SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM l0-Q
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For Quarter Ended September 30, 1997
Commission file number O-17248
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership
(Exact Name of Registrant as specified In Its charter)
California 68-0023931
(State or other jurisdiction I.R.S. Employer
of incorporation or organization Identification No.)
2221 Olympic Boulevard
Walnut Creek, California 94595
(Address of principal executive office) (Zip Code)
Registrant's Telephone number,
including area code (510) 935-3840
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_________
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
BALANCE SHEETS -- SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
September 30 December 31
1997 1996
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents (Note 2) $ 3,018,971 $ 11,386,661
Certificates of Deposit 1,000,000 850,000
Loans secured by trust deeds (Notes 2 and 3) 174,427,447 154,148,933
less: Allowance for loan losses (Note 2) (3,500,000) (3,500,000)
Real estate held for sale (Note 6) 10,122,006 7,743,295
Investment in Limited Partnership (Note 2 and 5) 3,189,256 4,877,798
Unsecured Loan to General Partner (Note 4) 0 488,764
Interest receivable 1,388,381 1,321,493
Other assets 59,074 59,074
-------------- --------------
Total Assets $189,705,135 $177,376,018
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued distributions payable $ 529,138 $ 511,456
Accounts payable and accrued liabilities 24,632 24,458
Deferred income 132,742 0
------------- ------------------
Total Liabilities 686,512 535,914
------------- -------------
PARTNERS' CAPITAL:
General partners (Note 7) 1,849,034 1,732,726
Limited partners (Note 7) 187,169,589 175,107,378
----------- -----------
Total Partners' Capital 189,018,623 176,840,104
----------- -----------
Total Liabilities and Partners' Capital $189,705,135 $177,376,018
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial
statements.
<PAGE>
<TABLE>
<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
September 30 September 30 September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
REVENUES:
<S> <C> <C> <C> <C>
Interest income on loans secured by trust deeds $ 4,572,435 $ 4,168,380 $ 13,251,545 $ 12,316,667
Gain from limited partnership (Note 5) 381,173 0 1,974,586 0
Rental income 76,644 94,368 240,160 282,705
Interest income from limited partnership (Note 5) 67,842 0 274,556 0
Other interest income 83,044 60,491 367,053 156,924
Other income 107,848 0 158,077 0
----------- ----------- ----------- -----------
Total revenues $ 5,288,986 $ 4,323,239 $ 16,265,977 $ 12,756,296
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Management Fees paid to General Partner (Note 9) $ 895,820 $ 121,945 $ 3,121,387 $ 338,982
Servicing Fees paid to General Partner (Note 9) 99,006 107,115 337,664 275,394
Promotional interest (Note 9) 19,203 20,414 59,856 44,580
Administrative 14,299 14,129 42,557 42,387
Legal and accounting 60 4,671 77,914 82,568
Real Estate Owned expenses 87,530 215,317 323,322 710,747
Other 0 0 8,843 10,869
----------- ----------- ----------- -----------
Total operating expenses $ 1,115,918 $ 483,591 $ 3,971,543 $ 1,505,527
----------- ----------- ----------- -----------
Net income $ 4,173,068 $ 3,839,648 $ 12,294,434 $11,250,769
=========== =========== =========== ===========
Net income allocated to general partner $ 40,715 $ 37,880 $ 119,496 $ 110,948
=========== =========== =========== ===========
Net income allocated to limited partners $ 4,132,353 $ 3,801,768 $ 12,174,938 $11,139,821
=========== =========== =========== ===========
Net income per limited partnership unit (Note 8) $.022 $.022 $.065 $.065
==== ==== ==== ====
</TABLE>
The accompanying notes are an
integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnersbip)
STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
September 30 September 30
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 12,294,434 $ 11,250,769
Adjustments to reconcile net Income
to net cash provided by operating activities
(Increase) decrease in interest receivable (66,888) 22,187
Increase (decrease) in accrued distribution payable 17,682 23,635
Increase (decrease) in accounts payable/accrued liability 174 (99,884)
(Increase) decrease in other assets 0 (59,074)
Increase (decrease) in deferred income 132,742 96,640
Increase (decrease) in other liabilities 0 8,290
Depreciation 0 21,735
------------ ------------
Total adjustment 83,710 13,529
------------ ------------
Net cash provided by operating activities 12,378,144 11,264,298
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of loans secured by trust deeds (63,406,952) (41,173,774)
Principal collected 1,495,912 3,855,124
Loan payoffs 41,632,527 30,831,719
Investments in real estate (2,378,711) (3,690,666)
Investment in limited partnership 1,688,542 0
Unsecured loan to General Partner 488,764 239,774
Investments in Certificates of Deposit (net) (150,000) (150,000)
------------- -------------
Net cash provided by (used in)
investing activities (20,629,918) (10,087,793)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of partnership Units 13,176,560 12,923,304
Cash distributions (4,587,638) (4,552,492)
Capital withdrawals (8,704,838) (10,599,501)
------------- ------------
Net cash provided by (used in)
financing activities (115,916) (2,228,689)
------------- -------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (8,367,690) (1,057,014)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 11,386,661 5,056,358
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 3,018,971 $ 2,717,332
============= ============
</TABLE>
The accompanying notes are an
integral part of these financial statements.
<PAGE>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(1) ORGANIZATION AND OPERATIONS
Owens Mortgage Investment Fund (the Partnership), a California limited
partnership, was formed on June 14, 1984 to invest in loans secured by first,
second and third trust deeds and wraparound mortgage loans. The Partnership
commenced operations on the date of formation and will continue until December
31, 2034 unless dissolved prior thereto under the provisions of the partnership
agreement.
The general partners include Owens Financial Group, Inc. (OFG), a California
Corporation, and certain individuals who are OFG's shareholders/officers and/or
employees. The individual partners have assigned to OFG their interest in any
present or future promotional allowance from the Partnership. OFG is a
California corporation engaged in the origination of real estate mortgage loans
and the subsequent servicing of these mortgages for the Partnership and for
other third-party investors.
The general partners are authorized to offer and sell and have outstanding up to
an aggregate of 250,000,000 units outstanding at $1.00 per unit, representing
$250,000,000 of limited partnership interests in the Partnership. Limited
Partnership Units outstanding were 187,365,609 at September 30, 1997. As of
September 30, 1997, the Partnership had registered $321,570,324 of limited
partnership interests with the Securities and Exchange Commission.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following items comprise the significant accounting policies that the
Partnership follows in preparing and presenting its financial statements.
(a) General
The unaudited interim financial statements furnished reflect all
adjustments which are normal and recurring in nature and, in the opinion of
management, necessary to a fair statement of the results for the interim periods
presented.
(b) Loans Secured by Trust Deeds
Loans secured by trust deeds are acquired from OFG and are recorded at
cost. Interest income on loans is accrued by the simple interest method.
Effective January 1, 1995, the Partnership adopted the Financial Accounting
Standards Board issued Statement No. 114, Accounting by Creditors for Impairment
of a Loan, and No. 118, Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures. Under Statement No. 114, a loan is impaired when,
based on current information or events, it is probable that a creditor will be
unable to collect the contractual interest and principal payments of a loan
according to the contractual terms of the loan agreement. Statement No. 114
requires that impaired loans be measured on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. Statement No. 118 clarifies
interest income recogntion and disclosure provisions of Statement No. 114. The
adoption of these statements do not have a material effect on the financial
statements of the Partnership.
In June 1996, the Financial Accounting Standards Board issued Statement No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. Statement No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of liabilities
and provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. The
Partnership was required to implement Statement 125 effective January 1, 1997.
Management believes that the implementation of Statement 125 does not have a
material impact on the financial statements.
The Partnership recognizes interest income on impaired loans using the
cash-basis method of accounting. Cash receipts are allocated to interest income,
except when such payments are specifically designated as principal reduction or
when management does not believe the Partnership's investment in the loan is
fully recoverable.
(c) Allowance for Loan Losses
The Partnership maintains an allowance for loan losses equal to $3,500,000 as of
September 30, 1997. Management of the Partnership believes that based on
historical experience and a review of the loans and their respective collateral,
the allowance for loans losses is adequate in amount.
Through October 31, 1994, OFG purchased the Partnership's receivables for
delinquent interest on loans originated prior to May 1, 1993 from the
Partnership on a non-recourse basis. However, effective November 1, 1994, OFG
discontinued its practice of purchasing interest receivable for certain loans.
The outstanding balance of all loans delinquent greater than ninety days was
$7,952,000 and $11,348,000 as of September 30, 1997 and December 31, 1996,
respectively. The Partnership discontinues the accrual of interest on loans
when, in the opinion of management, there is a significant doubt as to the
collectibility of interest or principal from either the borrower or when the
payment of principal or interest is ninety days past due, unless OFG purchases
the interest receivable from the Partnership. As of September 30, 1997 and
December 31, 1996, of the aforementioned loans, those totaling $6,465,000 and
$10,012,000, respectively, were classified as non-accrual loans.
OFG advances certain payments to the Partnership on behalf of borrowers, such as
property taxes, mortgage interest pursuant to senior indebtedness, and
development costs. Purchases of interest receivable and payments made on loans
by OFG for the nine months ended September 30, 1997, but not collected as of
September 30, 1997, totaled approximately $252,000. During the nine months ended
September 30, 1997 OFG purchased the Partnership's interest in two loans in the
amount of approximately $340,000.
(d) Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include
interest-bearing or non interest-bearing bank deposits and short-term
certificates of deposit with original maturities of three months or less.
(e) Certificates of Deposit
Certificates of Deposit are held with various financial institutions with
original maturities of up to one year.
(f) Investment in Limited Partnership
The Partnership accounts for its investment in limited partnership as investment
in real estate. The investment in limited partnership is carried at the lower of
cost or estimated fair value, less estimated costs to sell. The Partnership
increases its investment by advances made to the limited partnership. Any profit
generated from the investment in limited partnership is recorded as a gain of
sale of real estate.
(g) Real Estate Held for Sale
Real estate held for sale includes real estate acquired through foreclosure and
is carried at the lower of the recorded investment in the loan plus any
additional capitalized costs, inclusive of any senior indebtedness, or the
property's estimated fair market value, less estimated cost to sell.
Effective January 1, 1996, the Partnership adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 121 (FAS 121), Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. The adoption of FAS 121 did not
result in a material impact on the Partnership's financial position.
(h) Income Taxes
No provision is made for income taxes since the Partnership is not a
taxable entity. Accordingly, any income or loss is included in the tax returns
of the partners.
(3) LOANS SECURED BY TRUST DEEDS
Loans secured by trust deeds as of September 30, 1997 and December 31, 1996 were
as follows:
September 30 December 31
1997 1996
---- ----
Income-producing properties $167,244,189 $145,999,756
Single-family residences 2,089,320 3,935,546
Unimproved land 5,093,938 4,213,631
----------- -----------
$174,427,447 $154,148,933
=========== ===========
First mortgages $160,945,819 $139,542,698
Second mortgages 12,778,066 14,006,235
Third mortgages or all-inclusive
deeds of trust 703,562 600,000
----------- -----------
$174,427,447 $154,148,933
=========== ===========
Loan maturities range from 1997 to 2015, with approximately 42% ($73,289,000) of
the loan principal outstanding at September 30, 1997 maturing by December 31,
1998. These maturities include approximately $22,934,000 in loans which are past
maturity as of September 30, 1997, of which approximately $3,710,000 represents
loans for which interest payments are delinquent over 90 days. In addition, of
the $22,934,000 in loans which were past maturity as of September 30, 1997, the
Corporate General Partner has entered into forebearance agreements with the
borrowers on approximately $3,200,000 of such loans thereby informally extending
the maturity dates. The Partnership refinanced loans totaling approximately
$15,759,000 and $5,400,000 during the nine months ended September 30, 1997 and
the year ended December 31, 1996, respectively, thereby extending the maturity
dates of such loans.
The Partnership's total investment in loans delinquent over ninety days is
approximately $7,952,000 and $11,348,000 at September 30, 1997 and December 31,
1996, respectively. As of September 30, 1997 and December 31, 1996, OFG was
purchasing the delinquent interest receivable on loans totaling approximately
$1,487,000 and $1,336,000, respectively.
As of September 30, 1997 and December 31, 1996, the Partnership's loans secured
by deeds of trust on real property collateral located in Northern California
totaled approximately 63% ($110,619,000) and 73% ($113,204,000), respectively of
the loan portfolio. The Northern California region (which includes the following
counties and all counties north: Monterey, Fresno, Kings, Tulare and Inyo) is a
large geographic area which has a diversified economic base. The amount of loans
secured by deeds of trust on real property collateral in Northern California in
relation to the total amount of deeds of trust held by the Partnership has
decreased in recent periods due to the Corporate General Partner's increased
loan activity in other areas, most notably Southern California and the Pacific
Northwest. The ability of the borrowers to repay loans is influenced by the
strength of the region and the impact of prevailing forces on the value of real
estate. Such loans are secured by deeds of trust on real estate properties and
are expected to be repaid from the cash flow of the properties or proceeds from
the sale or refinancing of the properties. The policy of the Partnership is to
require real property collateral with a value, net of senior indebtedness, that
exceeds the carrying amount of the loan balance and to record a deed of trust on
the underlying property.
(4) UNSECURED LOANS DUE FROM GENERAL PARTNER
OFG has historically purchased certain delinquent loans subject to foreclosure
and Real estate held for sale of the Partnership using the Unsecured Loan due
from General Partner to finance the purchases. OFG is under no obligation to
enter into such transactions with the Partnership.
The balance of the unsecured loan due from OFG has been reduced by payments
and totals $0 and $488,764 as of September 30, 1997 and December 31, 1996,
respectively. The note bears interest at 8% and is due on demand.
(5) INVESTMENT IN LIMITED PARTNERSHIP
In 1993, the Partnership foreclosed on a loan in the amount of $600,000 secured
by a junior lien on 30 residential lots located in Carmel Valley, California,
and, in 1994, paid off the senior loan in the amount of $500,000. The
Partnership incurred additional costs of $502,768 to protect its investment,
increasing the carrying value of the lots to $1,602,798. The Partnership began
to develop the lots and incurred an additional $671,118 in costs during 1995.
During 1996, the Partnership contributed the lots into WV-OMIF Partners, L.P.
(WV-OMIF Partners), a limited partnership formed between the Partnership and
Wood Valley Development, Inc. (Woodvalley). The Partnership also provides
advances to WV-OMIF Partners to develop and construct single family homes on the
30 lots contributed and had made net additional advances of approximately
$2,346,000 from January 1, 1996 through September 30, 1997. The Partnership is
entitled to receive interest at a rate of prime plus 2% on the advances to
WV-OMIF Partners. WV-OMIF Partners sold one home in 1996 and distributed
approximately $479,000 to OMIF, $187,000 representing income and the balance
return of capital. During the nine months ended September 30, 1997, WV-OMIF
Partners sold 14 homes and distributed approximately $6,511,000 to OMIF,
$2,249,000 representing income and the balance return of capital. In addition,
the Partnership receives reimbursements from a limited partnership formed
between the Corporate General Partner and Woodvalley to purchase 34 lots, which
are contiguous and interspersed with those lots owned by WV-OMIF Partners, from
an unrelated entity and construct single family homes. During the nine months
ended September 30, 1997, this limited partnership reimbursed the Partnership
approximately $629,000 for costs incurred by the Partership which provided
benefit to all lots, not just those owned by WV-OMIF Partners.
(6) REAL ESTATE HELD FOR SALE
Real estate held for sale at September 30, 1997 consists of the following
properties acquired through foreclosure from January 1, 1993 through September
30, 1997:
Warehouse, Merced, California, net of valuation
allowance of $350,000 as of September 30, 1997 $ 650,000
70% interest in undeveloped land, Vallejo, California 579,662
Commercial lot, Sacramento, California, net of valuation
allowance of $250,000 as of September 30, 1997 299,828
Office building, Monterey, California 2,102,548
Undeveloped land, Los Gatos, California 578,742
Commercial building, Sacramento, California 550,000
Residential lots, Sonora, California 1,857,968
Residential lots, Ione, California 2,829,193
Self storage, Oakland, California 444,065
Undeveloped land, Reno, Nevada 230,000
-----------
Total $10,122,006
===========
Real estate held for sale has generally increased in recent years due to the
Corporate General Partner's policy to not purchase properties acquired through
foreclosure or loans in the process of foreclosure from the Partnership. The
Partnership disposed of two properties at a slight profit and foreclosed on two
additional loans in the nine months ended September 30, 1997. This activity, in
addition to other capitalized items, increased the balance of Real estate held
for sale as of September 30, 1997 by approximately $2,379,000 as compared to
December 31, 1996.
(7) PARTNER'S CAPITAL
(a) Contributions
The limited partners contribute $1.00 for each unit subscribed. Registration
costs incurred by the Fund have been offset against contributed capital. Such
costs, which were incurred in 1989, amounted to approximately $198,000.
Prior to September 1, 1986, the general partners contributed cash in an amount
equal to 1% of the aggregate capital contribtions of the limited partners. After
such date, the general partners are required to make cash capital contributions
in the amount of 1/2 of 1% of the limited partners' aggregate capital
contributions.
(b) Allocations, Distributions and Withdrawals
In accordance with the partnership agreement, the Partnership's profits, gains
and losses are allocated to each limited partner and OFG in proportion to their
respective capital contributions.
Distributions are made monthly to the partners in proportion to the respective
units owned during the preceding calendar month. Accrued distributions payable
represent amounts to be paid to the partners in January, 1997 and October, 1997
on their capital balances at December 31, 1996 and September 30, 1997,
respectively.
The Partnership makes cash distributions to those limited partners who elect to
receive such distributions. Those limited partners who elect not to receive cash
distributions have their distributions reinvested to purchase additional limited
partnership units. Such reinvested distributions totaled $2,565,758 and
$2,296,343 for the three months ended September 30, 1997 and 1996, respectively
and $7,550,799 and $6,698,287 for the nine months ended September 30, 1997 and
1996, respectively.
The limited partners may withdraw, or partially withdraw, from the Fund and
obtain the return of their outstanding capital accounts within 91 days after
written notices are delivered to the corporate general partner, subject to the
following limitations:
Any such payments are required to be made only from cash available for
distribution, net proceeds and capital contributions (as defined) during said
91-day period.
A maximum of $75,000 may be withdrawn during any calendar quarter (or
$100,000 in the case of an estate of a deceased limited partner).
The general partners are not required to establish a reserve fund for
the purpose of funding such payments.
No more than 10% of the outstanding limited partnership interests may
be withdrawn during any calendar year except upon dissolution of the Fund.
(c) Promotional Interest of General Partners
OFG contributes cash to the Partnership's capital in the amount of 0.5% of the
limited partners aggregate capital contributions and, together with its
promotional interest, OFG has an interest equal to 1% of the limited partners
contributions. This promotional interest of up to 1/2 of 1% is expensed monthly
by the Partnership and credited as a contribution to the general partners
capital account as additional compensation. As of September 30, 1997, the
general partners had made cash capital contributions of $944,699 to the
Partnership. The general partners have agreed not to withdraw any portion of
this capital from the Partnership, even though it exceeds the 1/2 of 1%
requirement, but they are not required to make any further cash capital
contributions to the Partnership until the amount falls below the 1/2 of 1%
requirement.
The promotional interest expense charged to the Partnership was $19,203 and
$20,414 for the three months ended September 30, 1997 and 1996, respectively and
$59,856 and $44,580 for the nine months ended September 30, 1997 and 1996,
respectively.
(7) CONTINGENCY RESERVES
In accordance with the partnership agreement and to satisfy the Partnership's
liquidity requirements, the Partnership is required to maintain contingency
reserves (as defined) in an aggregate amount of at least 1.5% of the gross
proceeds of the sale of limited partnership units. The cash capital contribution
of the general partners (amounting to $944,698 at September 30, 1997), up to a
maximum of .5% of the limited partners' capital contributions, will be available
as additional contingency reserve, if necessary.
The contingency reserves required at September 30, 1997 and December 31,
1996 were approximately $3,807,000 and $3,400,000, respectively. Cash and cash
equivalents as of the same dates were restricted accordingly.
(8) TRANSACTIONS WITH AFFILIATES
OFG is entitled to receive from the Partnership a management fee of up to 2.75%
per annum of the average unpaid balance of the Partnership's mortgage loans at
the end of each of the preceding twelve months for services rendered as manager
of the Partnership. The maximum management fee is reduced to 1.75% per annum if
OFG has not provided during the preceeding calendar year any of the certain
services defined in the limited partnership agreement.
All of the Partnership's loans are serviced by OFG, in consideration for
which OFG receives fees up to .25% per annum of the unpaid principal balance of
the loans. Servicing fees are paid from the interest income of the loans
collected from the borrowers.
Interest income on loans secured by trust deeds is collected by OFG and, along
with advances on certain delinquent loans, is remitted to the Partnership.
Interest receivable from OFG amounted to $1,388,381 and $1,321,493 at September
30, 1997 and December 31, 1996, respectively.
OFG may, at its sole discretion and on a monthly basis, adjust the servicing and
management fees as long as such fees do not exceed the allowable .25% and 2.75%
annual limits, respectively. In determining the servicing and management fees,
and hence the yield to the Partnership, OFG may consider a number of factors,
including the then-current market yields. Service fee payments to OFG
approximated $99,000 and $107,000 for the three months ended September 30, 1997
and 1996, respectively, and $338,000 and $275,000 for the nine months ended
September 30, 1997 and 1996, respectively. Management fee income to OFG earned
on loans invested in by the Fund approximated $896,000 and $122,000 for the
three months ended September 30, 1997 and 1996, respectively, and $3,121,000 and
$339,000 for the nine months ended September 30, 1997 and 1996, respectively.
OFG receives late payment charges from borrowers who make delinquent payments.
Such charges are in addition to the normal monthly loan payments and totaled
approximately $145,000 and $55,000 for the three months ended September 31, 1997
and 1996, respectively and approximately $258,000 and $147,000 for the nine
months ended September 30, 1997 and 1996, respectively.
OFG originates or purchases all loans the Partnership is invested in and
receives an investment evaluation fee payable by borrowers. Such fees, payable
by borrowers, earned by OFG amounted to approximately $706,000 and $424,000 for
the three months ended September 30, 1997 and 1996, respectively, and
approximately $1,983,000 and $1,340,000 for the nine months ended September 30,
1997 and 1996, respectively.
Included in loans secured by trust deeds at September 30, 1997 and December 31,
1996 are notes totaling $2,121,332 and $1,942,332, respectively, which are
secured by properties owned by OFG. These loans were originated when OFG
purchased certain Real estate held for sale or trust deed subject to foreclosure
from the Partnership. The loans bear interest at 8% per annum and are due on
demand. The Partnership received interest income of approximately $42,000 and
$133,000 for the three and nine months ended September 30, 1997, respectively
and approximately $72,000 during the year ended December 31, 1996 from OFG under
loans secured by trust deeds and the unsecured loan due from OFG.
(9) NET INCOME PER LIMITED PARTNERSHIP UNIT
Net income per limited partnership unit is computed using the weighted average
of limited partnership units outstanding during the three and nine month
periods. These amounts were $188,928,000 and $173,549,000 for the three months
ended September 30, 1997 and 1996, respectively and $185,346,000 and
$169,302,000 for the nine months ended September 30, 1997, respectively.
<PAGE>
Item 2. Management's Discussion and Ana1ysis of Financial Condition and
Results of Operations
Results of Operations
The net income increases of approximately $333,000 (8.7%) for the three months
ended September 30, 1997 as compared to the three months ended September 30,
1996 and $1,044,000 (9.3%) for the nine months ended September 30, 1997 as
compared to the nine months ended September 30, 1996 were primarily attributable
to the increased income generated from the sale of residential units constructed
and owned by the WV-OMIF limited partnership which generated $381,000 and
$1,975,000 in net income for the three and nine months ended September 30, 1997,
respectively as compared to $0 for both the three and nine months ended
September 30, 1996. Other factors that contributed to additional earnings were
interest income of approximately $68,000 and $275,000 from WV-OMIF for the three
and nine months ended September 30, 1997, respectively, as compared to $0 for
both the three and nine months ended September 30, 1996; income from the
disposition of certain Real estate held for sale of approximately $108,000 and
$157,000 for the three and nine months ended September 30, 1997, respectively,
as compared to $0 for the three and nine months ended September 30, 1996; an
increase in average trust deeds and notes receivable held by the Partnership
from approximately $155,699,000 and $156,519,000 for the three and nine months
ended September 30, 1996, respectively, to approximately $172,722,000 and
$165,799,000 for the three and nine months ended September 30, 1997,
respectively, and a decrease in non-performing loans held by the Partnership on
which the Corporate General Partner was not purchasing delinquent interest from
7.29% to 3.70% of the loan portfolio as of September 30, 1996 and 1997,
respectively.
The average net yield of the Partnership decreased from 8.79% for the three and
nine months ended September 30, 1996, respectively, to 8.69% for the three and
nine months ended September 30, 1997, respectively. The net yield represents the
net income of the Partnership after all expenses with the exception of the
provision for losses on loans or Real estate held for sale. These variations in
yield are minor and not considered significant.
Although there has recently been only slight variations in the net yield of the
Partnership, its total revenues increased by approximately $966,000 (22.3%) for
the three months ended September 30, 1997 as compared to the three months ended
September 30, 1996 and by approximately $3,510,000 (27.5%) for the nine months
ended September 30, 1997 as compared to the nine months ended September 30,
1996. These increases, as above, were primarily due to the ongoing sales of
residential units constucted by the WV-OMIF limited partnership, interest income
from advances to WV-OMIF, income from the disposition of certain Real estate
held for sale, increased balances of interest earning mortgage assets and
decreases in non-performing loans.
The increase in total revenues did not translate to comparable increases in net
yield as the Corporate General Partner's payments for management and servicing
fees increased from approximately $229,000 and $614,000 for the three and nine
months ended September 30, 1996, respectively, to approximately $995,000 and
$3,459,000 for the three and nine months ended September 30, 1997, respectively.
The fees collected by the Corporate General Partner continue to be within the
limits dictated by the Partnership agreement.
Portfolio Review
The number of Partnership mortgage investments decreased from 232 to 220 and the
average loan balance increased from approximately $678,000 to $793,000 as of
September 30, 1996 and 1997, respectively. The average mortgage investment made
by the Partnership during the period of October 1, 1996 through September 30,
1997 was approximately $1,112,000 showing a trend of increasing average mortgage
investments. These average loan increases reflect the Partnership's ability to
invest in larger mortgage loans meeting the Partnership's objectives.
The Corporate General Partner had previously purchased all interest receivable
of the Partnership on all delinquent loans made or invested in by the
Partnership. However, on loans originated by the Corporate General Partner on or
after May 1, 1993, and effective November 1, 1994, for certain other loans
originated prior to May 1, 1993, the Corporate General Partner has adopted the
policy to not purchase delinquent interest or principal. As of September 30,
1997 anbd 1996, there were approximately $6,465,000 and $11,470,000,
respectively, in loans held by the Partnership on which payments were more than
90 days delinquent and on which such delinquent interest was not being purchased
by the Corporate General Partner. The Corporate General Partner purchased
approximately $73,000 and $71,000 in delinquent interest receivables of the
Partnership in the nine months ended September 30, 1997 and 1996, respectively.
that had not been collected from the borrower by the Corporate General Partner
as of September 30, 1997 or 1996.
Approximately $7,952,000 (4.6%) and $11,348,000 (7.4%) of the loans invested in
by the Fund were more than 90 days delinquent in payment as of September 30,
1997 and December 31, 1996, respectively. Of these amounts, approximately
$6,695,000 (3.8%) and $5,046,000 (3.3%) were in the process of foreclosure as of
September 30, 1997 and December 31, 1996, respectively. Although the amount and
percentage of mortgage investments on which payment is delinquent 90 days or
more has been decreasing, $3,286,000 of loans classified as such as of December
31, 1996 were foreclosed on by the Partnership and held as Real estate held for
sale as of September 30, 1997.
A loan loss reserve in the amount of $3,500,000 was maintained on the books of
the Partnership as of September 30, 1997 and December 31, 1996. As of this date
the General Partners have determined that this loan loss reserve is adequate.
As of September 30, 1997 and December 31, 1996 approximately 63% and 73%,
respectively, of the mortgage loans made or invested in by the Partnership are
secured by real property located in Northern California. The following table
sets forth the principal amount of mortgage investments, by classification of
property securing each loan, held by the Partnership on September 30, 1997 and
December 31, 1996:
Principal Amount
September 30 December 31
1997 1996
---- ----
(000) (000)
Single-Family Dwellings $ 2,089 $ 3,936
Income-Producing Property 167,244 146,000
Unimproved Land 5,094 4,213
-------- --------
$ 174,427 $ 154,149
======== ========
First Mortgages $ 160,946 $ 139,543
Second Mortgages 12,778 14,006
Third Mortgages or All-inclusive
Deeds of Trust 703 600
-------- --------
$ 174,427 $ 154,149
======== ========
The following amount of delinquent loans held by the Partnership have been
acquired and foreclosed upon by the Corporate General Partner from January 1,
1993 through September 30, 1997:
Delinquent Year
Principal Interest Foreclosed
$1,025,581 $150,295 1993
58,000 4,417 1994
2,501,308 252,810 1995
2,320,000 86,981 1996
340,400 26,063 1997
The Corporate General Partner has purchased all delinquent interest receivable
from the Partnership on the loans foreclosed on in 1993, 1994 and 1995. The
delinquent interest on the loans foreclosed on in 1996 and 1997 was never
purchased from the Partnership by the Corporate General Partner. Of these
foreclosed loans, the Partnership held four mortgages totaling $2,121,332 as of
September 30, 1997 on which the Corporate General Partner was making payments
which were current.
Real Estate Owned
The Partnership currently holds title to the following ten properties which were
foreclosed on from January 1, 1993 through September 30, 1997:
<TABLE>
<CAPTION>
Fund Additional
Loan Capitalized Delinquent
Description Amount Costs Interest
Light Industrial Warehouse
<S> <C> <C> <C>
Merced, CA $ 1,000,000 (1) $ 0 $ 175,333
Commercial Lot/Residential
Development
Vallejo, CA $ 525,000 $ 54,662 $ 83,949
Commerical Lot
Sacramento, CA $ 500,000 (2) $ 49,828 $ 36,500
Office Building
Monterey, CA $ 550,000 $ 1,581,165 (3) $ 30,077
Undeveloped Land
Los Gatos, CA $ 571,853 $ 6,889 $ 134,878
Commercial Building
Sacramento, CA $ 550,000 $ 0 $ 30,817
Residential Lots
Sonora, CA $ 1,683,000 $ 174,968 $ 363,636
Undeveloped Land
Reno, NV $ 230,000 $ 0 $ 0
Residential Lots
Ione, CA $ 2,821,675 $ 0 $ 1,032,637
Self Storage
Oakland, CA $ 464,000 $ 0 $ 209,612
<FN>
(1) The book value of this asset is net of a loss allowance of $350,000.
(2) The book value of this asset is net of a loss allowance of $250,000.
(3) Included in this balance is the payoff of a senior loan in the amount of
$1,425,000. This senior loan was originally $2,102,646 including late
charges and fees. The Corporate General Partner arranged for this loan to
be discounted at payoff.
</FN>
</TABLE>
With the exception of the light industrial warehouse in Merced, California, the
office building in Monterey, California, the residential lots in Ione,
California and the self storage property in Oakland, Calfornia, these properties
do not currently generate revenue and, as such, contribute to the Real estate
held for sale operating at a deficit. This deficit has decreased in recent
periods as the loss from operations of Real estate held for sale has decreased
from approximately $121,000 and $428,000 for the three and nine months ended
September 30, 1996, respectively, to approximately $11,000 and $83,000 for the
three and nine months ended September 30, 1997, respectively. With the possible
exception of the light industrial warehouse located in Merced, California and
the commercial land located in Sacramento, California, the General Partners
believe that due to the values of these properties, the Partnership should not
sustain any losses of principal on their ultimate disposition.
Since 1993, the Partnership's investment in Real estate held for sale has
increased due to the Corporate General Partner's policy to generally not acquire
property subject to foreclosure on which the Partnership has a trust deed
investment. During 1997, the Partnership disposed of two properties it held as
of December 31, 1996 and acquired two properties through foreclosure. Real
estate held for sale has increased by $2,379,000 from December 31, 1996 to
September 30, 1997, a 31% increase.
Development Limited Partnership
In 1993, the Partnership foreclosed on a $600,000 loan secured by a junior lien
on 30 residential lots located in Carmel Valley, California, and, in 1994, paid
off the $500,000 senior loan. In 1995, the Partnership became the sole limited
partner in a limited partnership ("WV-OMIF Partners"), formed with an unrelated
developer/builder as the sole general partner, for the development and buildout
of these lots. In exchange for its interest in this development limited
partnership, the Partnership in 1996 contributed the lots to the WV-OMIF
Partners and agreed to make additional advances to fund the development costs.
As of September 30, 1997, the Partnership had advanced development and other
capitalized costs, net of principal distributions, aggregating $2,089,000, and
the total amount invested in or advanced by the Partnership equaled $3,189,000,
net of distributions, through such date.
Under the terms of the agreement governing the WV-OMIF Partners, the Partnership
is entitled to receive certain distributions of cash before the developer
receives any funds. The cash received by the development limited partnership
from sales of developed lots is distributed as follows: (i) to third parties
(e.g., contractors, taxing authorities, etc.) for amounts incurred by the
development limited partnership and related to the lots sold; (ii) to the
Partnership, in an amount equal to $70,000 per lot sold; (iii) to the
Partnership, in an amount equal to a pro rata portion of the development costs
advanced, plus interest at prime plus 2%; (iv) to the Partnership, in an amount
equal to other out-of-pocket expenses incurred by Partnership with respect to
the lots sold, plus interest at prime plus 2%; and (v) the balance, if any, 70%
to the Partnership and 30% to the developer.
As of September 30, 1997, construction had been completed or commenced on
substantially all lots owned by WV-OMIF Partners. WV-OMIF Partners sold one home
in 1996 and distributed approximately $479,000 to OMIF, $187,000 representing
income and the balance return of capital. During the three months ended
September 30, 1997, WV-OMIF Partners sold five homes and distributed
approximately $2,389,000 to OMIF, $759,000 representing income and the balance
representing return of capital. During the nine months ended September 30, 1997,
WV-OMIF Partners sold 14 homes and distributed approximately $6,511,000 to OMIF,
$2,233,000 representing income and the balance representing return of capital.
Deposits have been received on the lots under construction, but there can be no
assurances the Partnership will realize similar amounts on the sales of these
lots.
The Corporate General Partner has entered into a joint venture with the same
unrelated developer/builder to purchase and build out up to 34 lots that are
contiguous to and interspersed with the lots in Carmel Valley owned by WV-OMIF.
The Partnership does not have any direct or indirect interest in these 34 lots
nor do any of these lots provide any security for the original Partnership loan
which was foreclosed on in 1993. As sales of these 34 lots occur, the
Partnership will be reimbursed on a pro rata basis, without interest, for
development, infrastructure and soft costs incurred by WV-OMIF in the initial
stages of its development of the lots. As of September 30, 1997, the development
limited partnership owed the Partnership $121,695 in development costs.
Liquidity and Capital Resources
The Partnership relies upon purchases of limited partnership interests and loan
payoffs for the creation of capital for mortgage investments. The Partnership
has not and does not intend to borrow money for investment purposes.
Continency Reserves
The Partnership maintains cash and certificates of deposit as contingency
reserves in an aggregate amount of at least 2% of the gross proceeds of the sale
of Limited Partners' Units. To the extent that such funds are not sufficient to
pay expenses in excess of revenues or to meet any obligation of the Partnership,
it may be necessary for the Partnership to sell or otherwise liquidate certain
of its investments on terms which may not be favorable to the Partnership.
Current Economic Conditions
The Partnership has been affected by regional declines in commercial property
values and general economic conditions; however, the Partnership has not
sustained any principal losses to date. Due to the conservative loan-to-value
criteria established by the Corporate General Partner, the mortgage loans held
by the Partnership appear in general to be, in the opinion of the General
Partners, adequately secured.
The Partnership generally invests in relatively short-term commercial loans (1-7
years). In addition, the Corporate General Partner is generally able to fund
loans in a shorter time frame than institutional lenders which allows it to
collect a higher rate of interest from those borrowers that consider time to be
an essential factor. Due to this, the net income of the Partnership has, in
recent years, remained in the range of 8.5-9.0 percent per year. If there were a
reduction in the demand for loans originated by the Corporate General Partner
and, thus, fewer loans for the Partnership to invest in, the Partnership would
have to invest excess cash in shorter term investments or reduce the interest
rate charged on mortgage loans which would yield considerably less than the
current investment portfolio.
The Partnership continues to receive substantial additional investments from new
and existing Limited Partners which provide capital for loans, purchases of
existing notes and redemption of existing Limited Partnership Units.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is not presently involved in any material legal proceedings.
Item 6(b). Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which this report
is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 12, 1997 OWENS MORTGAGE INVESTMENT FUND
a California Limited Partnership
(Registrant)
By: Owens Financial Group, Inc.
a General Partner
By: \s\ William C. Owens
William C. Owens
President
By: \s\ Bryan H. Draper
Bryan H. Draper
Chief Financial Officer
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 841501
<NAME> OWENS MORTGAGE INVESTMENT FUND
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 4,018,971
<SECURITIES> 0
<RECEIVABLES> 175,815,828
<ALLOWANCES> (3,500,000)
<INVENTORY> 0
<CURRENT-ASSETS> 176,334,799
<PP&E> 13,370,336
<DEPRECIATION> 0
<TOTAL-ASSETS> 189,705,135
<CURRENT-LIABILITIES> 686,512
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 189,018,623
<TOTAL-LIABILITY-AND-EQUITY> 189,705,135
<SALES> 5,288,986
<TOTAL-REVENUES> 5,288,986
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,115,918
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,173,068
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,173,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,173,068
<EPS-PRIMARY> .022
<EPS-DILUTED> .022
</TABLE>
