<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _________ to _________
OPPORTUNITY MANAGEMENT COMPANY, INC.
(Exact name of registrant as specified in its charter)
Washington 33-68700-S 91-1427776
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
12904 East Nora, Suite A
Spokane, Washington 99216
(Address of principal executive offices)
Registrant's telephone number, including area code: (509) 928-6545
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the issuer (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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or other
information statements incorporated by reference in Part III of this Form
10-QSB or any amendments to this Form 10-QSB. [X]
The issuer's revenues for the quarter ended March 31, 1997 were $147,029.
The aggregate market value of the voting stock held by non-affiliates at
May 1, 1997, based on an assumed value of $5.00 per share, was $10,336,748.
The number of shares of common stock outstanding at such date was 2,259,804
shares.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
QUARTERLY REPORT ON FORM 10-QSB FOR THE PERIOD ENDED
MARCH 31, 1997
TABLE OF CONTENTS
Page
PART I
Item 1: Financial Statements. . . . . . . . . . . . . . . . 1
Item 2: Management's Discussion and Analysis of Financial
Condition & Results of Operation. . . . . . . . . .13
PART II
Item 1: Legal Proceedings . . . . . . . . . . . . . . . . .19
Item 2: Changes in Securities . . . . . . . . . . . . . . .19
Item 3: Defaults Upon Senior Securities . . . . . . . . . .19
Item 4: Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . .19
Item 5: Other Information . . . . . . . . . . . . . . . . .19
Item 6: Exhibits and Reports on Form 8-K. . . . . . . . . .20
SIGNATURES
(i)
<PAGE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------
STATEMENTS OF CONDITION
MARCH 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
Loans receivable, earning $ 6,287,562 $ 7,119,258
Loans receivable, nonearning 3,056,736 2,186,184
------------ ------------
9,344,298 9,305,442
Real estate held for sale 1,612,483 1,125,919
------------ ------------
10,956,781 10,431,361
Allowance for losses (155,801) (101,513)
------------ ------------
NET LOANS AND REAL ESTATE (Notes 2 and 3) 10,800,980 10,329,848
Cash 125,564 523,235
Other assets 2,755 2,999
Accrued interest receivable 70,609 96,691
------------ ------------
TOTAL ASSETS $10,999,908 $10,952,773
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued expenses $ 18,300 $ 27,264
Accrued cash dividends payable to
stockholders 95,763 152,872
------------ ------------
TOTAL LIABILITIES 114,063 180,136
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 4)
<PAGE>
<PAGE>
STOCKHOLDERS' EQUITY
Common stock - $5 par value, 5,400,000
shares authorized; 1997, 2,259,804
shares; 1996, 2,186,607 shares,issued
and outstanding 11,090,668 10,851,964
Undistributed income (expense) (204,823) (79,327)
------------- -------------
10,885,845 10,772,637
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,999,908 $10,952,773
============= =============
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ------------------------------------------------------------------------
STATEMENTS OF INCOME
QUARTERS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------------------
<S> <C> <C>
REVENUES
Interest income on residential loans $ 158,934 $ 214,894
Interest income on commercial loans 111,418 124,774
Interest income on bank accounts 1,769 3,214
Other income 166 4,676
----------- -----------
TOTAL REVENUES 272,287 347,558
----------- -----------
EXPENSES
Management fees - related party (Note 5) 41,392 40,479
Amortization of organizational costs - 1,125
Provision for loan and real estate
losses (Notes 2 and 3) - 15,000
Accounting and auditing expenses 9,915 4,419
Legal expenses (Note 5) 58,625 3,404
Business and occupational taxes 2,213 1,968
Directors' compensation 2,400 -
Other expense 10,713 1,223
----------- -----------
TOTAL EXPENSES 125,258 67,618
----------- -----------
NET INCOME $ 147,029 $ 279,940
=========== ===========
Primary earnings per common share $ 0.06 $ 0.13
=========== ===========
Weighted average shares outstanding 2,298,678 2,223,161
=========== ===========
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- -------------------------------------------------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
QUARTERS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock
-------------------- Undistributed Total
Income Stockholders'
Shares Amount (Expense) Equity
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 2,225,547 $11,046,659 $(204,823) $10,841,836
Net Income - - 147,029 147,029
Repurchase of common stock (1,761) (8,806) - (8,806)
Issuance of common stock,
net of stock issuance
costs (Note 5) 172 863 - 863
Dividends reinvested in stock 10,390 51,952 (51,952) -
Cash dividends - - (95,077) (95,077)
----------- ----------- ---------- -----------
Balance, March 31, 1997 2,234,348 $11,090,668 $(204,823) $10,885,845
=========== ============ ========== ===========
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
QUARTERS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 147,029 $ 279,940
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of organizational costs - 1,125
Provision for loan and real estate losses - 15,000
Amortization of discounts on loans (4,802) (4,668)
(Increase) decrease in:
Accrued interest receivable 12,423 (12,586)
Other assets (896) -
Increase (decrease) in:
Accrued expenses (7,668) 296
------------ ------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 146,086 279,107
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of new loans (1,253,360) (1,094,304)
Principal reductions and maturities of loans 1,148,167 1,099,708
Proceeds from sale of real estate owned 45,963 1,287
Advances of costs associated with improvements
of other real estate (35,208) (20,383)
------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES ( 94,438) (13,692)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of stock 863 287,736
Repurchase of common stock (8,806) -
Cash dividends paid to stockholders (135,293) (119,896)
------------ ------------
CASH FLOWS PROVIDED (USED) BY
FINANCING ACTIVITIES (143,236) 167,840
INCREASE (DECREASE) IN CASH (91,588) 433,255
Cash, January 1st $ 217,152 $ 89,980
------------ ------------
Cash, March 31st 125,564 523,235
============ ============
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- --------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (CONTINUED)
QUARTERS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-----------------------------
<S> <C> <C>
SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for stockholder
reinvestment of dividends $ 51,952 $ 130,334
----------- -----------
Acquisition of real estate in settlement
of loans $ 447,628 -
----------- -----------
Charge offs against the allowance $ 590 $ 20,041
----------- -----------
New contracts made in connection with
sales of real estate $ 43,940 $ 47,615
----------- -----------
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- --------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Formation of the Company:
Opportunity Management Company, Inc. was incorporated in the state of
Washington on October 12, 1988, and operates as a Real Estate Investment
Trust (REIT) (Note 4). Its general business purpose is to make loans
secured by interests in real property and derive income from and relating
to those interests in real property.
Basis of financial statement presentation:
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of certain assets and liabilities as of the date of the
statement of financial condition and certain revenues and expenses for the
period. Actual results could differ, either positively or negatively, from
those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for loan losses and other real estate
owned, management obtains independent appraisals for significant
properties.
Management believes that the allowance for loan losses and other real
estate owned is adequate. While management uses currently available
information to recognize losses on loans and other real estate, future
additions to the allowances may be necessary based on changes in economic
conditions.
Loans receivable and interest on loans:
Loans are stated at principal outstanding and net of the allowance for loan
losses. Interest income on loans is calculated by using the simple
interest method on daily balances of the principal amount outstanding.
Loans are placed in a nonaccrual status when loans become ninety days
delinquent. Thereafter, no interest is taken into income unless received
in cash or until such time as the borrower demonstrates the ability to
resume payments to principal and interest. Interest previously accrued but
not collected is generally reversed and charged against income at the time
the loans is placed on nonaccrual status.
<PAGE>
<PAGE>
Loans placed in a nonaccrual status are considered impaired for purposes of
SFAS No. 114 and No. 188. A quarterly analysis of all nonaccrual loans is
performed by management which compares the collateral fair value less costs
to sell as compared to the loan balance, to determine if specific
allowances for impairment are needed.
Allowance for loan and real estate losses:
The Company utilizes the allowance method of providing for losses on
uncollectible loans or overvalued real estate held for sale. Specific
valuation allowances are provided for loans receivable when repayment
becomes doubtful and the amounts expected to be received in settlement of
the loan are less than the amount due. In addition to specific allowance,
a general allowance is provided for future losses based upon a continuing
review of loans which includes consideration of actual net loan loss
experience, changes in the size and character of the loan portfolio, and
evaluation of current economic conditions.
Valuation allowances are provided for foreclosed real estate held for sale
or purchased real estate held for sale when the fair value of the property
less costs to sell is less than its cost. Real estate held for sale is
carried at the lower of cost (recorded amount at the date of foreclosure or
acquisition) or fair value less disposition costs. Additions to the
allowance are charged to expense.
Real estate held for sale:
Sales of real estate generally are accounted for under the full accrual
method. Under that method, gain is not recognized until the collectibility
of the sales price is reasonably assured and the earnings process is
virtually complete. When a sale does not meet the requirements for income
recognition, gain is deferred until those requirements are met.
Loan placement fees:
Opportunity Management Company, Inc. purchases loans from CLS Mortgage,
Inc. for its loan portfolio. The loan principal outstanding includes a
loan placement fee to CLS Mortgage, Inc. which was paid by the borrower and
financed in the loan balance. These fees are accounted for as revenue by
CLS Mortgage, Inc. when the loan is sold to Opportunity Management Company,
Inc. No income or expense related to these fees is recorded by Opportunity
Management Company, Inc. (Note 5).
Dividends:
It is the policy of the Company to distribute at least 95% of annual
taxable income in cash and stock reinvestment dividends to the
stockholders.
The Company offers a dividend reinvestment program (rollover dividend
program) whereby the stockholders have the option of receiving dividends in
cash or alternatively of using their dividends to purchase new shares of
stock at the $5 stated value per share. The following is a reconciliation
of the dividends on common stock as summarized in the statement of changes
in stockholders' equity:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash dividends paid 135,293 119,896
Dividends reinvested in stock 51,952 130,334
Accrued dividends, March 31st 95,763 152,872
Accrued dividends, January 1st (135,293) (105,252)
Accrued fractional shares not paid (686) 11
--------- ---------
Dividends on common stock 147,029 297,861
Dividends paid or accrued in excess of
net income - (17,921)
--------- ---------
NET INCOME 147,029 279,940
========= =========
Cash dividends - accrual basis 95,077 167,527
Dividends reinvested in stock - accrual basis 51,952 130,334
Dividends accrued in excess of net income - (17,921)
--------- ---------
NET INCOME 147,029 279,940
========= =========
</TABLE>
Per share amounts:
All per share amounts have been calculated on the basis of weighted average
number of shares outstanding during each quarter.
Note 2. Accounting Changes
Effective January 1, 1996, the Company formally adopted SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. Under the SFAS, real estate held for sale is to
be measured at the lower of carrying amount or fair value less costs to
sell. Subsequent revisions in estimates of fair value less cost to sell
are to be reported as adjustments to the carrying amount of an asset. The
Company's policy prior to January 1, 1996, was not substantially different
than as prescribed by SFAS No. 121 and therefore, the adoption on the
Company's 1996 financial position and results of operations was
insignificant (Note 3).
<PAGE>
<PAGE>
Note 3. Loans Receivable and Real Estate Held for Sale
Loans receivable at March 31, 1997 and 1996, consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
First mortgage loans $7,751,944 $7,694,278
Second mortgage loans 618,459 506,260
Loans secured by personal property and real estate 973,895 1,104,904
---------- ----------
$9,344,298 $9,305,442
========== ==========
A concentration of credit exists in that the majority of loans are secured
by real property in the states of Washington and Idaho.
Types of real property securing loans at March 31, 1997 and 1996, are as
follows:
1997 1996
---------- ----------
Commercial $2,424,491 $1,478,545
Single and multiple family residential 1,998,240 2,300,602
Rural single and multiple family residential 1,507,865 1,766,680
Mobile homes 973,895 1,104,904
Farm/agricultural 9,758 79,758
Developed land 1,784,183 1,855,977
Undeveloped land 645,866 718,976
---------- ----------
$9,344,298 $9,305,442
========== ==========
Real estate held for sale at March 31, 1997 and 1996, consists of the
following:
1997 1996
---------- ----------
Commercial $ 127,442 $ 141,225
Single and multiple family residential 245,976 45,733
Rural single and multiple family residential 209,643 331,198
Mobile homes 107,181 -
Developed land 819,501 607,763
Undeveloped land 102,740 -
---------- ----------
$1,612,483 $1,125,919
========== ==========
</TABLE>
<PAGE>
<PAGE>
An analysis of the changes in the allowance for losses is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Balance, January 1st $ 156,391 $ 106,554
Provision charged to expense - 15,000
Recoveries - -
Charge off of losses on sale of real estate owned (590) (20,041)
----------- -----------
Balance, March 31st $ 155,801 $ 101,513
=========== ===========
</TABLE>
Impairment of loans having a recorded investment of $3,392,518 and
$2,186,184 at March 31, 1997 and 1996, respectively, has been recognized in
conformity with SFAS No. 114 as amended by SFAS No. 118. There is a $3,598
and $-0- of specific allowance for loan losses related to these loans at
March 31, 1997 and 1996, respectively. Interest income on impaired loans
of $21,659 and $20,116 was recognized for cash payments received in 1997
and 1996, respectively. The average impaired loans during 1997 and 1996
was $3,185,851 and $2,522,014, respectively.
Included in the allowance for losses, there is a $124,428 and $65,076
specific allowance to reduce real estate held for sale to the estimated
fair value less costs of disposal at March 31, 1997 and 1996, respectively.
Note 4. Income Taxes
The Company, in the opinion of management, continues to qualify as a Real
Estate Investment Trust (REIT) under the applicable provisions of the
Internal Revenue Code. The Company is allowed to deduct the dividends paid
to its stockholders as an expense and in effect not pay federal income
taxes. In the event the Company does not qualify, the Company would owe
federal income taxes as estimated below.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Income before taxes on income $ 147,029 $ 279,940
Federal income taxes at statutory rates (40,591) (92,427)
---------- ----------
Net Income $ 106,438 $ 187,513
========== ==========
</TABLE>
<PAGE>
<PAGE>
The Company must continue to meet certain conditions on an annual basis to
retain its tax status as a REIT. These conditions were met for the
quarters ended March 31, 1997 and 1996. Dividends distributed are
considered ordinary income to the investors for tax purposes, with the
exception of gains on the sale of real estate, which are treated as capital
gains to the investors.
Note 5. Related Party Transactions
Management fees:
CLS Mortgage, Inc. provides office space, administrative, accounting,
computer, and other services to the Company. For the quarters ended March
31, 1997 and 1996, $41,392 and $40,479, respectively, were paid for these
services in accordance with a management agreement. The amounts payable to
CLS Mortgage, Inc. at March 31, 1997 and 1996, were $13,798 and $13,519,
respectively. For 1997 and 1996, the monthly fee was based on one-twelfth
of 1.5% of the common stock outstanding each month end. The Company is
relying on CLS Mortgage, Inc. to manage its day-to-day operations as its
administrative manager. The President is also the President of CLS
Mortgage, Inc. and Chairman of the Board of Directors of the Company. The
President and his wife own 1.05% of the common stock of the Company. The
two sole stockholders directly and indirectly own 3.45% of the common stock
of the Company and 100% of the stock of CLS Mortgage, Inc. at March 31,
1997.
Escrow services:
CLS Escrow provides the Company with escrow services. The stockholders of
CLS Mortgage, Inc. collectively own 50% of the outstanding shares of CLS
Escrow.
Loan placement fees:
Loans are purchased from or brokered by CLS Mortgage, Inc. CLS Mortgage,
Inc. earns a 6-12% loan placement fee from the borrowers of the monies
loaned by Opportunity Management Company, Inc. For the quarters ended
March 31, 1997 and 1996, CLS Mortgage, Inc. received $98,790 and $73,075,
respectively, in loan placement fees (Note 1).
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Selected Financial Data
The selected financial data for each of the three quarters ended March 31,
1997, 1996 and 1995 has been derived from the financial statements
appearing elsewhere in this report. The selected financial data should be
read in conjunction with, and is qualified by, such financial statements
and the notes thereto.
<TABLE>
<CAPTION>
Quarters Ended March 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income Statement Data
Interest income . . . . . . . . . . . $ 272,121 $ 342,882 $ 305,551
Loan loss provision . . . . . . . . . - (15,000) (13,000)
Net interest income . . . . . . . . . 166 4,676 570
Non-interest expense. . . . . . . . . (125,258) (52,618) (46,258)
Net income. . . . . . . . . . . . . . 147,029 279,940 246,863
Per Share Data
Primary earnings per weighted average
common shares outstanding. . . . . . $0.06 $0.13 $0.13
Book value per common share . . . . . $4.87 $4.93 $4.99
Balance Sheet Data
Loans, earning. . . . . . . . . . . . $6,287,562 $7,119,258 $7,982,237
Loans, nonearning . . . . . . . . . . 3,056,736 2,186,184 581,595
Real estate held for sale . . . . . . 1,612,483 1,125,919 643,595
Allowance for loan losses . . . . . . (155,801) (101,513) (79,768)
Net loans and real estate held for
sale . . . . . . . . . . . . . . . . 10,800,980 10,329,848 9,127,523
Total assets. . . . . . . . . . . . . 10,999,908 10,952,773 9,386,193
Shareholders' equity. . . . . . . . . 10,885,845 10,772,637 9,222,857
Selected Ratios
Yield on average residential loans. . 13.22% 16.41% 13.61%
Yield on average commercial loans . . 9.52% 11.97% 16.07%
Yield on average total assets . . . . 9.90% 12.96% 12.99%
Return on average total assets. . . . 5.35% 10.44% 10.73%
Return on average total shareholders'
equity . . . . . . . . . . . . . . . 5.41% 10.59% 10.95%
Ratio of net income to total revenues 54.00% 80.54% 80.64%
<PAGE>
<PAGE>
Asset Quality Ratios
Allowance for losses to ending total
loans and OREO . . . . . . . . . . . 1.42% 0.97% 0.87%
Allowance for losses to non-earning
loans. . . . . . . . . . . . . . . . 5.10% 4.64% 13.72%
Non-earning loans to ending total
assets . . . . . . . . . . . . . . . 27.79% 19.96% 6.19%
Non-earning loans to total loans. . . 32.71% 23.49% 6.79%
Non-earning loans and OREO to ending
total assets . . . . . . . . . . . . 42.45% 30.24% 13.05%
Net charge-offs to average loans
and OREO . . . . . . . . . . . . . . .01% 0.19% 0.02%
Capital Ratios
Average shareholders' equity to
average assets . . . . . . . . . . . 98.75% 98.54% 98.04%
</TABLE>
Results of Operations
Overview. The level of non-earning loans increased from 23.5% for the
quarter ended March 31, 1996 to 32.7% in 1997. This is a continuation of a
trend which began in 1995. Nonearning loans as a percentage of total loans
for the period ending March 31, 1995 was 6.8%. As a direct result of an
increase of nonearning loans the return on average shareholder equity has
deceased from 10.6% to 5.4% for the quarters ending March 31, 1996, and
1997. As a consequence of the continued growth in nonearning assets, net
income declined to $147,029 for March 31, 1997, a reduction of $132,911 or
approximately 45% from March 31, 1996.
The increase in nonearning loans in 1997 and 1996 is believed by management
to be attributable to several factors, including a relatively high
concentration of portfolio loans secured by developed properties; these
loans were originated during the period from 1990 through 1994, when the
Spokane, Washington and Coeur d'Alene, Idaho housing markets were robust,
but declined in performance as those markets softened beginning in 1995.
Management of the Company and CLS do not expect overall economic conditions
to improve significantly in 1997, and, as a consequence, CLS has
implemented a number of internal measures designed to improve the quality
of the loans it originates and sells to the Company. One of these measures
is a change in the mix of loans comprising the portfolio. Management
expects to increase the concentration of single-family residential loans in
the portfolio, and thereby reduce the concentration of higher-interest
loans secured by developed property which, at least historically, have
contributed significantly to the decline in yield. In addition, CLS has
adopted stricter, more conservative appraisal practices; it has also
implemented internal policies designed to ensure that no more than 20% of
<PAGE>
<PAGE>
the loan portfolio is comprised of loans secured by developed properties,
and that no more than 10% of the portfolio is comprised of loans secured by
undeveloped properties. Additionally, CLS has employed a full-time
collection manager to oversee the sale or other disposition of real estate
acquired by CLS and the Company through foreclosure or other means.
CLS's and the Company's goals with respect to the Company's loan portfolio
are to reduce the level of non-earning loans to 20% or less and to increase
the annual yield to at least 10%. Although management is optimistic, no
assurance can be given that these goals will be achieved during the year.
Quarter Ended March 31, 1997 Compared to Quarter Ended March 31, 1996.
General. The Company's net income decreased 45%, to $147,029, for the
quarter ended March 31, 1997, from $279,940 for the quarter ended March 31,
1996. This decrease was primarily as a result of an increase in nonearning
loans, an increase in nonearning real estate owned and higher levels of
legal expenses directly associated with foreclosure and collection
activities.
Return on average assets and equity were 5.4% and 5.4%, respectively, for
the quarter ended March 31, 1997, as compared to 10.4% and 10.6%,
respectively, for the quarter ended March 31, 1996. Total assets increased
.4%, to $10,999,908, for the quarter ended March 31, 1997, from $10,952,773
for the quarter ended March 31, 1996. Total loans increased $38,856 during
the quarter. The increase in loans resulted from an increase in funds
available for the purchase of loans during the year, which funds were
primarily derived from principal repayments and the issuance of common
stock.
Interest Income. The Company's interest income decreased 20.6%, to
$272,121, for the quarter ended March 31, 1997, from $342,882 in the prior
year. The decrease in interest income was primarily attributable to a
39.8% increase in nonearning loans and a 43.2% increase in nonearning real
estate owned. Additionally, interest income has decreased due to a gradual
change in the composition of loans in the portfolio.
Prior to March of 1996 management's strategy was to fund high interest rate
loans (15% - 16%) secured by residential, land and mobile home, commercial,
agricultural, developed land and undeveloped land. These loans were
underwritten with an emphasis on the security and less emphasis on the
makers character and ability to repay the obligation. After March of 1996,
loans have been underwritten with more emphasis on the maker's character
and ability to repay. To compete for these loans in the market, the
interest rates of said loans are 12% to 16%. This change in emphasis has
resulted in a gradual decline of the loan portfolio's weighted average
interest rate. On March 31, 1996 the weighted average interest rate of the
loan portfolio was 15.4%, as compared to the weighted average interest rate
of the portfolio on March 31, 1997 of 14.9%. This decline of the weighted
average interest rate of the loan portfolio has contributed to the decrease
in interest income.
<PAGE>
<PAGE>
Total Expenses. Total expenses increased 85.2%, or $57,640 to $125,258,
for the quarter ended March 31, 1997, as compared to $67,618 for the
quarter ended March 31, 1996. The increase in total expenses is directly
attritubale to an increase in legal expenses of $55,221 over the first
quarter of 1996. Legal expenses were higher in the quarter ended March 31,
1997 due to legal proceedings related to loan collection and OREO
foreclosure costs, as well as SEC legal filing costs. Approximately
$25,000 of legal costs for the first quarter of 1997 were associated with
unusual and unexpected legal proceedings for one non-performing loan.
Management does not anitcipate similar legal costs on any other loan
collections. The Company's policy is to expense all loan collection and
OREO foreclosure costs as incurred, even if it is anticipated that they may
be recovered upon sale of foreclosed properties.
Management fees paid to CLS for the quarter ended March 31, 1997 were
$41,392, as compared to $40,479 in 1996.
Quarter Ended March 31, 1996 Compared to Quarter Ended March 31, 1995.
General. The Company's net income increased 13.4%, to $279,940, for the
quarter ended March 31, 1996, from $246,863 for the quarter ended March 31,
1995. This increase was primarily as a result of an increase in
shareholders' equity. Shareholders' equity increased 16.8% for the quarter
ended March 31, 1997, from $9,222,857 to $10,772,637.
Return on average assets and equity were 10.44% and 10.59%, respectively,
for the quarter ended March 31, 1996, as compared to 10.73% and 10.95%,
respectively, for the quarter ended March 31, 1995. Total assets increased
16.7%, to $10,952,773 for the quarter ended March 31, 1996, from $9,386,193
for the quarter ended March 31, 1995. Total loans increased $741,746
during the quarter. The increase in loans resulted from an increase in
funds available for the purchase of loans during the quarter, which funds
were primarily derived from reinvested dividends and sales of common stock
to new investors.
Interest Income. The Company's interest income increased 12.2%, to
$342,882 for the quarter ended March 31, 1996, from $305,551 in the prior
year's first quarter. The increase was primarily attributable to the
issuance of common stock which resulted in an increase in shareholders'
equity and earning assets.
Total Expenses. Total expenses increased 14.1%, to $67,618, for the
quarter ended March 31, 1996, as compared to $59,258 for the prior year's
first quarter. The increase was primarily attributable to the issuance of
common stock which resulted in an increase in shareholders' equity, an
increase in total assets and a proportionate increase in expenses.
<PAGE>
<PAGE>
Liquidity and Capital Resources.
Management believes that the Company's cash flow will be sufficient to
support its existing operations for the foreseeable future. If the Company
needs additional liquidity, it would be required to borrow or issue
additional securities. The Company may borrow on a short-term basis to
compensate for a reduction in funds occasioned by the likely termination of
its current dividend reinvestment plan in 1997. The Company's ability to
service borrowing is dependent upon its interest income.
The Company's total shareholders' equity increased to $10,885,845 at
March 31, 1997, from $10,772,637 at March 31, 1996. At March 31, 1997,
shareholders' equity was 98.75% of total assets, compared to 98.54% at
March 31, 1996. At March 31, 1997, the Company held cash of $125,564.
Effects of Inflation and Changing Prices. The primary impact of inflation
on the Company's operations is increased asset yields and operating
overhead. Unlike most industrial companies, virtually all of the assets
and liabilities of a financial institution are monetary in nature. As a
result, interest rates generally have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation. Although interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services,
increases in inflation generally have resulted in increased interest rates.
Plan of Operation. The Company's plan of operation during the ensuing
twelve-month period is to maintain a portfolio of loans collateralized by
real property sufficient to generate dividends to its shareholders at
annualized rates ranging from 7% to 10%. In order to meet these
objectives, the Company and CLS have adopted operating strategies designed
to (i) reduce the level of non-earning loans in the Company's loan
portfolio, (ii) increase the volume of loans CLS originates and makes
available to the Company and others for purchase, (iii) market real estate
owned, (iv) invest proceeds of real estate owned in earning assets and (v)
more efficiently manage the operations of the Company and CLS.
Additionally, the Company plans to continue operating as a Real Estate
Investment Trust, disbursing in excess of 95% of its taxable income to
shareholders as dividends.
<PAGE>
<PAGE>
PART II
Item 1. Legal Proceedings.
Because of the nature of its business, the Company is subject to numerous
claims and legal actions in the ordinary course of its business involving
the collection of delinquent accounts and the validity of liens. While it
is impossible to estimate with certainty the ultimate legal and financial
liability with respect to such claims, the Company believes that, in the
aggregate, such liabilities would not have a material adverse effect on the
financial condition or results of operations of the Company.
Item 2. Changes In Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's shareholders during
the first quarter of 1997.
Item 5. Other Information.
None.
<PAGE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
Exhibits. The following exhibits filed as part of this report. Exhibits
previously filed are incorporated by reference, as noted.
Exhibit No. Description
3.1 Articles of Incorporation of the Company, as amended.
Previously filed as Exhibit 3 to the Company's registration
statement on Form SB-2, dated October 3, 1993, and
incorporated by reference herein.
3.2 Bylaws of the Company, as amended. Previously filed as
Exhibit 3 to the Company's registration statement on Form
SB-2, dated October 3, 1993, and incorporated by reference
herein.
10.1 Copy of management agreement between CLS Mortgage, Inc. and
the Company. Previously filed as Exhibit 10.1 to the
Company's annual report on Form 10-KSB for the year ended
December 31, 1996, and incorporated by reference herein.
27.1 Financial data schedule. Filed herewith.
Form 8-K. No reports on Form 8-K were filed by the registrant during the
first quarter of 1997.
<PAGE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this amendment to registration statement to be
signed on this behalf by the undersigned, thereunto duly authorized.
OPPORTUNITY MANAGEMENT COMPANY, INC.
By: /s/ H. E. Brazington
----------------------------------
H. E. Brazington, its President
Dated: May 7, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 125,564
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 9,344,298
<ALLOWANCE> 155,801
<TOTAL-ASSETS> 10,999,908
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 11,090,668
<OTHER-SE> (204,823)
<TOTAL-LIABILITIES-AND-EQUITY> 10,999,908
<INTEREST-LOAN> 270,352
<INTEREST-INVEST> 0
<INTEREST-OTHER> 1,935
<INTEREST-TOTAL> 272,287
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 125,258
<INCOME-PRETAX> 0
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,029
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 3,056,736
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 156,391
<CHARGE-OFFS> 590
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 155,801
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
