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 March 31, 1998
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 (925) 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
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
BALANCE SHEETS -- MARCH 31, 1998 AND DECEMBER 31, 1997
March 31 December 31
1998 1997
ASSETS
Cash and cash equivalents (Note 2) $ 13,025,018 $ 3,073,115
Certificates of Deposit (Note 2) 1,000,000 1,000,000
Loans secured by trust deeds (Notes 2 and 3) 173,623,270 174,714,607
less: Allowance for loan losses (Note 2) (3,500,000) (3,500,000)
Real estate held for sale (Note 4) 11,377,231 14,151,141
Interest receivable 2,026,153 1,883,435
Other assets 59,074 112,583
----------- -----------
Total Assets $197,610,746 $191,434,881
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued distributions payable $ 529,194 $ 544,385
Accounts payable and accrued liabilities 570,293 159,361
---------- ----------
Total Liabilities 1,099,487 703,746
---------- ----------
PARTNERS' CAPITAL:
General partners (Note 5) 1,922,738 1,864,033
Limited partners (Note 5) 194,588,521 188,867,102
----------- -----------
Total Partners' Capital 196,511,259 190,731,135
----------- -----------
Total Liabilities and Partners' Capital $197,610,746 $191,434,881
=========== ===========
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 MONTHS ENDED MARCH 31, 1998 AND 1997
FOR THE THREE MONTHS ENDED
March 31 March 31
1998 1997
---- ----
REVENUES:
<S> <C> <C>
Interest income on loans secured by trust deeds $ 4,707,266 $ 4,342,168
Gain on sale of real estate (Note 4) 1,042,704 1,096,353
Other interest income 112,841 151,185
------------ ------------
Total revenues $ 5,862,811 $ 5,589,706
----------- -----------
OPERATING EXPENSES:
Management Fees paid to General Partner (Note 7) $ 486,171 $ 1,299,458
Servicing Fees paid to General Partner (Note 7) 107,641 120,238
Promotional interest (Note 5) 23,969 22,974
Administrative 14,129 14,129
Legal and accounting 55,786 40,412
Real Estate Owned operations, net 49,973 23,356
Other 3,435 230
-------------- ---------------
Total operating expenses $ 741,104 $ 1,520,797
------------ -----------
Net income $ 5,121,707 $ 4,068,909
=========== ===========
Net income allocated to general partner $ 50,710 $ 40,286
============= =============
Net income allocated to limited partners $ 5,070,997 $ 4,028,623
=========== ===========
Net income per limited partnership unit (Note 8) $.026 $.022
==== ====
The accompanying notes are an integral part of
these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnersbip)
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1997
March 31 March 31
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 5,121,707 $ 4,068,909
Adjustments to reconcile net income
to net cash provided by operating activities
Gain on sale of real estate by limited partnership (1,017,831) -
Loss on sale of real estate property 2,701 -
Increase in interest receivable (142,718) (168,109)
Decrease in accrued distribution payable (15,191) (8,048)
Increase in accounts payable and accrued liabilities 410,932 128,350
Decrease in other assets 53,509 0
Increase in deferred income - 162,820
Increase in other liabilities - 25,268
---------- ----------
Total adjustment (708,598) 140,281
---------- ----------
Net cash provided by operating activities 4,413,109 4,209,190
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of loans secured by trust deeds (8,164,033) (16,697,126)
Principal collected 488,794 534,850
Loan payoffs 9,863,394 10,072,287
Investment in real estate (19,127) 933,268
Investment in limited partnership (838,419) (693,362)
Distribution received from limited partnership 3,575,910 2,139,564
Investment in corporate joint venture (26,142) -
Investments in Certificates of Deposit (net) 0 (150,000)
---------- ----------
Net cash provided by (used in) investing activities 4,880,377 (3,860,519)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of partnership Units 5,509,894 5,023,868
Cash distributions (1,575,916) (1,526,796)
Capital withdrawals (3,275,561) (2,872,551)
---------- ----------
Net cash provided by financing activities 658,417 624,521
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 9,951,903 973,192
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,073,115 11,386,661
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 13,025,018 $ 12,359,853
========== ==========
The accompanying notes are an integral part of
these financial statements.
</TABLE>
<PAGE>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(1) Organization
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, wraparound and construction
mortgage loans and leasehold interest mortgages. 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) and
certain individuals who are OFG's shareholders and officers. 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 for eventual sale and the subsequent servicing of those
mortgages for the Partnership and other third-party investors.
The general partners are authorized to offer and sell units in the
Partnership 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 194,784,543 and 189,063,122, at March 31, 1998 and December 31,
1997, respectively.
(2) Summary of Significant Accounting Policies
(a) Management Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(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.
<PAGE>
(2) Summary of Significant Accounting Policies, Continued
In accordance with the Financial Accounting Standards Board's
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 and
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 recognition and disclosure
provisions of Statement No. 114. The adoption of these
statements did not have a material effect on the financial
statements of the Partnership.
The Partnership does not recognize interest income on loans once
they are determined to be impaired until the interest is
collected in cash. 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 March 31, 1998 and December 31, 1997.
Management of the Partnership believes that based on historical
experience and a review of the loans and their respective
collateral, the allowance for loan losses is adequate in amount.
The outstanding balance of all loans delinquent greater than
ninety days is $11,579,000 and $5,236,000 and as of March 31,
1998 and December 31, 1997, respectively. The Partnership
discontinues the accrual of interest on loans when, in the
opinion of management, there is significant doubt as to the
collectibility of interest or principal from 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 March 31, 1998 and December 31, 1997, the
aforementioned loans totaling $11,579,000 and $5,236,000,
respectively, are 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 during the
three months ended March 31, 1998 and the year ended December
31, 1997 but not collected as of March 31, 1998 and December 31,
1997, respectively, totaled approximately $ 23,000 and $219,000,
respectively.
<PAGE>
(2) Summary of Significant Accounting Policies, Continued
(d) Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash
equivalents include interest-bearing and noninterest-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) 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, inclusive of any senior indebtedness, or
the property's estimated fair value, less estimated costs to
sell.
Certain real estate held for sale acquired by the Partnership is
held in a limited partnership and corporate joint venture. The
Partnership accounts for its investments in limited partnership
and corporate joint venture under the equity method of
accounting. The limited partnership and corporate joint venture
investment in real estate 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 and corporate joint venture. Any profit
generated from the investment in limited partnership and
corporate joint venture is recorded as a gain on sale of real
estate.
In accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-lived Assets and
Long-lived Assets to Be Disposed Of", the Partnership
periodically compares the carrying value of real estate held for
sale to expected future cash flows for the purpose of assessing
the recoverability of the recorded amounts. If the carrying
value exceeds future cash flows, the assets are reduced to fair
value. There were no required reductions to the carrying value
of real estate held for sale made for the quarter ended March
31, 1998 and 1997.
(g) 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.
<PAGE>
(3) Loans Secured by Trust Deeds
Loans secured by trust deeds as of March 31, 1998 and December 31, 1997
are as follows:
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
---- ----
<S> <C> <C>
Income-producing properties $ 163,441,519 $ 165,201,582
Single-family residences 2,087,879 2,088,606
Unimproved land 8,093,872 7,424,419
------------- -------------
$ 173,623,270 $ 174,714,607
=========== ===========
First mortgages $ 158,664,190 161,275,350
Second mortgages 14,272,485 12,744,274
Third mortgages or all-inclusive deeds of trust 686,595 694,983
------------- -------------
$ 173,623,270 $ 174,714,607
=========== ============
</TABLE>
Scheduled maturities of loans secured by trust deeds as of March 31,
1998 and the interest rate sensitivity of such loans is as follows:
<TABLE>
<CAPTION>
Fixed Variable
Year ending interest interest
December 31, rate rate Total
<S> <C> <C> <C>
1998 $ 48,160,493 9,986,504 58,146,997
1999 35,664,254 8,754,923 44,419,177
2000 1,424,345 25,595,700 27,020,045
2001 1,062,916 2,964,577 4,027,493
2002 1,823,218 10,937,238 12,760,456
Thereafter (through 2012) 6,503,411 20,745,691 27,249,102
------------- ------------- -------------
$ 94,638,637 78,984,633 173,623,270
============= ============= ==============
</TABLE>
Variable rate loans use as indices the one and five year Treasury
Constant Maturity Index (5.39% and 5.62%, respectively, as of March 31,
1998), the prime rate (8.50% as of March 31, 1998) and the weighted
average cost of funds index for Eleventh District savings institutions
(4.917% as of March 31, 1998). Premiums over these indices have varied
from 250-550 basis points depending upon market conditions at the time
the loan is made.
The scheduled maturities for 1998 include approximately $26,036,000 of
loans which are past maturity as of March 31, 1998, of which $9,751,000
represents loans for which interest payments are delinquent over 90
days. During the three months ended March 31, 1998 and the year ended
December 31, 1997, the Partnership refinanced loans totaling $325,000
and $2,741,000, respectively, thereby extending the maturity dates of
such loans.
(3) Loans Secured by Trust Deeds, Continued
The Partnership's total investment in loans delinquent over 90 days is
$11,579,000 and $5,236,000 as of March 31, 1998 and December 31, 1997,
respectively. OFG has purchased the Partnership's receivables for
delinquent interest of $23,000 and $18,000, related to delinquent loans
for the three months ended March 31, 1998 and the year ended December
31, 1997, respectively.
The Partnership's investment in delinquent loans as of March 31, 1998
totals approximately $11,579,000, of which $3,596,000 has a specific
related allowance for credit losses totaling approximately $1,683,000.
There is a non-specific allowance for credit losses of $1,817,000 for
the remaining balance of $7,983,000 and for other current loans. There
was no additional allowance for credit losses during the three months
ended March 31, 1998.
Interest income received on impaired loans during the three months
ended March 31, 1998 and the year ended December 31, 1997, totaled
approximately $194,000 and $722,000, respectively, $194,000 and
$670,000 of which was paid by borrowers and $0 and $52,000 of which
related to purchases of interest receivable by OFG, respectively.
As of March 31, 1998 and December 31, 1997, the Partnership's loans
secured by deeds of trust on real property collateral located in
Northern California totaled approximately 60% ($104,360,000) and 67%
($117,352,000), 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 ability of
borrowers to repay loans is influenced by the economic strength of the
region and the impact of prevailing market conditions on the value of
real estate. Such loans are secured by deeds of trust in 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)Real Estate Held for Sale
Real estate held for sale includes the following components as of March 31,
1998 and December 31, 1997:
March 31 December 31
1998 1997
---- ----
Real estate properties held for sale $ 8,619,244 $ 9,699,656
Investment in limited partnership 2,092,482 3,812,122
Investment in corporate joint venture 665,505 639,363
----------- -----------
$ 11,377,231 14,151,141
=========== ===========
<PAGE>
(4) Real Estate Held for Sale, Continued
Gain on sale of real estate includes the following components for the
years ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
March 31 March 31
1998 1997
<S> <C> <C>
Gain on sale of real estate properties $ 24,873 75,766
Gain on sale of real estate by limited partnership 1,017,831 1,020,587
---------- -----------
$ 1,042,704 1,096,353
========== ===========
</TABLE>
(a) Real Estate Properties Held for Sale
Real estate properties held for sale at March 31, 1998 and
December 31, 1997 consists of the following properties acquired
through foreclosure in 1993 through 1998:
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
<S> <C> <C>
Warehouse, Merced, California, net of valuation allowance of $350,000 $ 650,000 650,000
Undeveloped land, Vallejo, California 1,039,116 1,030,566
Commercial lot, Sacramento, California, net of valuation
allowance of $250,000 299,828 299,828
Office building and undeveloped land, Monterey, California,
net of valuation allowance of $200,000 1,902,548 1,902,855
Manufactured home subdivision development, Ione, California,
net of valuation allowance of $384,000 2,469,059 2,451,286
Commercial storage and office buildings, Oakland, California 444,466 444,063
Undeveloped land, Reno, Nevada 215,000 230,000
Manufactured home subdivision development, Sonora,
California, net of valuation allowance of $712,000 as
of December 31, 1997 --- 1,149,807
Light industrial building, Paso Robles, California 1,546,042 1,541,251
22% interest in 6-unit residential building, Oakland,
California 53,185 ---
----------- ----------
$ 8,619,244 9,699,656
========= =========
</TABLE>
The acquisition of certain of these properties resulted in
non-cash increases in real estate held for sale and non-cash
decreases in loans secured by trust deeds of $53,185 and
$3,279,349 for the three months ended March 31, 1998 and the
year ended December 31, 1997, respectively.
During 1997, the Partnership sold three properties for a sales
price of approximately $1,659,000. On one of the three
properties, the Partnership took back a loan secured by a trust
deed in the amount of $840,000.
<PAGE>
(4) Real Estate Held for Sale, Continued
During 1997, the Partnership sold two loans secured by second
deeds of trust to OFG for $600,000 (face value). The Partnership
subsequently purchased the property (located in Paso Robles,
California) securing the loans at the senior lienholders trustee
sale for $1,350,000; thus, wiping out OFG's junior deeds of
trust. OFG recorded a loss of $600,000 as a result of this
transaction.
In February 1998, OFG purchased the manufactured home
subdivision development property located in Sonora, California,
from the Partnership for $1,150,000. The Partnership carried
back a loan secured by a trust deed for the full purchase price.
(b) 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 $502,798 in 1994 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 1995, the Partnership entered into a limited partnership,
WV-OMIF Partners, L.P. (WV-OMIF Partners) with an unrelated
developer/builder, Wood Valley Development, Inc. (Woodvalley),
for the purpose of constructing single-family homes on the 30
lots. The Partnership contributed the lots to WV-OMIF Partners
in 1996 in exchange for a limited partnership interest. The
$671,118 in capitalized costs incurred in 1995 were considered
an advance to WV-OMIF Partners pursuant to the limited
partnership agreement in 1996 when the lots were contributed.
The Partnership provides advances to the WV-OMIF Partners to
develop and construct the homes. The Partnership is entitled to
receive interest at a rate of prime plus 2% on the advances to
WV-OMIF Partners.
OFG and Woodvalley have the option of purchasing and developing
34 similar lots which are interspersed among the 30 lots being
developed by WV-OMIF Partners. WV-OMIF Partners is incurring the
infrastructure costs which benefit all 64 lots, including the 34
lots that can be developed by OFG and Woodvalley. OFG and
Woodvalley are reimbursing WV-OMIF Partners their pro rata share
of the infrastructure costs with the funds received from the
sale of the developed homes. As of March 31, 1998, Woodvalley
had purchased thirty-one lots and developed and sold eighteen of
them. The remaining three lots as of March 31, 1998 were
purchased in April, 1998. As of March 31, 1998, OFG and
Woodvalley had reimbursed $667,213 in development costs to
WV-OMIF Partners from the sale of homes. The balance of
development costs due by OFG and Woodvalley totals $83,461 as of
March 31, 1998.
<PAGE>
(4) Real Estate Held for Sale, Continued
During 1997 and 1996, the Partnership advanced an additional
$4,152,918 and $2,895,261, respectively, to WV-OMIF Partners for
the continued development and construction of the homes. During
the three months ended March 31, 1998, the Partnership advanced
an additional $838,419 to WV-OMIF. WV-OMIF sold eight homes
during the three months ended March 31, 1998 for proceeds of
$4,023,753, and the net gain allocable to the Partnership was
$1,017,831, including interest income of $121,962. WV-OMIF
Partners distributed $3,605,646 (including $19,116 in
reimbursements from OFG and Woodvalley) to OMIF during the
quarter ended March 31, 1998. WV-OMIF Partners sold fifteen
homes in 1997 for proceeds of $8,011,960 and the net gain
allocable to the Partnership was $2,355,075, plus interest
income of $295,957. WV-OMIF Partners distributed $7,573,669
(including $648,069 in reimbursements from OFG and Woodvalley)
to OMIF in 1997. WV-OMIF Partners sold one home in 1996 and
distributed $462,103 to OMIF. The Partnership's investment in
WV-OMIF Partners totaled $2,092,482 and $3,812,122 as of March
31, 1998 and December 31, 1997, respectively.
WV-OMIF Partners is distributing cash received from the sale of
the lots in the following priority: (1) to third parties, such
as real property taxes and assessments, lenders, contractors,
etc.; (2) to pay the Partnership the amount of $70,000 per lot,
as each lot sells; (3) to pay the Partnership the interest on
the cash advances in full, as each lot sells; (4) to reimburse
the Partnership for its out-of-pocket cash advances for each
lot, as each lot sells; and (5) the remainder to Woodvalley and
the Partnership at a rate of 30% to Woodvalley and 70% to the
Partnership.
The WV-OMIF Partners Partnership Agreement states that the
Partnership shall take no part in the conduct or control of
WV-OMIF Partner's business or in the operation, right or
authority to act for WV-OMIF Partners. Thus, the Partnership
does not have control of WV-OMIF Partners and accounts for its
investment in WV-OMIF Partners under the equity method of
accounting.
(c) Investment in Corporate Joint Venture
In 1995, the Partnership foreclosed on a loan in the amount of
$571,853 secured by a senior lien on a commercial parcel of land
located in Los Gatos, California. During 1997, the Partnership
contributed the land into 720 University, LLC (the Company), a
corporate joint venture formed between the Partnership and BGC
Properties, LLC (BGC). The purpose of the Company is to develop,
construct and operate a commercial office building or R&D
facility on the land to be held for investment and eventual
sale. The Partnership may provide loans to the Company to
develop and construct the building or the Partnership will
obtain loans from third parties for such purposes. The
Partnership is entitled to receive interest at a rate of prime
plus 2% on the loans it makes to the Company.
<PAGE>
(4)Real Estate Held for Sale, Continued
During 1997, the Partnership capitalized $56,889 in costs prior
to the property being contributed to the Company and advanced
$10,621 to the Company for development. During the three months
ended March 31, 1998, the Partnership advanced an additional
$26,141 to the Company for development. The total investment in
the corporate joint venture totals $665,505 and $639,363 as of
March 31, 1998 and December 31, 1997, repectively.
The net cash flows from the operations of the Company are to be
distributed in accordance with the following priorities: 1) 70%
to the Partnership and 30% to BGC until the sum of all current
and prior distributions of net cash flows equals the members'
priority return on capital as of the end of the calendar quarter
immediately preceding distribution; and 2) thereafter, 70% to
the Partnership and 30% to BGC.
The distribution upon dissolution shall be made in accordance
with the following priorities: 1) to third parties to pay all
debts; 2) to the members to pay all debts; 3) to the members in
accordance with and to the extent of their respective positive
capital account balances; 4) 70% to the Partnership and 30% to
BGC.
The Company is considered a corporate joint venture, and, thus,
the Partnership accounts for its investment in the Company under
the equity method of accounting.
(5) Partners' Capital
(a) Contributions
Limited partners of the Partnership contributed $1.00 for each
unit subscribed. Registration costs incurred by the Partnership
have been offset against contributed capital. Such costs, which
were incurred in 1989, amounted to approximately $198,000.
(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 the general partners in proportion to their respective
capital contributions.
Distributions are made monthly to the limited partners in
proportion to their respective units as of the last day of the
preceding calendar month. Accrued distributions payable
represent amounts to be paid in January and April, 1998 based on
their capital balances as of December 31, 1997 and March 31,
1998, respectively.
<PAGE>
(5) Partners' Capital, Continued
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 in additional limited partnership
units. Such reinvested distributions totaled $2,614,765 and
$10,077,144 for the three months ended March 31, 1998 and the
year ended December 31, 1997, respectively. Reinvested
distributions are not shown as partners' distributions or sales
of partnership units in the accompanying statements of partners'
capital.
The limited partners may withdraw, or partially withdraw, from
the Partnership and obtain the return of their outstanding
capital accounts at $1.00 per unit (book value) within 91 days
after written notices are delivered to the general partners,
subject to the following limitations:
o 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.
o A maximum of $75,000 per partner may be withdrawn during any
calendar quarter (or $100,000 in the case of a deceased
limited partner).
o The general partners are not required to establish a reserve
fund for the purpose of funding such payments.
o No more than 10% of the outstanding limited partnership
interest may be withdrawn during any calendar year except upon
dissolution of the Partnership.
(c) Promotional Interest of General Partners
The general partners contributed capital to the Partnership in
the amount of 0.5% of the limited partners' aggregate capital
contributions and, together with their promotional interest, the
general partners have an interest equal to 1% of the limited
partners' contributions. This promotional interest of the
general partners of up to 1/2 of 1% is recorded as an expense of
the Partnership and credited as a contribution to the general
partners' capital account as additional compensation. As of
March 31, 1998, the general partners had made cash capital
contributions of $981,634 to the Partnership. The general
partners are required to continue cash capital contributions to
the Partnership in order to maintain their required capital
balance.
The promotional interest expense charged to the Partnership was
$23,969 and $22,974 for the three months ended March 31, 1998
and 1997, respectively.
<PAGE>
(6) Contingency Reserves
In accordance with the partnership agreement and to satisfy the
Partnership's liquidity requirements, the Partnership is required to
maintain cash as contingency reserves (as defined) in an aggregate
amount of at least 1-1/2% of the gross proceeds of the sale of limited
partnership units. The cash capital contribution of the general
partners (amounting to $981,133 at March 31, 1998), up to a maximum of
1/2 of 1% of the limited partners' capital contributions, will be
available as an additional contingency reserve, if necessary.
The contingency reserves required at March 31, 1998 and December 31, 1997
were approximately $3,956,000 and $3,829,000, respectively.
Certificates of deposit and certain cash equivalents as of the same
dates were accordingly maintained as reserves.
(7) 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
preceding 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 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
is remitted monthly to the Partnership, net of servicing fees earned by
OFG. Interest receivable from OFG amounted to $2,026,153 and $1,773,608
at March 31, 1998 and December 31, 1997, respectively.
OFG, at its sole discretion may, on a monthly basis, adjust the
management and servicing fees as long as they do not exceed the
allowable limits calculated on an annual basis. In determining the
management and servicing fees and hence the yield to the Partnership,
OFG may consider a number of factors, including the then-current market
yields. Even though the fees for a month may exceed one-twelfth of the
maximum limits, at the end of the calendar year the sum of the fees
collected for each of the twelve months is equal to or less than the
stated limits. Management fees amounted to approximately $486,000 and
$1,299,000 for the three months ended March 31, 1998 and 1997,
respectively, and are included in the accompanying statements of
income. Service fee payments to OFG approximated $108,000 and $120,000
for the three months ended March 31, 1998 and 1997, respectively, and
are included in the accompanying statements of income.
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 $24,000 and $55,000 for the three
months ended March 31, 1998 and 1997, respectively.
<PAGE>
(7) Transactions with Affiliates, Continued
OFG originates all loans the Partnership invests in and receives an
investment evaluation fee payable from payments made by borrowers. Such
fees earned by OFG amounted to approximately $143,000 and $485,000 for
the three months ended March 31, 1998 and 1997, respectively.
During the three months ended March 31, 1998, OFG purchased the
manufactured home subdivision development in Sonora Vista from the
Partnership at a loss of approximately $2,000. An allowance for loss on
this property in the amount of $712,000 had been recorded in 1997. The
Partnership carried back a loan from OFG for the entire purchase price.
During the year ended December 31, 1997, OFG purchased three loans
secured by trust deeds from OMIF at face values in the total amount of
$613,000 for cash of $340,000 and assumption of a loan in the amount of
$273,000. OFG then foreclosed on the loans and sold one of the
properties during 1997 for a gain of approximately $42,000.
Included in loans secured by trust deeds at March 31, 1998 and December
31, 1997 are notes totaling $1,915,332 and $2,215,549, respectively,
which are secured by properties owned by OFG. The loans bear interest
at 8% per annum and are due on demand. The Partnership received
interest income of approximately $15,000 and $62,000 during the three
months ended March 31, 1998 and 1997, respectively, from OFG under
loans secured by trust deeds and the unsecured loan due from OFG.
(8) Net Income Per Limited Partner Unit
Net income per limited partnership unit is computed using the weighted
average of limited partnership units outstanding during the quarter,
which was 192,678,000 and 181,664,000 for the three months ended March
31, 1998 and 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 $1,053,000 (25.9%) for the three
months ended March 31, 1998 as compared to the three months ended March 31, 1997
was primarily attributable to the decrease in management fees paid to the
Corporate General Partner from $1,299,000 to $486,000 for the three months ended
March 31, 1997 and 1998, respectively.
Although net income increased by 25.9% for the three months ended March 31, 1998
as compared to the three months ended March 31, 1997, the average annualized net
yield of the Partnership decreased from 8.73% to 8.53% for the three months
ended March 31, 1997 and 1998, respectively. The net yield represents the net
cash distribution of the Partnership in relation to the total limited partners
invested capital. This distribution takes into account all items of income and
expense with the exception of the provision for losses on loans or Real estate
held for sale or the accrual of income on loans in which interest is paid at the
maturity date of the loan. During the three months ended March 31, 1998, the
Partnership disposed of a property at a loss of approximately $2,000. However, a
loss allowance of $712,000 had previously been attributed to this property. In
addition, $258,000 of interest income due to be paid at the maturity of a loan
was accrued during the three months ended March 31, 1998. Although these items
had the effect of increasing net income, they did not effect the net yield.
These variations in yield are minor and not considered significant.
Portfolio Review
The number of Partnership mortgage investments decreased from 236 to 206 and the
average loan balance increased from approximately $679,000 to $843,000 as of
March 31, 1997 and 1998, respectively. The average mortgage investment made by
the Partnership during the period of April 1, 1997 through March 31, 1998 was
approximately $1,427,000 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 March 31, 1998
and 1997, there were approximately $10,896,000 and $8,528,000, 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
$23,000 and $18,000 in delinquent interest receivables of the Partnership during
the three months ended March 31, 1998 and 1997, respectively, that had not been
collected from the borrower by the Corporate General Partner as of March 31,
1998 or 1997.
Approximately $11,579,000 (6.7%) and $5,236,000 (3.0%) of the loans invested in
by the Fund were more than 90 days delinquent in payment as of March 31, 1998
and December 31, 1997, respectively. Of these amounts, approximately $3,834,000
(2.2%) and $3,279,000 (1.9%) were in the process of foreclosure as of March 31,
1998 and December 31, 1997, respectively.
A loan loss reserve in the amount of $3,500,000 was maintained on the books of
the Partnership as of March 31, 1998 and December 31, 1997. As of this date the
General Partners have determined that this loan loss reserve is adequate.
As of March 31, 1998 and December 31, 1997 approximately 60% and 67%,
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 March 31, 1998 and
December 31, 1997:
Principal Amount
March 31 December 31
1998 1997
---- ----
(000) (000)
Single-Family Dwellings $ 2,088 $ 2,089
Income-Producing Property 163,441 165,202
Unimproved Land 8,094 7,424
------- -------
$ 173,623 $ 174,715
======= =======
First Mortgages $ 158,664 $ 161,275
Second Mortgages 14,272 12,745
Third Mortgages or All-inclusive
Deeds of Trust 687 695
------- -------
$ 173,623 $ 174,715
======= =======
The following amount of delinquent loans held by the Partnership have been
acquired and foreclosed upon by the Corporate General Partner from January 1,
1994 through March 31, 1998:
Delinquent Year
Principal Interest Foreclosed
58,000 4,417 1994
1,184,223 252,810 1995
2,320,000 86,981 1996
613,400 50,625 1997
-- -- 1998
The Corporate General Partner has purchased all delinquent interest receivable
from the Partnership on the loans foreclosed on in 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 three mortgages totaling $765,332 as of March 31, 1998 on which
the Corporate General Partner was making payments which were current. In
addition, the Partnership held a mortgage in the amount of $1,150,000 secured by
a property sold to the Corporate General Partner during the three months ended
March 31, 1998.
Real Estate Owned
The Partnership currently holds title to the following ten properties which were
foreclosed on from January 1, 1993 through March 31, 1998:
<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 $ 505,566 (2) $ 83,949
Commerical Lot
Sacramento, CA $ 500,000 (3) $ 49,828 $ 36,500
Office Building
Monterey, CA $ 550,000 (4) $ 1,581,165 (5) $ 30,077
Undeveloped Land
Reno, NV $ 215,000 $ 0 $ 0
Residential Lots
Ione, CA $ 2,821,675 (6) $ 31,384 $ 1,032,637
Self Storage
Oakland, CA $ 464,000 $ 0 $ 209,612
Light Industrial Bldg.
Paso Robles, CA $ 600,000 (7) $ 946,042 (7) $ 131,416
23% interest in Multi-
Unit Residential Bldg., Oakland, CA $ 53,185 $ 0 $ 4,052
<FN>
(1) The book value of this asset is net of a loss allowance of $350,000.
(2) Of this additional capitalized cost, $450,000 represents the purchase of
a minority investor's interest in the property to provide the Partnership
with complete ownership.
(3) The book value of this asset is net of a loss allowance of $250,000.
(4) The book value of this asset is net of a loss allowance of $200,000.
(5) 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.
(6) The book value of this asset is net of a loss allowance of $384,000.
(7) The Partnership held two junior deeds of trust secured by this property.
Prior to foreclosure by the senior lienholder, the Corporate General
Partner purchased the $600,000 of loans from the Partnership. The
Partnership then purchased the property at the foreclosure sale for
$1,350,000, and wiped out the Corporate General Partner's junior deeds of
trust. The Corporate General Partner incurred a loss of $600,000 at
foreclosure.
</FN>
</TABLE>
The properties located in Merced, Vallejo and Sacramento, California and Reno,
Nevada do not currently general revenue and, as such, contribute to the Real
estate held for sale operating at a deficit. Although income from rental
properties has increased from $69,000 to $170,000 for the three months ended
March 31, 1997 and 1998, respectively, expenses associated with these properties
have also increased from $92,000 to $220,000 for the three months ended March
31, 1997 and 1998, respectively.
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 the three months ended March 31, 1998, the Partnership sold a
property to the Corporate General Partner at a book loss of $2,000, net of an
allowance for losses attributable to the property of $712,000 which was recorded
in 1997. The Partnership also acquired a 23% interest in a multi-unit
residential property located in Oakland, California through foreclosure in which
it had invested $53,185.
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. The Partnership incurred additional costs of
$503,000 in protecting its investment, thus increasing the carrying value of the
lots to $1,603,000. During 1995, the Partnership began to develop the lots and
in 1995 incurred an additional $671,000 in costs.
In 1995, the Partnership became the sole limited partner in a limited
partnership formed with Wood Valley Development, Inc., an unrelated
developer/builder and 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 development
limited partnership and agreed to make additional advances to fund the
development costs. During the year ended December 31, 1997 and the three months
ended March 31, 1998, the Partnership had advanced additional development costs
aggregating $4,153,000 and $838,000, respectively. The amount invested in or
advanced by the Partnership at December 31, 1997 and March 31, 1998, equaled
$3,812,000 and $2,092,000, net of distributions through such date.
Under the terms of the agreement governing the development limited partnership,
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.
The development limited partnership is building single-family residences of
between approximately 2,200 and 2,800 square feet on the lots During 1997, 15
homes were sold for aggregate proceeds of $8,012,000, and the development
limited partnership distributed $7,574,000 to the Partnership, $2,355,000 of
which represented profit and interest. During the three months ended March 31,
1998, eight homes were sold for aggregate proceeds of $4,024,000 and the
development limited partnership distributed $3,576,000 (including $19,000 from
the joint venture formed between the Corporate General Partner and Wood Valley,
Inc.) to the Partnership, $1,018,000 of which represented profit and interest.
As of March 31, 1998, a total of 24 homes had been completed and sold and
construction had been completed or commenced on the remaining 6 lots.
The Corporate General Partner has entered into a joint venture with Wood Valley
Development, Inc. to purchase and build out up to 34 lots that are contiguous to
and interspersed with the lots in Carmel Valley owned by the development limited
partnership formed between the Partnership and Wood Valley Development, Inc. As
of March 31, 1997, the joint venture between the Corporate General Partner and
Wood Valley Development, Inc. had purchased 31 lots and developed and sold 18 of
these lots. The remaining three lots are expected to be purchased by this joint
venture during 1998.
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. The development limited partnership has,
however, incurred certain infrastructure and soft costs that benefited not only
the 30 lots owned by the development limited partnership, but the 34 contiguous
lots owned by the Corporate General Partner/Wood Valley Development, Inc. joint
venture. As sales of these 34 lots occur, the development limited partnership is
being reimbursed on a pro rata basis, without interest, for such development,
infrastructure and soft costs incurred by the development limited partnership.
Upon receipt of any such funds the development limited partnership will
distribute monies as outlined above. During the three months ended March 31,
1998, the development limited partnership received reimbursement of $19,000 in
development costs and the balance of development advances receivable is $83,000
as of March 31, 1998.
Development Limited Liability Company/Corporate Joint Venture
In 1995, the Partnership foreclosed on a $571,853 loan and obtained title to a
commercial lot in Los Gatos, California. In 1997, the Partnership formed a
limited liability company (the "Company") with BGC Properties LLC, an
unaffiliated developer, and contributed the land valued at $760,000 to the
newly-formed limited liability company in exchange for a 70% interest in the
profits and losses of the Company. The sole purpose of the Company is to
develop, construct and operate a commercial office building on the land, to be
held for investment or sale. The Partnership is required to provide construction
financing to the Company in the form of additional contributions or loans to the
Company, or to obtain such financing from third parties. To the extent the
Partnership lends such funds, it will receive interest at a rate of prime plus
2%. Upon completion of construction of improvements, the Partnership is required
to obtain or provide permanent financing.
The Partnership is the sole manager of the Company. As such, the Partnership has
exclusive control and authority over the Company's affairs, subject to certain
rights of BGC. The Partnership will not receive any compensation for serving as
manager of the Company.
BGC will provide certain development services to the Company and will receive a
development fee. At BGC's election, BGC may defer payment of all or a portion of
the fee, and earn interest thereon at the rate of 8% per annum, simple.
Additionally, an affiliate of BGC will serve as property manager and earn an
asset management fee.
Prior to contributing the land to the Company, the Partnership invested
approximately $629,000 (including $57,000 in capitalized costs subsequent to
foreclosure) in such land. Since contributing the land to the Company the
Partnership has loaned $37,000 to the Company, which amount will be repaid, with
interest, as discussed above. The Company expects to have development rights by
mid-1998 and have construction completed in 1999.
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.
Contingency 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 of limited partners'
capital 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: May 15, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 14,025,018
<SECURITIES> 0
<RECEIVABLES> 2,026,153
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,051,171
<PP&E> 11,377,231
<DEPRECIATION> 0
<TOTAL-ASSETS> 197,610,746
<CURRENT-LIABILITIES> 1,099,487
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 196,511,259
<TOTAL-LIABILITY-AND-EQUITY> 197,610,746
<SALES> 0
<TOTAL-REVENUES> 5,862,811
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 741,104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,121,707
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,121,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,121,707
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
