to slower prepayment speeds will not materially improve the cash
flow performance of such assets. Other factors affecting the rate
of prepayment of mortgage loans include changes in mortgagor's
housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties, assumability of mortgage loans,
servicing decisions and the cost of refinancing.
The Company's Mortgage Derivative Securities each have
different characteristics; thus the cash flows from any particular
mortgage derivative security will vary based upon the structure of
the particular Mortgage Derivative Security (see 3(b) above), the
level of interest rates on mortgage loans and mortgage prepayment
levels. However, the Company's portfolio of Mortgage Derivative
Securities has been materially adversely affected because of such
levels.
The Company's cash flow from its Mortgage Related
Investments is derived from three principal sources: (a) any
positive difference between the interest rates of the Mortgage
Collateral and the weighted average interest rates of the related
CMO Classes; (b) any amounts available from prepayments on the
Mortgage Collateral that are not necessary for debt service
payments on such CMOs; and (c) any reinvestment income in excess of
amounts required to ensure timely payments of principal and
interest on such CMOs. The positive difference between rates on
the Mortgage Collateral and the weighted average rates on the
related CMO Classes was negatively affected by the rapid levels of
mortgage prepayments in the 1992 to early 1994 period. Rapid
prepayments result in 1) a reduction of the positive difference
available to the Company and 2) a shortened duration of such
positive difference. Also, lower interest rates result in reduced
reinvestment rates.
Excess cash flow from a particular investment will
decline over time and eventually terminate.
6. Other Potential Investments. The Company's Board of
Directors adopted Investment Guidelines ("Guidelines") to provide
general parameters for the Company's investments and borrowings
pursuant to which the Company may make investments without case by
case approval by the Board of Directors. The Guidelines list
certain investments which the Company is permitted to make.
Pursuant to the Guidelines, the Company may purchase Mortgage
Collateral which the Company may hold or pledge to secure a CMO or
to back other mortgage related securities. The Company may also
acquire shares of equity securities of other CMO residual REITs.
Additionally, the investment criteria set forth in the Guidelines,
allow the Company, for a fee, to issue commitments to sellers of
Mortgage Collateral. The Company may purchase mortgage loans (i)
that are eligible for securitization and guaranty by GNMA, FNMA or
FHLMC or (ii) that are not eligible for such securitization and
guaranty. The Company may also purchase Mortgage Collateral that
could subsequently be used to secure various CMOs issued by one or
more CMO Issuers, and may participate in the issuance of CMOs by
forming, acquiring or entering into arrangements with CMO Issuers.
The Company has not engaged in any of such activities to date and
does not expect to consider such activities. However, due to the
performance of the Company's investment portfolio since 1992 and
the current business environment for mortgage investments in
general, the Company has made no additional investments since May
1992 and is currently required to seek specific Board of Directors
approval for purchases of any new investment. The Board of
Directors has authorized management 1) to make an initial
investment in a portfolio of tax sale certificates, 2) to continue
evaluation of the potential for financing and securitization of tax
sale certificates, 3) to evaluate business combination proposals
that could effectively utilize the Company's tax loss position and
4) to periodically consider the purchase of specific Mortgage
Derivative Securities available at attractive prices due to supply
and demand disallocations in the mortgage markets.
7. Capital Resources. Prior to April 1993, the Company
maintained a line of credit with a commercial bank for $5,000,000
with an expiration of March 31, 1993. During the process of
documenting the line of credit renewal, the Company determined that
the collateral pledged to the bank under the line of credit had
substantially greater borrowing value to the Company in other
financing arrangements, particularly repurchase agreements, than
the value provided under the bank line of credit. Accordingly, the
Company and the bank agreed to the release of the majority of the
collateral pledged thereunder and the maintenance of a reduced line
of credit of $250,000 with an expiration date of April 30, 1994, at
which date the Company elected to allow such line of credit to
expire. At April 30, 1994 (the expiration date), no amount was
outstanding and at December 31, 1993, no amount was borrowed under
the line.
The Company had historically supplemented its funds
available for investment through repurchase agreements. The
repurchase agreements entered into by the Company involved the
transfer by the Company of certain of its assets to a financial
institution in exchange for cash in an amount that was less than
the fair market value of such assets. At the same time, the
Company agreed to repurchase such assets at a future date at a
price equal to the cash paid by such financial institution plus
interest thereon. The extraordinarily high level of mortgage
prepayments in recent periods caused dealers to reduce
substantially the financing value of investments pledged under
repurchase agreements. Under such circumstances, the Company was
required to reduce the amount of outstanding borrowings by cash
payments under the repurchase agreement or the delivery of other
unencumbered investments, thus reducing the Company's ability to
purchase new investments, as was the case from June 1992 through
mid 1994. (See "Management's Discussion and Analysis - Liquidity
and Capital Resources")
At December 31, 1994 and March 29, 1995 the Company had
no outstanding borrowings under repurchase agreements. As such all
of the Company's Mortgage Derivative Securities are available to
secure any future borrowings.
The Company's By-laws provide that it may not incur
additional indebtedness if, after giving effect to such
indebtedness, its aggregate indebtedness (other than liabilities
incurred in connection with participation in the issuance of CMOs
and any loans between the Company and its corporate subsidiaries),
secured and unsecured, would exceed 300% of the Company's average
invested assets, in each case on a consolidated basis, as
calculated at the end of each calendar quarter in accordance with
generally accepted accounting principles, unless such additional
indebtedness is approved by a majority of the Unaffiliated
Directors. The Company is currently operating under a borrowing
limitation pursuant to a policy adopted by its Board of Directors
that limits total borrowings to $25,000,000, an amount
substantially in excess of the amount the Company would be able to
borrow under the current operating condition of the Company. At
December 31, 1994 and March 29, 1995, the Company had no
indebtedness outstanding. The Company's contemplated future
activities could include borrowings by the Company which would be
secured by a pledge of newly acquired assets and/or current
portfolio assets.
The Company has authorized 50,000,000 shares of Common
Stock. Although the Company recognizes that its current financial
condition substantially limits its ability to raise additional
equity capital, the successful implementation of alternative
investment strategies and/or the negotiation of a business
combination could provide the investment values necessary to raise
additional equity capital. The Company believes that, subject to
the successful initiation of alternative investment activities
and/or a business combination, raising additional equity capital is
in the long-term best interests of the Company.
In addition, the Company's Articles of Incorporation
permit the Board of Directors to authorize and issue from time to
time additional classes of stock without the necessity of further
approval by the stockholders and with such rights and preferences
as the Board of Directors of the Company may designate by
resolution. Depending upon the terms set by the Board of
Directors, the authorization and issuance of preferred stock or
other new classes of stock could adversely affect existing
stockholders. The effects on stockholders could include, for
example, dilution of existing stockholders, restriction on
dividends on Common Stock, restrictions on dividends for other
corporate purposes and preferences to holders of a new class of
stock in the distribution of assets upon liquidation. Since the
filing of the Articles of Incorporation, the Board of Directors has
neither authorized nor issued any additional classes of stock.
8. Investment Restrictions. Restrictions on investments
by the Company in certain types of assets are imposed by the
provisions of the Investment Company Act of 1940, as amended (the
"Investment Company Act"). During 1994, the Company believes that
its investment activities did not bring it within the definition of
an investment company under the Investment Company Act because it
was primarily engaged in the business of purchasing or otherwise
acquiring mortgages and other liens on and interests in real
estate. The Investment Company Act specifically excepts entities
primarily engaged in such activities from the definition of an
investment company (the "Real Estate Exception"). Under
interpretations issued by the staff of the Securities and Exchange
Commission, in order to qualify for the Real Estate Exception, the
Company must maintain at least 55% of its assets in mortgage loans
or certain other interests in real estate, and another 25% of its
assets in those or certain other types of real estate-related
interests. The ability of the Company to acquire Mortgage
Derivative Securities may be limited by the Investment Company Act
depending, among other things, upon whether the Company acquires
all or only a portion of the residual interest in a CMO, the nature
of the collateral underlying such CMO and the composition of the
balance of the Company's assets at the time of each such
acquisition. Under interpretations of the staff of the Commission,
investments in mortgage-backed or other mortgage related securities
(including mortgage certificates) that are securities considered to
be separate from the underlying mortgage loans are not considered
to be investments in mortgage loans for purposes of the 55% test
unless such securities represent all the certificates issued with
respect to the underlying pool of mortgages. The Company's
investment policies prohibit it from making any investments that
would cause the Company to be an investment company within the
meaning of the Investment Company Act. The Company monitors its
operations in order to evaluate the qualification of the Company
for the Real Estate Exception.
Uncertainties exist as to the interpretation of the
exception from the definition of an investment company under the
Investment Company Act for companies primarily engaged in the
business of purchasing or otherwise acquiring mortgages and other
liens on and interests in real estate. The Company believed that,
based upon its historical method of operation, it fell within such
exception. In connection with the review by the Commission of the
registration statement for the Company's initial public offering,
the Company had been advised, based on a preliminary review, that
the staff of the Division of Investment Management of the
Commission, while not taking a definitive position, was not in
agreement with the Company's conclusion. If the Company were
required to register as an investment company or to revise
materially its contemplated method of operation to qualify for an
exemption, it would be subject to additional limitations and
restrictions on its activities.
Between December 31, 1991 and 1994, changes in assets
held by the Company caused the composition of the Company's balance
sheet to change sufficiently to cause the Real Estate Exception
historically relied upon by the Company to be unavailable.
Nevertheless, pursuant to Rule 3a-2 under the Investment Company
Act, the Company is deemed not to be an investment company for a
period not to exceed one year, provided that it has a bona fide
intent to be engaged, as soon as is reasonably possible and in any
event by the termination of such one-year period, in a business
other than that of investing, reinvesting, owning, holding or
trading in securities. Management of the Company believes that
certain of the new investment activities contemplated by the
Company could satisfy such requirement, and, if commenced within
such one-year period, thereby result in continued exemption of the
Company from the Investment Company Act. In addition, if the
Company reaches a determination that such investment activities are
not sufficient to cause the Company to be exempt from the
Investment Company Act, the Company would seek to acquire real
estate assets sufficient to enable it to again qualify for the Real
Estate Exception or take such other actions to enable it to
continue to be exempt from the Investment Company Act, although no
assurances can be given that the Company would be able to
successfully maintain any such exemption.
If the Company is unable to qualify for the Real Estate
Exception or otherwise engage in a business other than that of an
investment company, it will be required to register as an
investment company under the Investment Company Act. The Company
is unable to predict how registration under such Act would affect
its current plans to pursue new investment activities or business
combinations. Registration under the Investment Company Act would
also require the investments held by the Company to be adjusted to
market value at the balance sheet date to the extent not done so
already. The other financial statement reporting and disclosure
requirements of the Investment Company Act may differ in certain
respects from those to which the Company is currently subject.
The Company is prohibited from purchasing real estate
contracts of sale. The Company also may not invest in unimproved
real property or mortgage loans on unimproved real property, nor
may it underwrite securities of other issuers. The foregoing
restrictions may not be changed without the approval of a majority
of the Unaffiliated Directors.
The Company may purchase or otherwise reacquire shares of
its Common Stock if, in the opinion of the Board of Directors, the
purchases can be made upon favorable terms that can be expected to
result in an increase in distributions to the remaining
stockholders. However, the Company may not make such purchases if
to do so would adversely affect the ability of the Company to
maintain its qualification as a REIT under the Code. (See "Federal
Income Taxation of the Company and Stockholders")
The operating policies and strategies of the Company are
governed by the Board of Directors, which has the power to modify
or alter such policies without the consent of the stockholders.
9. Management Agreement and Fees. The Company's
Management Agreement with its former manager expired on March 31,
1992. The Board of Directors determined that the Company would
operate on a self-managed basis and, consequently, it did not enter
into a new management agreement with its former manager.
On a self-managed basis, the Company is responsible for
all expenses, including resources previously provided by the former
manager.
10. Dividend Reinvestment Plan. On December 13, 1988,
the Company adopted an Automatic Dividend Reinvestment Plan (the
"Plan"). The Plan is administered by American Stock Transfer &
Trust Company. The Plan provides to the Company's security holders
a method of investing cash dividends paid by the Company in new
shares of the Company's common stock. The Plan also permits
participants to make optional cash investments in additional shares
of the Company's common stock.
11. Federal Income Taxation of the Company and
Stockholders. THE PROVISIONS OF THE CODE ARE HIGHLY TECHNICAL AND
COMPLEX. THIS SUMMARY IS NOT INTENDED AS A DETAILED DISCUSSION OF
ALL APPLICABLE PROVISIONS OF THE CODE, THE RULES AND REGULATIONS
PROMULGATED THEREUNDER, OR THE ADMINISTRATIVE AND JUDICIAL
INTERPRETATIONS THEREOF. THE COMPANY HAS NOT OBTAINED A RULING
FROM THE INTERNAL REVENUE SERVICE WITH RESPECT TO ANY TAX
CONSIDERATIONS RELEVANT TO ITS ORGANIZATION OR OPERATION, OR TO AN
INVESTMENT IN ITS SECURITIES. THIS SUMMARY IS NOT INTENDED TO
SUBSTITUTE FOR PRUDENT TAX PLANNING, AND EACH STOCKHOLDER OF THE
COMPANY IS URGED TO CONSULT ITS OWN TAX ADVISER WITH RESPECT TO
THESE AND OTHER FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF SHARES OF THE COMMON STOCK
OF THE COMPANY AND ANY CHANGES IN APPLICABLE LAW.
General
The Company operates in a manner that permits it to
qualify as a REIT under the Code. As a REIT, the Company itself
generally will be subject to federal income tax only on the amount
of its taxable income, subject to certain modifications ("REIT
Taxable Income"), that it does not distribute in the taxable year
in which it is earned. In addition, the Company will be subject to
a 4% excise tax to the extent it fails to satisfy certain calendar
year distribution requirements. The Company expects that, with
limited exceptions, it will not be subject to federal income tax at
the corporate level or to federal excise tax.
The Company would be subject to tax (including any
applicable minimum tax) on its taxable income at regular corporate
rates without any deduction for distributions to stockholders if it
failed to qualify as a REIT in any taxable year. Unless entitled
to relief under specific statutory provisions, the Company also
would be disqualified from treatment as a REIT for the following
four taxable years. The failure to qualify as a REIT for even one
year could result in the Company incurring substantial indebtedness
in order to pay any resulting taxes, thus reducing the amount of
cash available for distribution to stockholders.
For purposes of the special REIT taxation rules and the
REIT qualification requirements set forth below, the assets,
liabilities, income and deductions of any subsidiary, all of whose
stock has been owned by the Company during the subsidiary's entire
existence ("Qualified REIT Subsidiary"), will be treated as assets,
liabilities, income and deductions of the Company.
REIT Qualification Requirements
In order to qualify as a REIT, the Company must satisfy
various requirements with respect to (i) the nature of its assets
("Asset Requirements") and income ("Income Requirements"), (ii)
certain organizational matters ("Organizational Requirements") and
(iii) the amount of distributions to stockholders ("Distribution
Requirements").
Under the Asset Requirements, at the close of each
quarter during the taxable year (a) at least 75% of the assets of
the Company, by value, must consist of specified real estate
assets, cash or U. S. government securities and (b) as to its other
assets other than securities of a Qualified REIT Subsidiary, the
Company cannot own (1) securities of any one issuer which represent
more than 5% of the total value of the Company's assets or (2) more
than 10% of the outstanding voting securities of any one issuer.
The Income Requirements provide that at least 75% of the
Company's gross income must be derived from specified real estate
related sources, including interest on mortgage obligations, income
from REMIC interests, and gains from the sale of such obligations
and interests not held primarily for sale to customers in the
ordinary course of business ("Dealer Property"). Additionally, at
least 95% of the Company's gross income must consist of income
derived from items that qualify for the 75% income test plus other
specified types of passive income, such as interest, dividends and
gains from the sale or other disposition of stock and securities
other than Dealer Property.
If the Company fails to satisfy either of the foregoing
75% and 95% Income Requirements but (a) the Company otherwise
satisfies the requirements for qualification as a REIT, (b) such
failure is due to reasonable cause and not willful neglect and (c)
certain other requirements are met, then the Company will continue
to qualify as a REIT but will be subject to a 100% tax on the
greater of the amount by which it fails to satisfy either of such
tests reduced by expenses incurred in earning that amount.
The Income Requirements also require that less than 30%
of the Company's gross income be derived from the sale or other
disposition of (a) stock or securities held for less than one year,
(b) certain Dealer Property and (c) most real property (including
mortgage obligations and REMIC interests) held for less than four
years. In addition, the Code also generally imposes a 100% tax on
gains (less associated expenses) derived from sales of Dealer
Property (without an offset for any losses).
The Distribution Requirements require that the Company
distribute annually at least 95% of its REIT Taxable Income (and
95% of certain other income related to foreclosure property),
excluding any net capital gain, to its stockholders. For this
purpose, certain dividends paid by the Company after the close of
a taxable year may be considered as having been paid during such
taxable year, although they would be taxed to the stockholders in
the year in which they were actually paid. Such dividends will
also be treated as paid during the taxable year for purposes of
determining whether the Company has undistributed REIT Taxable
Income subject to income tax at the corporate level for the taxable
year. For purposes of the 4% excise tax (described above),
however, such dividends would not be treated as having been
distributed in the taxable year. In addition, dividends declared
in October, November or December of a calendar year, payable to
stockholders of record as of a date in such a month, and actually
paid during January of the following year will be considered as
paid on December 31 of such calendar year for excise tax purposes
as well as for other purposes under the REIT rules. Such
dividends, however, will also be treated as having been paid on
that December 31 for purposes of determining a stockholder's gross
income.
Due to the nature of the Company's income from its assets
and its deductions in respect of its obligations, under certain
circumstances, the Company may generate REIT Taxable Income in
excess of its cash flow. For example, the maturity and pass-
through rates of the Mortgage Collateral pledged to secure the CMO
issuances in which the Company holds an investment are not likely
to match the maturity and interest rates of the CMOs secured
thereby. Similarly, the Company may recognize taxable market
discount income with respect to its receipts from the sale,
retirement or other disposition of the portion of the Mortgage
Collateral that constitutes market discount bonds (i.e.,
obligations with a stated redemption price at maturity greater than
the Company's tax basis therein), whereas these receipts frequently
will be used to make nondeductible principal payments on CMOs. In
addition, certain CMOs may be issued with original issue discount,
the tax treatment of which may result in taxable income in excess
of cash flow. Accordingly, the Company may be required to
distribute a portion of its working capital to its stockholders or
borrow funds to make required distributions in years in which the
gross income of the Company on a tax basis (including "non-cash"
income) exceeds its deductible expenses. In the event that the
Company is unable to pay dividends equal to substantially all of
its REIT Taxable Income, it may incur income tax or excise tax or
may not be able to qualify as a REIT.
Dividends paid for a fiscal year in excess of the
Company's earnings and profits, as computed for federal income tax
purposes, are reported as a return of capital to the Company's
stockholders. Some of the Company's investments constitute REMIC
residual interests. Certain of these residual interests produce
"excess inclusion" income (see "Excess Inclusion Income" below)
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. For fiscal 1993, the Company reported that all
its distributions paid in 1993, even though it experienced both a
net loss and a tax loss for 1993, represented excess inclusion
income. For 1994, the Company made no distributions. For a
stockholder, excess inclusion income cannot be offset by losses,
except in the case of certain excess inclusion income for certain
savings and loan associations and their "qualified" subsidiaries.
The most significant Organizational Requirement is that
the stock of the Company must be widely held. This requires that
the stock of the Company be held by a minimum of 100 persons for at
least 335 days in each taxable year and that no more than 50% in
value of the stock be owned, actually or indirectly, by five or
fewer individuals at any time during the second half of each
taxable year. For this purpose, some pension funds and certain
other tax-exempt entities are treated as individuals. To evidence
compliance with these requirements, the Company is required to
maintain records that disclose the actual ownership of its
outstanding shares of Common Stock. In fulfilling its obligations
to maintain records, the Company must demand written statements
each year from the record holders of designated percentages of its
shares of Common Stock which would, among other things, disclose
the actual owners of such shares.
Excess Inclusion Income
All of the cash dividends distributed to the Company's
stockholders in 1993 were comprised of "excess inclusion" income.
There were no distributions for 1994. Excess inclusion income is
attributable to CMO issuances for which an election has been made
to be treated as a REMIC for federal income tax purposes. The
portion of the Company's dividends determined to be excess
inclusion income is taxable to certain otherwise tax-exempt
stockholders as unrelated business income. In addition, generally,
excess inclusion income may not be offset by any deductions or
losses, including net operating losses.
12. Restrictions on Transfer and Redemption of Shares.
Two of the requirements for qualification as a REIT under the Code
are that (i) during the last half of each taxable year not more
than 50% of the outstanding shares may be owned directly or
indirectly by five or fewer individuals and (ii) there must be at
least 100 stockholders for at least 335 days in each taxable year.
Those requirements apply for all taxable years after the year in
which the REIT elects REIT status.
In order that the Company may meet these requirements at
all times, the Company's Articles of Incorporation prohibit any
person or group of persons from acquiring or holding, directly or
indirectly, ownership of a number of shares of Common Stock in
excess of 9.8% of the outstanding shares. Shares of Common Stock
owned by a person or group of persons in excess of such amounts are
referred to in the Articles of Incorporation and herein as "Excess
Shares". The Articles of Incorporation also provide that in the
event any person acquires Excess Shares, such Excess Shares may be
redeemed by the Company, at the discretion of the Board of
Directors.
Under the Company's Articles of Incorporation, any
acquisition of shares of the Company that would result in the
disqualification of the Company as a REIT under the Code is void to
the fullest extent permitted by law, and the Board of Directors is
authorized to refuse to recognize a transfer of shares to a person
if, as a result of the transfer, that person would own Excess
Shares.
Additional provisions regarding restrictions on transfers
and redemptions of the Company's shares are set forth in the
Company's Articles of Incorporation, which were filed as Exhibit
3.1 to Amendment No. 1 to the Company's Registration Statement No.
33-22891 on Form S-11.
The Articles of Incorporation also contain provisions
intended to minimize the potential adverse effect on the Company of
a Code provision that would impose a tax on REITs (and other pass-
through entities) that hold REMIC interests if at any time during
the taxable year a Disqualified Organization (as defined below) is
a record holder of an interest in such entity. A "Disqualified
Organization" means the United States, any state or political
subdivision thereof, any foreign government, any international
organization or instrumentality of the foregoing, any tax-exempt
entity, other than a farmer's cooperative, not subject to the
unrelated business income tax and any rural electric or telephone
cooperative. If a Disqualified Organization were a stockholder of
record of the Company during a year in which the Company held a
REMIC interest, a tax might be imposed on the Company. The amount
of tax would be equal to the product of the highest marginal
corporate tax rate and the amount of REMIC excess inclusions for
the taxable year allocable to the interest in the Company held by
the Disqualified Organization.
Accordingly, the Articles of Incorporation provide that
any acquisition of shares of the Company that could or would result
in the direct or indirect imposition of a penalty tax on the
Company (including the tax described above) (a "Prohibited
Transfer") will be void ab initio to the fullest extent permitted
by applicable law, and the intended transferee of any shares that
are the subject of a Prohibited Transfer may be deemed never to
have had an interest therein. If the foregoing provision is
determined to be void or invalid, the transferee shall be deemed,
at the option of the Company, to have acted as agent of the Company
in acquiring those shares and to hold those shares on behalf of the
Company. In addition, any shares of the Company that are the
subject of a proposed, attempted or actual Prohibited Transfer may
be redeemed by the Company at the discretion of the Board of
Directors. Any such redemption will be effected as provided in the
preceding paragraphs with respect to Excess Shares. Furthermore,
whenever it is deemed by the Board of Directors to be prudent in
order to avoid a Prohibited Transfer, the Board of Directors may
require a holder or proposed transferee of shares to file a
statement or affidavit with the Company, stating that the holder or
proposed transferee is not a Disqualified Organization; and any
contract for the sale or other transfer of shares of the Company
will be subject to this provision. Moreover, the Board of
Directors may, in its discretion, refuse to transfer shares on the
books of the Company if (i) a statement or affidavit described in
the preceding sentence has not been received or (ii) the proposed
transferee is a Disqualified Organization.
13. Competition. In purchasing Mortgage Derivative
Securities, Mortgage Collateral and tax sale certificates, the
Company competes, or will compete, with investment banking firms,
savings and loan associations, banks, mortgage bankers, insurance
companies and other lenders, other REITs, GNMA, FNMA and FHLMC and
other entities, many of which have greater financial resources than
the Company.
As a REIT, the Company's business activities are limited
by the provisions of the Code that require a REIT to meet certain
tests to maintain its qualification as a REIT. Many of the
Company's competitors operate through entities that may have more
flexibility than the Company in conducting their business
operations.
14. Employees. The Company employs two full-time
employees and one part-time employee as of December 31, 1994, and
utilizes the services of consultants, as necessary.
Item 2. Properties.
The Company does not own real estate or physical
property. The executive offices of the Company are located in
leased space at 100 North Fourth Street, Suite 813, P.O. Box 250,
Steubenville, Ohio 43952. The lease covering such space can be
terminated at any time after August 14, 1995 with notice to the
lessor.
Item 3. Legal Proceedings.
As of December 31, 1994, there were no legal proceedings
pending or threatened to which the Company or its subsidiaries were
a party or to which any of their respective property was subject.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's
security holders during the fourth quarter of 1994.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company's Common Stock is traded on the American
Stock Exchange under the symbol "RM".
The table below sets forth the high and low sale prices
of the Company's Common Stock for each full quarterly period within
the two most recent fiscal years for which such stock was traded,
as reported on the American Stock Exchange Composite Tape, and
certain dividend information with respect to such shares.
Per Share
Dividends
Paid or
High Low Declared
First Quarter 1993 5 3/8 3 1/2 $ 0.00
Second Quarter 1993 3 5/8 2 5/16 0.00
Third Quarter 1993 2 3/8 1 3/8 0.00
Fourth Quarter 1993 2 1 0.04
First Quarter 1994 1 7/16 1 1/8 $ 0.00
Second Quarter 1994 1 1/8 11/16 0.00
Third Quarter 1994 1 11/16 0.00
Fourth Quarter 1994 1 1/4 11/16 0.00
In order to qualify as a REIT under the Code, the
Company, among other things, must distribute as dividends to its
stockholders an amount at least equal to (i) 95% of its REIT
Taxable Income (determined before the deduction for dividends paid
and excluding any net capital gain and any net income from the sale
or other disposition of property held primarily for sale) plus (ii)
95% of the excess of its net income from foreclosure property over
the tax imposed on such income by the Code less (iii) any excess
noncash income (as determined under the Code). The actual amount
and timing of dividend payments, however, is at the discretion of
the Board of Directors and depends upon the financial condition of
the Company in addition to the requirements of the Code.
The Company's Common Stock was held by 569 stockholders
of record on March 29, 1995.
<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data.
FINANCIAL HIGHLIGHTS - 1994, 1993, 1992, 1991 AND 1990
_____________________________________________________________________________________________
(amounts in thousands except per share data)
EARNINGS DATA
For the Years Ended December 31, 1994, 1993, 1992, 1991 and 1990
_____________________________________________________________________________________________
1994 1993 1992 1991 1990
__________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Revenues (1) $ 4,085 $(13,588) $ 21,861 $ 52,182 $ 55,224
Expenses 3,280 12,036 23,729 44,244 50,075
Net Income (loss) (2) 805 (25,624) (1,868) 7,938 5,149
Net Income (loss) per share 0.15 (4.92) (0.36) 1.52 0.97
Taxable Income (loss) (3)&(4) (8,500) (10,823) (16,656) 9,190 8,806
Taxable Income (loss) per share (1.63) (2.08) (3.20) 1.76 1.66
Weighted Average Shares
Outstanding 5,211 5,211 5,211 5,211 5,317
Dividends Paid per Share 0.00 0.04 0.90 1.75 1.66
_____________________________________________________________________________________________
OTHER FINANCIAL DATA
At December 31, 1994, 1993, 1992, 1991 and 1990
_____________________________________________________________________________________________
1994 1993 1992 1991 1990
_____________________________________________________________________________________________
Mortgage Related Investments $12,430 $ 65,248 $142,396 $332,998 $463,163
Mortgage Derivative Securities 1,990 7,161 40,727 41,720 42,515
Total Assets 19,892 81,097 197,860 394,026 518,809
Funding Notes Payable 12,538 44,892 94,329 230,781 314,874
CMOs Payable 0 25,042 54,886 106,585 140,135
Notes Payable 0 3,814 14,833 12,241 16,851
Total Liabilities 12,905 74,915 166,184 355,455 478,624
Total Stockholders' Equity 6,987 6,182 31,676 38,571 40,185
Shares of Common Stock
Outstanding 5,211 5,211 5,211 5,211 5,228
(1) Includes for 1993, cumulative effect of change in accounting principle of $(1,530).
(2) See note 8 to Audited Consolidated Financial Statements.
(3) Amounts estimated for 1994.
(4) See Management's Discussion and Analysis - Dividend Policy.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
INVESTMENT PHILOSOPHY AND INVESTMENT ACTIVITIES (HISTORICAL)
The Company's 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 during the fourth quarter of
1993, resulting in unprecedented mortgage refinancings and vastly
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 large majority of the assets, earnings and cash
flows have been permanently impaired and did not recover even as
prepayments returned to more historical levels in the second, third
and fourth 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.
Historically, cash received from the Company's portfolio
of 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, representing returned
investment principal, was used to repay Company borrowings,
including dealer margin calls on repurchase agreements, and to
purchase new investments for the Company's portfolio. Since mid-
year 1992, total cash flows have been utilized to reduce the
Company's borrowings (including margin calls), pay operating
expenses and fund minimal dividend distributions to stockholders.
During the second half of 1992, all of 1993 and 1994, the Company
has elected not to purchase any new assets. During the same time
period, Company borrowings were reduced from approximately
$22,000,000 to zero. 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
As a result of the rapid decline in refinancing activity,
mortgage prepayment speeds for most mortgage coupon levels have
fallen substantially since the first quarter of 1994. These
decreases in prepayment speeds have resulted in a stabilization of
the Company's remaining cash flows and improved market values on
some 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 increase in cash flows or earnings from
its current portfolio. Nevertheless, this stabilization of cash
flows has increased 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 six mortgage derivative assets for approximately $4.25
million, representing a gain of approximately $650,000 over the
Company's carrying value for these same assets. After repayment of
related debt on these assets of approximately $1.9 million, the
Company increased its cash balances by $2.31 million.
Simultaneously, the Company has reduced operating expenses
in all expenditure areas, particularly employment costs (2-1/2
current employees from 7 prior employees), 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 current assets are in excess of the
Company's operating expenses.
During the three year period ended December 31, 1994, the
Company incurred tax losses estimated at $35 million. Of this
amount, it is estimated that $30 million represents operating
losses while $5 million represents capital losses related to sales
of assets. Absent the existence of future excess inclusion income
(see "Dividend Policy"), future cash flows from the Company's
current portfolio of 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 tax loss carryforward
positions 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.
With expectations of a continuing period of more stable
mortgage market performance and in order to utilize the Company's
accumulated tax loss positions, the Company is exploring
alternative investment activities involving 1) the acquisition of
tax sale certificates mentioned in its second and third quarter
1994 Reports on Form 10Q, 2) the selective purchase, with Board
approval, of mortgage derivative securities having attractive
risk/return profiles reflective of the materially altered
marketplace for such securities and 3) the evaluation of several
business combination proposals that could effectively utilize its
tax loss position and add significant earning assets to the
Company's balance sheet.
First, the Company has made continuing progress toward
implementation of a strategy of acquisition and potential financing
of tax sale certificates on residential and commercial properties.
All of the actions, approvals and authorizations necessary to begin
this alternative investment activity are currently incomplete and
no assurance can be given regarding the implementation of such
activities. Nevertheless, continued progress has been made in 1)
establishing the parameters of a program acceptable to the
investment community and the structure that would be necessary to
implement same; 2) retention of 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 issuance of collateralized
notes; 6) identifying an agent for placement of the collateralized
notes and 7) engaging legal counsel for preparation of
documentation.
Acquisition of tax lien certificates could 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. The Company expects to make
its initial equity investment in tax sale certificates during the
second quarter of 1995.
In addition, as a result of new investment regulations and
increased capital requirements for insurance companies, investment
funds, pension funds, commercial banks and savings banks, the
investing activities of these entities in mortgage derivative
products have been greatly reduced, creating an oversupplied
market. As a result, the Company may from time to time investigate
acquiring a limited number of mortgage derivative securities
available at attractive price levels. If acquired, such securities
would be purchased at discount prices, backed by lower coupon
mortgages less subject to substantial volatility in prepayment
speed levels and contain AAA rated principal guarantees.
Nevertheless, these securities would, if purchased, introduce to
the Company an added degree of prepayment and interest rate risk.
If implemented, the Company would use a conservative level of
leveraging, through repurchase agreement financing, to increase
returns available to the Company.
No assurances can be given regarding the successful
implementation of either of these new investment activities, given
dependence upon financial market conditions, the availability of
assets that meet established underwriting criteria, the final
successful negotiation of a servicing contract in the case of tax
sale certificates, the existence of market competition and the
successful placement of non-recourse debt and repurchase agreement
borrowings.
Finally, since the second quarter of 1994 and simultaneous
with the consideration of new investment activities, 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 and recommended by the
Company's Board of Directors, stockholders would be asked for
approval to proceed through a proxy vote.
If the Company is unable to successfully institute new
investment activities 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 substantial yields which often result in unsatisfactory
sale prices for these types of assets. Under these market
conditions, the Company could realize greater value for
stockholders through the periodic payout of cash flows received
from the assets in combination with specific asset sales at future
dates at improved prices.
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. No distributions were paid
for fiscal 1994, but the Company estimates the existence of a minor
amount of excess inclusion income for 1994. Due to the minor
amount of such excess inclusion income, the Company will pay the
income taxes due (an amount expected to be less than $3,500) rather
than incur the expense of a negligible stockholder distribution.
For a stockholder, generally, excess inclusion income cannot be
offset by losses.
RESULTS OF OPERATIONS
1994 TO 1993 COMPARISONS
For both years ended December 31, 1994 and 1993, the
Company's Balance Sheet and Statement of Revenues and Expenses
reflect substantial changes related to the unprecedented high level
and extended duration of residential mortgage prepayments
experienced during all of 1992 and 1993 and continuing into the
early portion of 1994. These prepayments have resulted in the
Company incurring significant losses during such periods.
Statement of Revenues and Expenses
For fiscal 1993 and 1994, the Company derived 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.
Due to the nature of these securities, income calculated in
accordance with the Code ("Taxable Income") and income calculated
in accordance with generally accepted accounting principles ("Net
Income") are not always identical for any particular period,
especially when mortgage prepayment speeds are exceedingly rapid,
as for 1992 and 1993, or exceedingly slow.
The rapid prepayment environment of 1992 to early 1994 is
reflected in the substantial differences between Taxable Loss and
Net Income/(loss).
1994 1993
Net Income/(loss) $ 805,000 $(25,624,000)
Taxable Loss $ (8,500,000) $(10,823,000)
(estimated)
Net Income/(loss) per share $ 0.15 $(4.92)
Taxable Loss per share $(1.63) $(2.08)
(estimated)
Net Income/(loss), as calculated in accordance with
generally accepted accounting principles, and as presented in the
accompanying consolidated financial statements, for the twelve
months ended December 31, 1994, was $805,000, or $0.15 per share,
as compared to $(25,624,000), or $(4.92) per share, for the twelve
months ended December 31, 1993.
Generally accepted accounting principles require the
Company to periodically evaluate its Investments based upon current
and expected future mortgage prepayment speeds and interest rates
and, effective December 31, 1993, market discount rates, as well.
(See note 2 to the Company's Consolidated Financial Statements)
The record level of mortgage prepayments during 1992 and 1993 and
into the early portion of 1994 caused the Company to revalue its
Investments periodically, resulting in valuation adjustments of
$25,569,000 during 1993 but only $285,000 for the year ended
December 31, 1994. Such adjustments are reflected as a reduction
of interest revenues in the Company's Consolidated Statements of
Revenues and Expenses.
The substantial improvement in the Company's Net
Income/(loss) from 1993 to 1994 of $26,429,000 is due to 1)
drastically larger writedowns in value of Company Investments
during 1993, 2) larger gains from the sale of assets in 1994 and 3)
sharply reduced operating expenses for 1994. Downward asset
valuation adjustments in 1993 were $25,569,000, while such
writedowns in 1994 were only $285,000, a decrease of $25,284,000.
The large magnitude of asset valuation writedowns during 1993
reflected unprecedented actual mortgage prepayment levels and
market expectations of a continuation of high prepayment levels.
1994's minor valuation adjustments reflect the dramatic slowdown in
prepayment speeds and resultant stabilization in values of
securities collateralized by mortgage loans. In 1993, the Company
recorded gains on the sale of mortgage related investments of
$838,000 and losses on the sale of marketable equity securities of
$486,000, for a total net gain of $352,000 from asset sales. In
1994, the Company had total net gains of $1,119,000, of which
$461,000 related to the sale of ownership rights in three mortgage
related investments and $658,000 related to the sale of six
mortgage derivative securities. The difference in sales gains
represents an increase of $767,000 in Net Income between periods.
Absent these sales gains, the Company's Net Income would have been
$38,000. The Company also reduced operating expenses from
$1,703,000 in 1993 to $850,000 in 1994, a decrease of $853,000.
These three substantial improvements, when combined with other
minor income reductions on assets between 1993 and 1994, provide
for an increase in the Company's Net Income of $26,429,000.
The assumptions used to value assets at the end of each
quarter take into consideration the current level of interest rates
(short and long), actual mortgage prepayment speeds experienced for
each asset through the end of the quarterly period, Management's
evaluation of the market expectations of future prepayment speeds
for the mortgages backing each asset and, effective December 31,
1993, the application of a market discount rate to future cash
flows. If prepayment speeds were to occur at levels higher than
market expectations, market expectations of future mortgage
prepayment speeds increase beyond current anticipated levels, short
term interest rates increase beyond their current levels, or the
market discount rate applied were to be increased, further
reductions in the value of the Company's Investments would be
necessary.
Interest revenue on Mortgage Related Investments decreased
from $9,205,000 for the year ended December 31, 1993 to $2,208,000
for the year ended December 31, 1994, as a result of the
substantial reduction in Mortgage Related Investments on the
Company's Balance Sheet between December 31, 1993 and December 31,
1994, discussed below. Interest revenue on Mortgage Derivative
Securities was $(23,345,000) for the year ended December 31, 1993
as compared to $612,000 for the year ended December 31, 1994. The
$23,957,000 increase in interest revenue on Mortgage Derivative
Securities was primarily attributable to a $24,800,000 writedown of
this asset category for 1993 while such writedowns were only
$285,000 for 1994. Such writedowns are deducted from Mortgage
Derivative Securities interest revenues. There was also a general
reduction in interest earnings on that same asset category from
1993 to 1994 resulting from the high mortgage prepayments during
the period in the amount of $600,000.
Interest expense on Funding Notes and CMOs Payable
decreased from $10,333,000 to $2,430,000 for the years ended 1993
and 1994, respectively, as a result of the offsetting balance sheet
decline of Funding Notes and CMOs Payable, discussed below.
Operating expenses (which includes "Interest on Notes Payable" and
"General and Administrative") decreased from $1,703,000 for 1993 to
$850,000 for the comparable period in 1994. This decrease between
periods of $853,000 was the result of reduced interest expense on
Notes Payable of $188,000 as the Company repaid all amounts
outstanding under repurchase agreements during 1994 and a reduction
in General and Administrative Expenses of $665,000 as the Company
reduced costs in response to the deterioration of its investment
portfolio.
Balance Sheet
The Company's assets declined during the twelve month
period ended December 31, 1994 by $61,205,000, to a total of
$19,892,000 at December 31, 1994. This decrease is attributable to
the Company's Mortgage Related Investments declining during the
twelve month period from $65,248,000 to $12,430,000, a decrease of
$52,818,000. This reduction is primarily the result of 1) the
sales, during February 1994, of the ownership rights of two RYMAC
IV Bond Series, and during June 1994, of the ownership rights to
the RMSC Bonds, in order to take advantage of market premiums on
the underlying Mortgage Collateral (such sales reduced Mortgage
Related Investments by $40,755,000), 2) substantial prepayments on
collateral underlying the Company's 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 $12,000,000.
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 $12,538,000, or a decrease of
$57,396,000. The sale of ownership rights includes the transfer of
CMO and Funding Note obligations to the buyers while regularly
scheduled and prepaid principal on the underlying mortgages serve
to retire outstanding obligations secured by such mortgages. The
sale of ownership rights reduced CMO and Funding Notes by
$42,012,000, while regularly scheduled and prepaid mortgage
payments produced approximately $15,400,000 in reductions.
Mortgage Derivative Securities decreased from $7,161,000
at December 31, 1993 to $1,990,000 at December 31, 1994, a decrease
of $5,171,000, reflecting 1) the amortization and return of the
cost basis of the assets held in this category of approximately
$1,335,000, 2) the writedown of carrying value of such securities
which represents additional amortization in 1994 totaling $285,000
and 3) the sale of six securities during the third and fourth
quarters of 1994 which removed the cost basis of such assets from
the balance sheet totaling $3,551,000.
Funds held by trustee decreased from $1,347,000 at
December 31, 1993 to $172,000 at December 31, 1994. This category
of assets represents the receipt of monthly mortgage payments
awaiting further payment (reduction) of Funding Notes and CMOs
Payable at a future date. The magnitude of this account is
directly affected by the substantial decrease in Mortgage Related
Investments discussed above.
Receivables on Mortgage Related Investments and Mortgage
Derivative Securities declined from $5,608,000 at December 31, 1993
to $257,000 at December 31, 1994. Such $5,351,000 decrease is
directly attributable to the sizeable decreases in Mortgage Related
Investments and Mortgage Derivative Securities discussed
previously.
Notes Payable, consisting solely of repurchase agreements,
decreased from $3,814,000 at December 31, 1993 to $0 at December
31, 1994 due primarily to the result of dealer margin calls during
1994 and Kidder Peabody & Company's payment demand on five
repurchase agreements, which occurred immediately prior to Paine
Webber's acquisition of them during 1994. At November 30, 1994 the
Company repaid Kidder Peabody $433,000, reducing its Notes Payable
balance to zero.
Net Income for 1994 of $805,000, or $0.15 per share, is
reflected as a decrease to the Accumulated Deficit. Such amount
decreased from $(37,855,000) at December 31, 1993 to $(37,050,000)
at December 31, 1994. Estimated Taxable Income was a negative
$8,500,000, or $(1.63) per share. As a result, the Company
declared no dividends for 1994.
1993 TO 1992 COMPARISONS
Statement of Revenues and Expenses
Net Loss for the year ended December 31, 1993 was
$(25,624,000) or $(4.92) per share as compared to Net Loss of
$(1,868,000), or $(0.36) per share for the year ended December 31,
1992, a decrease of $23,756,000. This significant decrease was due
primarily to 1) substantially reduced gains on sales of assets in
1993 as compared to 1992 and 2) the large magnitude of writedown of
asset valuations in 1993 to reflect the continuing high levels of
mortgage prepayment speeds in that year as compared to already
significant adjustments in 1992.
Gains on sales of assets in 1992 were $1,602,000 compared
to $352,000 in net gains in 1993, a decrease of $1,250,000.
Generally accepted accounting principles which require periodic
evaluation of the Company's Investments based upon current and
expected future prepayment and interest rate levels and, for 1993,
the application of a discount rate to expected future cash flows,
caused 1993 writedowns of asset valuations totalling $25,569,000
(such writedowns are reflected as reductions to interest revenues
on the Company's Statement of Revenues and Expenses) compared to
$7,921,000 for 1992, a difference of $17,648,000. Reduced sales
gains of $1,250,000 and asset writedown increments of $17,648,000,
totalling $18,898,000 represent approximately 80% of the decrease
in Net Income from 1992 to 1993. The remaining difference of
$4,800,000 was the net result of generally reduced interest yields
on the Company's portfolio of Investments in 1993 related to the
extremely high level of mortgage prepayments in such year netted
against a decrease in expenses (Interest on Notes Payable, General
and Administrative and Management Fees) which declined from
$2,722,000 in 1992 to $1,703,000 in 1993.
Balance Sheet
The Company's assets declined during the twelve month
period ended December 31, 1993 by $176,763,000, to a total of
$81,097,000 at December 31, 1993. This decrease was attributable
to the Company's Mortgage Related Investments declining during the
twelve month period from $142,396,000 to $65,248,000, a decrease of
$77,148,000. This reduction was primarily the result of 1) the
calling, during January and September 1993, of two RYMAC IV Bond
Series in order to take advantage of market premiums on the
underlying Mortgage Collateral of each of those series (such calls
reduced Mortgage Related Investments by approximately $16,917,000),
2) unprecedented prepayments on collateral underlying the Company's
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 $60,000,000.
These asset reductions were matched by a corresponding
decrease in the related liability accounts, Funding Notes Payable
and CMOs Payable, from $149,215,000 to $69,934,000, or a decrease
of $79,281,000, as returned principal on the underlying mortgages
was used to retire outstanding obligations secured by such
mortgages.
Mortgage Derivative Securities decreased from $40,727,000
at December 31, 1992 to $7,161,000 at December 31, 1993, a decrease
of $33,566,000 reflecting 1) the amortization and return of the
cost basis of the assets held in this category of approximately
$8,766,000 and 2) the writedown of carrying value of such
securities which represented additional amortization in 1993
totalling $24,800,000.
Funds held by trustee decreased from $3,922,000 at
December 31, 1992 to $1,347,000 at December 31, 1993. This
category of assets represents the receipt of monthly mortgage
payments awaiting further payment (reduction) of Funding Notes and
CMOs Payable at a future date.
Marketable securities decreased from $332,000 at December
31, 1992 to $0 at December 31, 1993, reflecting the result of the
sale of stock of TIS Mortgage Investment Company ("TIS") during
1993.
Notes Payable decreased from $14,833,000 (inclusive of
$575,000 of bank line borrowings and $14,258,000 of repurchase
agreements) at December 31, 1992 to $3,814,000 at December 31,
1993, consisting solely of repurchase agreements. Such $11,019,000
decrease in leverage was principally the result of severe dealer
margin calls under repurchase agreements throughout 1993.
The Company declared dividends of $0.04 per share, or
$208,000, for 1993, while incurring a Net Loss of $(25,624,000), or
$(4.92) per share, and Taxable Income of a negative $(10,823,000),
or $(2.08) per share. The dividend of $0.04 per share represents
"excess inclusion income" for 1993 which under the Code for Real
Estate Investment Trusts must be distributed as dividends, even
during periods where the Company has losses in excess of such
excess inclusion amount. This amount, $208,000, plus the Net Loss
of $25,624,000 and the reversal of $338,000 carried at December 31,
1992 as an unrealized loss but in 1993 representing a portion of
the Company's Net Loss on the sale of the Company's entire holding
of TIS, is reflected as an increase in Accumulated Deficit. Such
amount increased from $(12,361,000) at December 31, 1992 to
$(37,855,000) at December 31, 1993.
At December 31, 1992, the Balance Sheet reflected an
Unrealized Loss on Marketable Equity Securities of $(338,000).
This amount represented the difference between the cost basis of
the Company's investment in TIS and the market value of such
investment at December 31, 1992. As stated above, the Company's
entire holding of TIS was liquidated during 1993.
EXPENSES AND USE OF BORROWED FUNDS
Operating expenses (Interest on Notes Payable and General
and Administrative) were $850,000 for the year ended December 31,
1994 versus $1,703,000 for the year ended December 31, 1993, a
decline of $853,000. The components of this significant decrease
in Operating expenses include: 1) reduced interest costs on Notes
Payable, which decreased from $297,000 in 1993 to $109,000 for
1994, as Notes Payable on the Balance Sheet declined from
$3,814,000 to $0 between December 31, 1993 and December 31, 1994
due to dealer margin calls and 2) a decrease of General and
Administrative Expenses from $1,406,000 in 1993 to $741,000 in
1994, a decline of $665,000 as part of a continuing expense
reduction program in response to the deterioration of the
investment portfolio.
The Company had 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 also 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 and allowed the line of credit to expire on
April 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company was a party to various repurchase agreements,
the proceeds of which had been used to acquire Mortgage Derivative
Securities. (See Notes 3 and 7 of Notes to Consolidated Financial
Statements) At December 31, 1993 and December 31, 1994, the
Company had outstanding under repurchase agreements $3,814,000,
with maturities ranging from January 6, 1994 to April 4, 1994, and
$0, respectively. The repurchase agreements were secured by
substantially all of the Company's Mortgage Derivative Securities.
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 in three of
the assets used to collateralize the line of credit and the
insignificant borrowing value that the remaining collateral would
support.
At December 31, 1994, the total amount borrowed by the
Company was $0 while at December 31, 1993 the total amount borrowed
was $3,814,000. Such borrowings represented 0% and 62%,
respectively, of stockholders' equity at December 31, 1994 and
December 31, 1993. The Company is 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 current
available credit sources.
From June 8, 1992 through November 30, 1994, the Company
was subject to continuous dealer margin calls based upon periodic
dealer revaluations of the Mortgage Derivative Securities pledged
by the Company to secure repurchase agreement borrowings, including
Kidder Peabody's full payment demand in late 1994. Total
repurchase agreement repayments during the June 8, 1992 to November
30, 1994 time period were $22,085,000. 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 borrowing outstandings. 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. In mid 1994, the substantial slowdown in
actual and dealer forecasted prepayment speeds produced a slight
improvement in dealer valuations of the Company's pledged Mortgage
Derivative Securities. As such, several assets provided a source
of incremental borrowing amounts to the Company for a period of
time.
During the third quarter and early fourth quarter of 1994,
the Company sold six 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 repayment of these repurchase
agreements totaled $1,901,000 and reduced repurchase agreement
borrowings to $432,000 as of late October 1994. At November 30,
1994, the Company repaid in full its remaining repurchase agreement
obligations and has had no outstanding Notes Payable since that
date. As such, all of the Company's remaining Mortgage Derivative
Securities are available to secure any future borrowings.
Item 8. Financial Statements and Supplementary Data.
RYMAC MORTGAGE INVESTMENT CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
PAGE
Consolidated Financial Statements
Independent Auditors' Report 41
Consolidated Balance Sheets as of
December 31, 1994 and 1993 42
Consolidated Statements of Revenues and Expenses
for the years ended December 31, 1994,
1993 and 1992 43
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1994,
1993 and 1992 44
Consolidated Statements of Cash Flows
for the years ended December 31, 1994,
1993 and 1992 45
Notes to Consolidated Financial Statements 46
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
RYMAC Mortgage Investment Corporation:
We have audited the consolidated balance sheets of RYMAC Mortgage
Investment Corporation and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of RYMAC Mortgage Investment Corporation and subsidiaries
as of December 31, 1994 and 1993 and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally
accepted accounting principles.
/s/ KENNETH LEVENTHAL & COMPANY
New York, New York
March 3, 1995
<PAGE>
<TABLE>
<CAPTION>
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
________________________________________________________________________________________
December 31, 1994 and 1993
(amounts in thousands except share data) 1994 1993
________________________________________________________________________________________
<S> <C> <C>
ASSETS
Real estate investments:
Mortgage related investments plus net premiums
of $0 and $840 (note 4) $ 12,430 $ 65,248
Mortgage derivative securities (notes 2 and 3) 1,990 7,161
_______________________________________________________________________________________
14,420 72,409
Cash 4,917 1,695
Funds held by trustee 172 1,347
Receivables on mortgage related investments 212 5,139
Receivables on mortgage derivative securities 45 469
Other assets 126 38
_______________________________________________________________________________________
$ 19,892 $ 81,097
_______________________________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Funding notes payable (note 5) $ 12,538 $ 44,892
CMOs payable (note 6) - 25,042
Accrued interest on funding notes
and CMOs payable 179 584
Notes payable (note 7) - 3,814
Dividends payable - 208
Other liabilities 188 375
_______________________________________________________________________________________
12,905 74,915
COMMITMENTS AND CONTINGENCIES (notes 2, 3, 7 & 9)
STOCKHOLDERS' EQUITY
Common stock: par value $.01 per share
50,000,000 shares authorized,
5,210,600 issued and outstanding at
December 31, 1994, and 1993 52 52
Additional paid-in capital 43,985 43,985
Accumulated Deficit (note 8) (37,050) (37,855)
________________________________________________________________________________________
6,987 6,182
________________________________________________________________________________________
$ 19,892 $ 81,097
_______________________________________________________________________________________
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
______________________________________________________________________________________
For the Years Ended December 31, 1994, 1993 and 1992
(amounts in thousands except share data) 1994 1993 1992
______________________________________________________________________________________
REVENUES
<S> <C> <C> <C>
Interest:
Mortgage related investments (note 4) $ 2,208 $ 9,205 $20,402
Mortgage derivative securities (note 3) 612 (23,345) (815)
Temporary investments 37 160 610
Gain (loss) on the sale of marketable
equity securities - (486) -
Gain on the sale of mortgage derivative
securities 658 - 180
Gain on the sale of mortgage related
investments, net 461 838 1,422
Other 109 40 62
______________________________________________________________________________________
4,085 (13,588) 21,861
______________________________________________________________________________________
EXPENSES
Interest on funding notes payable 1,723 6,551 13,273
Interest on CMOs payable 707 3,782 7,734
Interest on notes payable 109 297 965
Management/Settlement fees (note 9) - - 127
General and Administrative 741 1,406 1,630
______________________________________________________________________________________
3,280 12,036 23,729
______________________________________________________________________________________
Net Income (loss) (note 2) $ 805 $(25,624) $ (1,868)
______________________________________________________________________________________
Net Income (loss) per share (note 2) $ 0.15 $ (4.92) $ (0.36)
______________________________________________________________________________________
Weighted average number of common
shares outstanding 5,211,000 5,211,000 5,211,000
______________________________________________________________________________________
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
________________________________________________________________________________________
For the Years Ended
December 31, 1992, Total
1993, and 1994 Number Additional Accumulated Stock-
(amounts in thousands except of Common Paid-In Deficit Holders'
share data) Shares Stock Capital (Note 8) Equity
_______________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991 5,210,600 $52 $48,160 $(9,641) $38,571
________________________________________________________________________________________
1992 Unrealized Loss - - - (338) (338)
1992 Net Loss - - - (1,868) (1,868)
1992 Dividends Declared - - (4,175) (514) (4,689)
________________________________________________________________________________________
Balance at December 31, 1992 5,210,600 52 43,985 (12,361) 31,676
________________________________________________________________________________________
1993 Unrealized Loss - - - 338 (1) 338
1993 Net Loss - - - (25,624) (25,624)
1993 Dividends Declared - - - (208) (208)
________________________________________________________________________________________
Balance at December 31, 1993 5,210,600 52 43,985 (37,855) 6,182
________________________________________________________________________________________
1994 Net Income - - - 805 805
1994 Dividends Declared - - - - -
________________________________________________________________________________________
Balance at December 31, 1994 5,210,000 $52 $43,985 $(37,050) $6,987
________________________________________________________________________________________
See notes to consolidated financial statements.
(1) Reversal of prior year unrealized loss as current year realized loss.
</TABLE>
<TABLE>
<CAPTION>
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
_________________________________________________________________________________________
For the Years Ended December 31, 1994, 1993 and 1992
(amounts in thousands except share data) 1994 1993 1992
_________________________________________________________________________________________
<S> <C> <C> <C>
Operating Activities:
Net Income (loss) $ 805 $(25,624) $(1,868)
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of net premium on mortgage
related investments 840 675 1,653
Amortization of premiums on
mortgage derivative securities 1,429 31,142 14,940
Interest accrued and added to funding notes
payable 658 1,782 1,886
Decrease in interest receivable on
mortgage related investments 505 701 1,611
Decrease (increase) in interest receivable on
mortgage derivative securities 373 (5) 235
Decrease in accrued interest on funding notes
payable and CMOs payable (405) (881) (1,584)
Loss (gain) on the sales of investments (658) 486 (180)
Decrease in accrued expenses payable (395) (88) (2,128)
Other, net (87) 87 39
Net cash provided by operating activities 3,065 8,275 14,604
_________________________________________________________________________________________
Investing Activities:
Purchase of investments - - (392)
Principal payments on mortgage related
investments 56,400 79,917 191,845
Decrease in funds held by trustee 1,175 2,575 66
Principal payments on funding notes payable (33,012) (51,219) (138,338)
Principal payments on CMOs payable (25,042) (29,844) (51,699)
Purchase of mortgage derivative securities - - (15,697)
Proceeds from sales of investments 4,209 184 505
Principal payments on mortgage derivative
securities 241 2,398 1,438
Return of investment basis in equity investments - - 53
Net cash (used in)/provided by investing 3,971 4,011 (12,219)
activities
_________________________________________________________________________________________
Financing Activities:
Net proceeds (repayments) from notes payable (3,814) (11,019) 2,592
Dividends paid - (208) (4,689)
Net cash used in financing activities (3,814) (11,227) (2,097)
_________________________________________________________________________________________
Net increase in cash 3,222 1,059 288
Cash at beginning of year 1,695 636 348
Cash at end of year $ 4,917 $ 1,695 $ 636
__________________________________________________________________________________________
Supplemental disclosure of cash flow information:
Interest paid (net of amount added to funding
notes payable) $ 2,329 $ 9,931 $21,460
Dividends declared - 208 4,689
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. 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 was
amortized over the estimated lives of the investments using the
interest method. (See note 4). Due to the sale of several of the
Company's mortgage related investments during 1994, the Company
determined that the remaining balance of any premiums was nominal
and, as such, decided to amortize all premiums at December 31,
1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
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 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. Prior to this date, 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 required 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 were less than
the then current carrying value of the asset.
The Company first applied FASB-115 to its December 31, 1993
financial statements. 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 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.
Fair Value
Statement of Financial Accounting Standards No. 107, "Disclosure
about Fair Value of Financial Instruments" ("FASB 107"), requires
the Company to disclose the fair value of financial instruments for
which it is practicable to estimate such value and to disclose the
method(s) and assumptions used to estimate such value(s). Each of
Notes 3, 4, and 5 discuss the fair value of the Company's mortgage
derivative securities, mortgage related investments and funding
notes payable, respectively.
For mortgage related investments, prices for similar mortgage-
backed securities were obtained from Wall Street Dealers active in
mortgage-backed markets. It is important to note, however, that
the current market premiums on such similar mortgage-backed
securities are not available to the Company unless and until the
Company is able to call for early redemption the funding notes that
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
are collateralized by such mortgage related investments. The
potential for early redemption (calls) is specific to each
underlying collateralized obligation and the indenture covering
such transaction. For the Company's three remaining mortgage
related investments the timing of early redemptions based upon the
current market conditions and individual indenture restrictions are
not predictable and likely to be at distant future dates.
In regard to funding notes payable, market price quotations for
these underlying obligations were obtained from a dealer who
actively trades such instruments. Although these instruments
currently trade at par or slight discounts in the present financial
environment, the Company's obligation thereunder is equal to the
face principal amounts without any applicable premiums or
discounts. In certain circumstances, however, a premium to face
may be paid in order to effect a specific early redemption.
Investment Restrictions
In addition to qualifying as a REIT under the Code, the Company's
investment activities are restricted by provisions of the
Investment Company Act of 1940 as amended (the "Investment Company
Act"). Until 1994, the Company believed that its investment
activities did not bring it within the definition of an investment
company under the Investment Company Act because it was primarily
engaged in the business of purchasing or otherwise acquiring
mortgages and other liens and interests in real estate (the "Real
Estate Exception"). Under interpretations issued by the staff of
the Securities and Exchange Commission, in order to qualify for the
Real Estate Exception, the Company must maintain at least 55% of
its assets in mortgage loans or certain other interests in real
estate, and another 25% of its assets in those or certain other
types of real estate related interests. Between December 31, 1991
and 1994, changes in assets held by the Company caused the
composition of the Company's balance sheet to change sufficiently
to cause the Real Estate Exception historically relied upon by the
Company to be unavailable. Under Rule 3a-2 of the Investment
Company Act, the Company is deemed not to be an investment company
for at least one year, provided that the Company has a valid intent
to engage in a business other than that of investing, reinvesting,
owning, holding or trading in securities. Management believes that
certain of the new activities contemplated could satisfy such
requirement, or alternatively, the Company could acquire real
estate assets sufficient to qualify for the Real Estate Exception.
If the Company is unable to qualify for the Real Estate Exception
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
or engage in a business other than that of an investment company,
it will be required to register as an investment company under the
Investment Company Act. The Company is unable to predict how
registration under such Act would affect its current plans to
pursue new investment activities or business combinations.
Registration under the Investment Company Act would also require
the investments held by the Company to be adjusted to market value
at each financial reporting date to the extent not done so already.
Other financial statement reporting and disclosure requirements of
the Investment Company Act may differ in certain respects from
those to which the Company is currently subject.
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").
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 3 - Mortgage Derivative Securities (continued)
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
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 December 31, 1994 and 1993, the Company had investments in
Mortgage Derivative Securities as set forth below:
<TABLE>
<CAPTION>
PORTFOLIO OF MORTGAGE DERIVATIVE SECURITIES 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") - 864
FNMA REMIC Trust 1988-7 ("FNMA 1988-7") 73 177
- Trust 1988-11 ("FNMA 1988-11") 410 467
- Trust 1988-14 ("FNMA 1988-14") - 843
- Trust 1990-09 Class H ("FNMA 1990-09") - 989
- Trust 1991-163 Class SA ("FNMA 1991-163") 763 930
FNMA Stripped Mortgage-Backed Securities
Trust 127 ("FNMA 127") - 646
FHLMC Multi-Class Mortgage Participation
Certificates
(Guaranteed)
- Series 2 ("FHLMC 2") 164 202
- Series 21 ("FHLMC 21") - 11
- Series 1235 Class L ("FHLMC 1235") - 509
- Series 1248 Class H ("FHLMC 1248") 528 914
Cornerstone Mortgage Investment
Group II, Inc.
- Series 13 ("Cornerstone 13") 32 38
- Series 14 ("Cornerstone 14") 20 24
________________________________________________________________________
$ 1,990 $ 7,161
________________________________________________________________________
</TABLE>
Of the eight mortgage derivative securities reflecting a zero basis
for 1994 in the table above, six securities were sold while the
Company reduced its carrying value on two other securities to zero
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 3 - Mortgage Derivative Securities (continued)
due to the projection of minimal future cash receipts on these two
securities. During the third quarter of 1994, the Company sold
four mortgage derivative securities for a net gain of $470 and
during the fourth quarter of 1994, the Company sold two additional
securities for a net gain of approximately $188, for total gains in
1994 of $658. The net proceeds from these sales will be directed
toward new business opportunities which the Company is currently
pursuing.
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, 1994 and 1993, the Company applied a
discount rate of 12% to the cash flows for its portfolio of
Mortgage Derivative Securities except for two assets where at
December 31, 1994 (FNMA 1988-7 and FHLMC 1248) a 16% discount rate
was applied to reflect the negative effects caused by an increase
in short-term interest rates on these two assets. If the Company
had applied higher discount rates, the resulting FASB-115
adjustment would have increased. In 1994, the Company established
a valuation reserve account to provide for future downward
valuation adjustments. At December 31, 1994, the balance of the
valuation reserve account was utilized to reduce the value of
certain assets. Total valuation adjustments for 1994 were $285 as
compared with $26,330 for 1993.
Additionally, in accordance with FASB-107, the Company is required
to compute the estimated fair value of its mortgage derivative
securities by projecting anticipated future cash flows and
discounting those cash flows at discount rates established in
market transactions for securities having similar characteristics
and backed by collateral of similar rate and term.
For the December 31, 1994 estimate of fair market values, the
Company used the same prepayment and interest rate assumptions as
for its determination of carrying values under FASB-115. (See note
2) The PSA speeds vary depending on the collateral. The
prepayment assumption model used by the Company incorporates a
market methodology established by the Public Securities Association
("PSA"). Such model assumes a rate of prepayment each month of the
unpaid principal balance of a pool of mortgage loans. 100% of PSA
assumes that 0.2% per annum of the then outstanding principal
balance of a pool of mortgage loans will prepay in the first month
of the life of such mortgage loans and an additional 0.2% per annum
in each month thereafter (for example, 0.4% per annum in the second
month, 0.6% in the third month, etc.) until the 30th month.
Beginning with the 30th month and in each month thereafter, 100%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 3 - Mortgage Derivative Securities (continued)
PSA assumes a constant prepayment rate of 6% per annum of the then
outstanding principal balance of such mortgage loans. On a bi-
weekly basis, Bloomberg Financial Markets ("Bloomberg") obtains PSA
estimates for a wide range of mortgage coupons and ages from
several dealers in mortgage derivative securities and makes them
available to Bloomberg's subscribers.
The prepayment speeds used by the Company in establishing the
estimated fair value of its securities at December 31, 1994 are:
Bloomberg Median PSA
Collateral/(Year of Issue) As of December 31, 1994
GNMA 9.5% (1986) 165%
FNMA/FHLMC 9.0 (1986) 191
FNMA/FHLMC 9.0 (1991) 184
FNMA/FHLMC 9.5 (1986) 205
Such PSA assumptions do not purport to be an historical description
of prepayment experience or a prediction of the future rate of
prepayments of any mortgage loan.
All assets were modeled forward using the December 31, 1994
Bloomberg Median PSA for the life of each asset. LIBOR was assumed
at 6.00% for the life of the assets and discount rates of 12% and
16% were applied. Since PSA, interest rate and discount rate
assumptions under FASB-115 and FASB-107 were identical for the
Company's Mortgage Derivative Securities at December 31, 1994, fair
market values and carrying values of such assets are equal.
None of the Company's mortgage derivative securities are pledged as
collateral for any borrowings and thus represent a source of
increased liquidity to the Company.
_________________________________________________________________
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, until June 1994,
Ryland Mortgage Securities Corporation (as described below).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 4 - Mortgage Related Investments (continued)
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
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 grant 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 of 1994 and
realized a net loss of approximately $134.
At December 31, 1994 and 1993 the Company owned mortgage related
investments with aggregate outstanding principal balances of
$12,430 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 4 - Mortgage Related Investments (continued)
maturity dates ranging from July 1, 2001 to April 1, 2017.
The Company held the following mortgage related investments as of
December 31, 1994:
Interest Final
Rate Maturity Principal
Description Range Date Range Amount
87 Pools of FNMA 7.75% to 7/01/2001 $12,430
Certificates, 10.50% to 4/01/2017
18 of which were
under $50
The following is a summary of total mortgage related investments
for the years ended December 31, 1994 and 1993:
1994 1993
Balance at beginning of year $ 64,408 $140,881
Sales of collateral or ownership rights (40,755) (17,483)
Collections of principal (11,223) (58,990)
________ ________
Balance at end of year $ 12,430 $ 64,408
The 1994 sales of collateral or ownership rights were in connection
with the RYMAC IV Series 3 and 4 bonds and the RMSC bonds. (See
note 5)
In accordance with FASB-107, the Company obtained prices from a
Wall Street Dealer for the mortgage-backed securities
collateralizing the Company's mortgage related investments.
Although the FNMA Certificates were trading at premiums to their
face values as of December 31, 1994, as described in note 2, the
premiums on these FNMA Certificates are only available to the
Company under limited circumstances related to early redemption of
specific series of bonds.
In March 1994, the Company sold its ownership rights in Series 3
and 4 including the rights to excess cash flows until applicable
Series call option dates, the rights to effecting the call options
and the rights to the premiums, if any, existent on the underlying
GNMA and FNMA certificates at future call dates. After providing
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 4 - Mortgage Related Investments (continued)
for the expenses of these contractual assignments and expensing of
the remaining premium on both Series, the Company recorded a net
gain of $595. The Company also assigned its ownership rights in
the RMSC Bonds to a third party during the second quarter for a net
loss of $134.
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 estimates the fair value of the RYMAC IV Bond
Series 7, 10 and 19 to be $12,430, which equals the carrying value
at December 31, 1994.
_________________________________________________________________
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
December 31, 1994 and 1993, respectively, having stated maturities
ranging from August 1, 2010 to May 1, 2017 and July 1, 2010 to May
1, 2017, respectively. The classes of each series of funding notes
payable bear interest at fixed rates. The range of fixed rates at
December 31, 1994 and 1993 were 8.25% to 9.45% and 8.25% to 11.20%,
respectively.
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)
In accordance with FASB-107, the Company obtained prices for its
Funding Notes Payable as of December 31, 1994, from a dealer
actively trading in RYMAC IV Bonds and other bonds of this type.
Such bonds were trading at par or slight discounts to their face
values as of December 31, 1994. Market discounts on trades of
these obligations do not affect the Company. The Company's
obligations for repayment of its Funding Notes Payable are at par
through receipt of principal and interest payments on its mortgage
related investments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
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 Company sold its
ownership rights in the RMSC Bonds during May 1994. (See note 4)
_________________________________________________________________
Note 7 - Notes Payable
Notes payable represented repurchase agreements with Wall Street
dealers and borrowing availability under a commercial bank line of
credit. During 1994, all repurchase agreements were repaid and the
line of credit was allowed to expire.
At December 31, 1993, the Company was a party to twelve separate
repurchase agreements for borrowings of $3,814 which were
collateralized by certain mortgage derivative securities. As of
December 31, 1993 these repurchase agreements had interest rates
ranging from 3.30% to 5.00% with maturities ranging from January 6,
1994 to April 4, 1994. At December 31, 1993, $2,622 of such
repurchase agreements was outstanding with Kidder Peabody and
Company (nine separate repurchase agreements). These nine
repurchase agreements were secured by the pledge of mortgage
derivative securities with a carrying value of $4,820 and had an
average weighted maturity of 57 days.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 7 - Notes Payable (continued)
The following summarizes information related to the Company's
short-term borrowings during 1994:
<TABLE>
<CAPTION>
Maximum Average Weighted
Weighted Amount Amount Average
Balance Average Outstanding Outstanding Interest
at End Interest During During Rate During
Description of Period Rate 1994 1994 1994
<S> <C> <C> <C> <C> <C>
Line of Credit $0 0% $ 0 $ 0 0%
Repurchase Agreements 0 0 4,108 2,275 4.81
</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
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.
For 1994, the Company made no distribution to its stockholders and
it expects to have a tax loss of approximately $8.5 million for the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 8 - Federal Income Taxes and Distributions (continued)
year. The Company's taxable losses for 1992 and 1993 aggregate to
approximately $28 million. The Company's cumulative tax losses are
likely to aggregate $35 million. During 1993, the Company's
investment in certain REMICs produced excess inclusion income of
$213. For 1994, the Company's investments generated negligible
excess inclusion income. Under the Code a REIT must generally
distribute its excess inclusion income to its stockholders even
though it has other losses or deductions exceeding such excess
inclusion income. Accordingly, if the Company were to report
future excess inclusion income, it may elect to distribute such
excess inclusion income as dividends even though it has an
estimated tax loss carryforward approximating $35 million. The tax
losses can be carried forward to offset future income of the
Company.
The following table illustrates the reconciliation between Net
Income and Accumulated Deficit, and the related per share data for
the following periods:
1994 1993
Accumulated Deficit
at Beginning of Period $(37,855) $(12,023)
Net Income/(loss) 805 (25,624)
Less: Dividends Declared - 208
Accumulated Deficit
at End of Period $(37,050) $(37,855)
Per Share:
Net Income/(loss) $ 0.15 $ (4.92)
Dividends Declared $ - $ 0.04
_________________________________________________________________
Note 9 - Related Party Transactions
Pursuant to the Purchase Agreements between the Company and RYMAC
IV (see note 4), $25 has been withheld from amounts released from
the lien of the RYMAC IV Indenture, retained by RYMAC IV and
deposited in escrow to be used for payment of expenses of the CMOs
secured by certain of the mortgage related investments purchased by
the Company. In addition, during the year ended December 31, 1994,
the Company incurred $17 of CMO administration fees which were paid
to RYMAC IV under the terms of the Purchase Agreements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 10 - 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 contributed 3% of gross compensation and has
established the same minimum contribution for 1995. 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 during 1994
for the Company's two 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 ten year period ending September 2004. Salary
continuance was provided to the same Officers and Affiliated
Director, allowing for up to one year's base salary should an
Officer not be offered employment by a surviving entity and not
find comparable employment within one year of any such business
combination.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 11 - Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
Quarter
First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
1994
Operating Results
Revenues(1) $ 1,951 $ 576 $ 1,061 $ 497 $ 4,085
Expenses 1,596 766 519 399 3,280
Net Income (loss) 355 (190) 542 98 805
Net Income (loss)
per share $0.07 $(0.04) $0.11 $ 0.01 $ 0.15
Dividends $ - $ - $ - $ - $ -
Other Information
10 Year Treasury(2) 6.07% 7.07% 7.32% 7.83% 7.10%
1 Month LIBOR(3) 3.40 4.19 4.73 5.54 4.48
1993
Operating Results
Revenues(1) $(1,524) $(2,959) $(3,463) $(5,642) $(13,588)
Expenses 3,800 3,303 2,867 2,066 12,036
Net Loss (5,324) (6,262) (6,330) (7,708) (25,624)
Net Loss
per share $(1.02) $(1.20) $(1.22) $(1.48) $(4.92)
Dividends - - - $0.04 $0.04
Other Information
10 Year Treasury(2) 6.25% 5.97% 5.60% 5.60% 5.86%
1 Month LIBOR(3) 3.12 3.11 3.11 3.18 3.13
1 Includes downward valuation adjustment to the carrying value of the Company's assets.
(See notes 2, 3 and 4)
2 Quarterly 10 Year Treasury figures are based upon the daily average while the yearly
figures are based upon the weekly average. (Source: Bloomberg Financial System)
3 Quarterly 1-Month LIBOR figures are based upon the daily average while the yearly
figures are based upon the weekly average. (Source: Bloomberg Financial System)
</TABLE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required to be set forth hereunder has
been omitted and will be incorporated by reference, when filed,
to the Company's Proxy Statement for its 1995 Annual Meeting of
Stockholders to be held on or about May 22, 1995.
Item 11. Executive Compensation.
The information required to be set forth hereunder has
been omitted and will be incorporated by reference, when filed,
to the Company's Proxy Statement for its 1995 Annual Meeting of
Stockholders to be held on or about May 22, 1995.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required to be set forth hereunder has
been omitted and will be incorporated by reference, when filed,
to the Company's Proxy Statement for its 1995 Annual Meeting of
Stockholders to be held on or about May 22, 1995.
Item 13. Certain Relationships and Related Transactions.
The information required to be set forth hereunder has
been omitted and will be incorporated by reference, when filed,
to the Company's Proxy Statement for its 1995 Annual Meeting of
Stockholders to be held on or about May 22, 1995.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports
On Form 8-K.
(a) Documents filed as part of this Report:
1. The following financial statements are included in
Part II, Item 8 of this Form 10-K:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Revenues and Expenses
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial statement schedules required:
None
3. The following exhibits are included as part of
this Form 10-K:
Exhibit No. Description Page No.
3.1 Amended and Restated Articles of
Incorporation of the Company
(incorporated by reference to
Exhibit 3.1 to Amendment No. 1
to the Company's Registration
Statement No. 33-22891 on Form S-11).
3.1.1 Articles of Amendment to Amended and
Restated Articles of Incorporation
of the Company (incorporated by reference
to Exhibit 3.1.1 to the Company's Form
10-K for the year ended December 31, 1990).
3.2.1 Amended and Restated By-laws of the
Company (incorporated by reference
to Exhibit 3.2 to Amendment No. 1
to the Company's Registration
Statement No. 33-22891 on Form S-11).
3.2.2 Amendment to By-laws of the Company
(incorporated by reference to
Exhibit 3.2.1 to Amendment No. 2 to
the Company's Registration Statement
No. 33-22891 on Form S-11).
10.1 Purchase Agreement dated as of
August 30, 1988 among the Company,
RMI I and RYMAC IV with respect to
collateral securing RYMAC IV's Series
7 Bonds (incorporated by reference to
Exhibit 10.5 to the Company's Form
10-Q for the quarter ended
September 30, 1988).
Exhibit No. Description Page No.
10.2 Purchase Agreement dated as of
August 30, 1988 among the Company,
RMI I and RYMAC IV with respect to
collateral securing RYMAC IV's Series
10 Bonds (incorporated by reference
to Exhibit 10.6 to the Company's Form
10-Q for the quarter ended
September 30, 1988).
10.3 Purchase Agreement dated as of
August 30, 1988 among the Company,
RMI I and RYMAC IV with respect to
collateral securing RYMAC IV's Series
19 Bonds (incorporated by reference to
Exhibit 10.7 to the Company's Form
10-Q for the quarter ended
September 30, 1988).
10.4 First Amendment to Purchase Agreements
dated as of September 23, 1989 among the
Company, RMI I and RYMAC IV (incorporated
by reference to Exhibit 10.27 to the
Company's Form 10-Q for the quarter ended
March 31, 1989).
10.5 Residual Bond Purchase Agreement dated
as of September 30, 1988 between NVR
Mortgage L.P. and the Company
(incorporated by reference to Exhibit
10.21 to the Company's Form 10-Q for the
quarter ended September 30, 1988).
10.6 Amended and Restated Investment Guidelines
(incorporated by reference to Exhibit 10.38
to the Company's Form 10-K for the year
ended December 31, 1991).
10.7 Agreement dated as of March 31, 1992 between
the Company and NVR Mortgage Management
Partnership, NVR Mortgage Management, Inc.,
NVR Mortgage L.P., Ryan Securities, Inc.,
and NVR, L.P. (incorporated by reference to
Exhibit 10.16 to the Company's Form 10-K for
the year ended December 31, 1992).
Exhibit No. Description Page No.
10.8 Limited Waiver and Fourth Amendment to
Amended and Restated Revolving Credit
Agreement dated as of August 31, 1992
between the Company and Pittsburgh National
Bank (incorporated by reference to Exhibit
10.17 to the Company's Form 10-K for the
year ended December 31, 1992).
10.9 Limited Waiver and Fifth Amendment to
Amended and Restated Revolving Credit
Agreement dated as of December 30, 1992
between the Company and Pittsburgh National
Bank (incorporated by reference to Exhibit
10.18 to the Company's Form 10-K for the
year ended December 31, 1992).
10.10 Sixth Amendment to Amended and Restated
Revolving Credit Agreement dated as of
January 21, 1993 between the Company, RMI I,
RMI II and Pittsburgh National Bank
(incorporated by reference to Exhibit 10.19
to the Company's Form 10-K for the year
ended December 31, 1992).
10.11 Settlement Agreement dated as of June 29,
1993 by and among the Company, NVR Mortgage
Management Partnership, NVR Mortgage L.P.,
Ryan Securities, Inc., NVR L.P., NVR
Mortgage Management, Inc., Ryan Financial
Services, Inc., Ryan Mortgage Acceptance
Corporation IV, and RMI I (incorporated by
reference to Exhibit 99 to the Company's
Form 10-Q for the quarterly period ended
June 30, 1993).
10.12 Seventh Amendment to Amended and Restated
Revolving Credit Agreement dated as of June
16, 1993 between the Company and PNC Bank,
National Association, formerly Pittsburgh
National Bank.
10.13 Eighth Amendment to Amended and Restated
Revolving Credit Agreement dated as of
September 15, 1993 by and among the Company,
RMI I, and PNC Bank, National Association.
Exhibit No. Description Page No.
20 Notice to stockholders regarding Dividend
Reinvestment Plan (incorporated by
reference to Exhibit 21 to the Company's
Form 10-K for the year ended December 31,
1988).
99.1 Dividend Reinvestment Plan of the
Company (incorporated by reference to
Exhibit 28.1 to the Company's Form 10-K
for the year ended December 31, 1988).
99.2 Dividend Reinvestment Service Agreement
dated December 13, 1988 between the
Company and Maryland National Bank
(incorporated by reference to Exhibit
28.2 to the Company's Form 10-K for the
year ended December 31, 1988).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last
quarter of the period covered by this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, Chief Executive Officer
Date: March 29, 1995
Pursuant to the requirements of the Securities Exchange
Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Name Title Date
/s/ Richard R. Conte Chairman of the
Richard R. Conte Board of Directors,
Chief Executive
Officer and Principal
Financial Officer March 29, 1995
/s/ Edward S. Babbitt, Jr. Director March 29, 1995
Edward S. Babbitt, Jr.
/s/ Joseph P. Berghold Director March 29, 1995
Joseph P. Berghold
/s/ Spencer B. Burke Director March 29, 1995
Spencer B. Burke
/s/ James C. Chaplin, IV Director March 29, 1995
James C. Chaplin, IV
[Signatures continued on next page.]
[Signatures continued from previous page.]
/s/ Malcolm M. Prine Director March 29, 1995
Malcolm M. Prine
/s/ Ronald L. Temple Director March 29, 1995
Ronald L. Temple
/s/ Hay Walker, IV Director March 29, 1995
Hay Walker, IV
