-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q8KGtqE8EXtZo/NIdQnLjRnjCBHFit1WJUzFI7G1GN5BHm02MGEGn78SnTyNoaHK 0+PV3jFaeDhRG5f83vclAw== /in/edgar/work/20000811/0000776734-00-000033/0000776734-00-000033.txt : 20000921 0000776734-00-000033.hdr.sgml : 20000921 ACCESSION NUMBER: 0000776734-00-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICA FIRST MORTGAGE INVESTMENTS INC CENTRAL INDEX KEY: 0001055160 STANDARD INDUSTRIAL CLASSIFICATION: [6798 ] IRS NUMBER: 133974868 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13991 FILM NUMBER: 692578 BUSINESS ADDRESS: STREET 1: 399 PARK AVENUE STREET 2: 36TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129358760 MAIL ADDRESS: STREET 1: 399 PARK AVE STREET 2: 399 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 0001.txt FORM 10-Q 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 For the quarterly period ended June 30, 2000 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number: 1-13991 AMERICA FIRST MORTGAGE INVESTMENTS, INC. (Exact name of registrant as specified in its charter) Maryland 13-3974868 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 399 Park Avenue, 36th Floor, New York, New York 10022 (Address of principal executive offices) (Zip Code) (212) 935-8760 (Registrant's telephone number, including area code) 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 The number of shares of the Registrant's common stock outstanding on August 7, 2000, was 8,870,446. -i- Part I. Financial Information Item 1. Financial Statements AMERICA FIRST MORTGAGE INVESTMENTS, INC. BALANCE SHEETS
June 30, 2000 (Unaudited) Dec. 31, 1999 --------------- --------------- Assets Investment in mortgage securities (Note 3) $ 486,096,972 $ 475,719,711 Investment in corporate debt securities (Note 4) 12,830,082 8,020,026 Investment in corporate equity securities (Note 5) 9,743,117 3,130,823 Cash and cash equivalents Unrestricted 16,205,439 19,895,833 Restricted 927,695 3,709,577 Accrued interest and dividends receivable 3,466,226 2,855,321 Other investments (Note 6) 3,261,482 3,220,346 Goodwill, net 7,488,097 7,587,948 Other assets 645,738 244,888 --------------- --------------- $ 540,664,848 $ 524,384,473 =============== =============== Liabilities Repurchase agreements (Note 7) $ 472,415,829 $ 452,101,803 Accrued interest payable 1,410,995 2,778,842 Accounts payable 418,021 595,805 Dividends payable 1,296,952 1,293,410 --------------- --------------- 475,541,797 456,769,860 --------------- --------------- Stockholders' Equity Stockholders' Equity Common stock, $.01 par value; 10,000,000 shares authorized 8,873,946 and 8,978,642 issued and outstanding in 2000 and 1999, respectively 88,739 89,786 Additional paid-in capital 75,314,151 75,831,560 Retained earnings (2,554,186) (2,877,971) Accumulated other comprehensive income (7,725,653) (5,428,762) --------------- --------------- 65,123,051 67,614,613 --------------- --------------- $ 540,664,848 $ 524,384,473 =============== =============== The accompanying notes are an integral part of the consolidated financial statements.
- 1 - AMERICA FIRST MORTGAGE INVESTMENTS, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three For the Three For the Six For the Six Months Ended Months Ended Months Ended Months Ended June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 ----------------- --------------- -------------- ------------- Mortgage securities income $ 8,434,999 $ 6,023,386 $ 16,612,151 $ 10,588,175 Corporate debt securities income 255,986 139,816 496,360 270,715 Dividend income 255,019 120,915 459,050 177,818 Interest income on temporary cash investments 140,174 62,512 293,008 136,994 --------------- --------------- -------------- ------------- Total interest and dividend income 9,086,178 6,346,629 17,860,569 11,173,702 Interest expense on borrowed funds 7,626,956 4,318,692 14,593,351 7,461,847 --------------- --------------- -------------- ------------- Net interest and dividend income 1,459,222 2,027,937 3,267,218 3,711,855 --------------- --------------- -------------- ------------- Income from other investments 354,142 62,125 502,362 248,822 Gain on sale of investments 119,619 56,528 119,619 54,994 --------------- --------------- -------------- ------------- 473,761 118,653 621,981 303,816 --------------- --------------- -------------- ------------- General and administrative expenses 512,495 628,400 973,960 1,244,593 Minority interest - 4,230 - 4,720 --------------- --------------- -------------- ------------- 512,495 632,630 973,960 1,249,313 --------------- --------------- -------------- ------------- Net income $ 1,420,488 $ 1,513,960 $ 2,915,239 $ 2,766,358 =============== =============== ============== ============= Net income, basic, per share $ .16 $ .17 $ .33 $ .31 =============== =============== ============== ============= Net income, fully diluted, per share $ .16 $ .17 $ .33 $ .31 =============== =============== ============== ============= Weighted average number of shares outstanding 8,877,434 9,055,142 8,906,186 9,055,142 The accompanying notes are an integral part of the consolidated financial statements.
- 2 - AMERICA FIRST MORTGAGE INVESTMENTS, INC. STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
Stockholders' Equity -------------------------------------------------------------------------------------------------- Accumulated Treasury Other Common Stock Paid-in Stock Retained Comprehensive # of Shares Amount Capital At Cost Earnings Income Total ------------ ------------ ------------ ------------ ------------ ------------ ------------- Balance at December 31, 1999 8,978,642 $ 89,786 $ 75,831,560 $ - $(2,877,971) $(5,428,762) $ 67,614,613 Comprehensive income: Net income - - - - 2,915,239 - 2,915,239 Net unrealized holding losses arising during the period - - - - - (2,375,887) (2,375,887) Plus: reclassification adjustment for losses included in net income - - - - - 78,996 78,996 ------------ ------------ ------------- ------------ ------------ ------------ ------------- Comprehensive income - - - - 2,915,239 (2,296,891) 618,348 Dividends paid or accrued - - - - (2,591,454) - (2,591,454) Common stock issued 7,804 78 39,918 - - - 39,996 Purchase of shares for treasury - - - (558,452) - - (558,452) Retirement of treasury stock (112,500) (1,125) (557,327) 558,452 - - - ------------ ------------ ------------- ------------ ------------ ------------ ------------- Balance at June 30, 2000 8,873,946 $ 88,739 $ 75,314,151 $ - $(2,554,186) $(7,725,653) $ 65,123,051 ============ ============ ============= ============ ============ ============ ============= The accompanying notes are an integral part of the consolidated financial statements.
- 3 - AMERICA FIRST MORTGAGE INVESTMENTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six For the Six Months Ended Months Ended June 30, 2000 June 30, 1999 --------------- --------------- Cash flows from operating activities Net income $ 2,915,239 $ 2,766,358 Adjustments to reconcile net income to net cash from operating activities: Gain on sale of investments (119,619) (54,994) Minority interest - 4,720 Amortization 892,629 792,429 Increase in accrued interest and dividends receivable (610,905) (892,579) (Increase) decrease in other assets 157,797 (1,255,642) Increase (decrease) in accounts payable (177,784) 363,765 Increase (decrease) in accrued interest payable (1,367,847) 667,389 ---------------- --------------- Net cash provided by operating activities 1,689,510 2,391,446 ---------------- --------------- Cash flows from investing activities Decrease in restricted cash 2,781,882 - Principal payments on mortgage securities 47,821,943 49,725,446 Proceeds from sale of mortgage securities 5,018,677 - Proceeds from sale of corporate debt securities 372,500 - Proceeds from sale of corporate equity securities 42,294 1,070,972 (Increase) decrease in other investments (41,136) 34,730 Purchases of mortgage securities (67,095,668) (225,430,664) Purchases of corporate debt securities (4,963,750) (1,049,000) Purchases of corporate equity securities (6,480,808) (1,351,830) ---------------- --------------- Net cash used in investing activities (22,544,066) (177,000,346) ---------------- --------------- Cash flows from financing activities Net borrowings from repurchase agreements 20,314,026 180,418,806 Stock purchased for treasury (558,452) - Dividends and distributions paid (2,591,412) (4,871,307) ---------------- --------------- Net cash provided by financing activities 17,164,162 175,547,499 ---------------- --------------- Net (decrease) increase in cash and cash equivalents (3,690,394) 938,599 Cash and temporary cash investments at beginning of period 19,895,833 6,045,956 ---------------- --------------- Cash and temporary cash investments at end of period $ 16,205,439 $ 6,984,555 ================ =============== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 15,961,198 $ 6,794,458 Supplemental disclosure of non-cash investing activities: Goodwill of $150,000 was recorded by the Company in 1999 as a result of the Merger. During the six months ended June 30, 2000, the Company issued 7,804 shares of its common stock to its non-employee directors in partial payment of the annual retainer paid by the Company to such directors. The aggregate value of such common stock issued was $39,996. The accompanying notes are an integral part of the consolidated financial statements.
- 4 - AMERICA FIRST MORTGAGE INVESTMENTS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) 1. Organization America First Mortgage Investments, Inc. (the Company) was incorporated in Maryland on July 24, 1997. The Company began operations on April 10, 1998 when it merged with three partnerships: America First Participating/Preferred Equity Mortgage Fund Limited Partnership (Prep Fund 1), America First Prep Fund 2 Limited Partnership (Prep Fund 2), America First Prep Fund 2 Pension Series Limited Partnership (Pension Fund). The Company has entered into an advisory agreement with America First Mortgage Advisory Company (the Advisor) which provides advisory services in connection with the conduct of the Company's business activities. 2. Summary of Significant Accounting Policies A) Method of Accounting The accompanying 2000 financial statements include the accounts of the Company and the accompanying 1999 consolidated financial statements include the accounts of the Company and its subsidiaries, Pension Fund and Pension Fund's general partner, America First Capital Associates Limited Partnership Six (AFCA 6). All significant intercompany transactions and accounts have been eliminated in consolidation. Pension Fund and AFCA 6 were liquidated and dissolved under the terms of their respective partnership agreements during December 1999. In addition, as more fully discussed in Note 6, the Company has an investment in a corporation and investments in four real estate limited partnerships, none of which are controlled by the Company. These investments are accounted for under the equity method. The financial statements are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. 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) Cash and Cash Equivalents Cash and cash equivalents include cash on hand and highly liquid investments with original maturities of three months or less. The carrying amount of cash equivalents approximates their fair value. Restricted cash represents amounts held with certain lending institutions with which the Company has repurchase agreements. Such amounts may be used to make principal payments on the related repurchase agreements. C) Mortgage Securities, Corporate Debt Securities and Corporate Equity Securities Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115), requires the Company to classify its investments in mortgage securities, corporate debt securities and corporate equity securities (collectively referred to as investment securities) as either held-to-maturity, available-for-sale or trading. Although the Company generally intends to hold most of its mortgage securities until maturity, it may, from time to time, sell any of its mortgage securities as part of its overall management of its business. In order to be prepared to respond to potential future opportunities in the market, to sell mortgage securities in order to optimize the portfolio's total return and to retain its ability to respond to economic conditions that require the Company to sell assets in order to maintain an appropriate level of liquidity, the Company has classified all its mortgage securities as available-for-sale. Likewise, the Company has classified all its corporate equity securities as available-for-sale. Mortgage securities and - 5 - corporate equity securities classified as available-for-sale are reported at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Corporate debt securities are classified as held-to-maturity and are carried at amortized cost. Unrealized losses on investment securities that are considered other-than-temporary, as measured by the amount of decline in fair value attributable to factors other than temporary, are recognized in income and the cost basis of the investment security is adjusted. Other-than-temporary unrealized losses on mortgage securities are based on management's assessment of various factors affecting the expected cash flow from such securities, including an other-than-temporary deterioration of the credit quality of the underlying mortgages and/or the credit protection available to the related mortgage pool. Gains or losses on the sale of investment securities are based on the specific identification method. Interest income is accrued based on the outstanding principal amount of the investment securities and their contractual terms. Premiums and discounts associated with the purchase of the investment securities are amortized into interest income over the lives of the securities using the effective yield method based on, among other things, anticipated estimated prepayments. Such calculations are periodically adjusted for actual prepayment activity. Dividend income is recognized based on the ex-dividend date. D) Credit Risk The Company limits its exposure to credit losses on its investment portfolio by requiring that at least 70% of its investment portfolio consist of mortgage securities or mortgage loans that are: (i) insured or guaranteed as to principal and interest by an agency of the U.S. government, such as the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA), or the Federal Home Loan Mortgage Corporation (FHLMC), (ii) rated in one of the two highest rating categories by either Standard & Poor's or Moody's, or (iii) considered to be of equivalent credit quality as determined by the Advisor and approved by the Company's investment committee. The remainder of the Company's assets may be: (i) mortgage assets rated at least investment grade or considered to be of equivalent credit quality by the Advisor with approval from the Company's investment committee; (ii) direct investment (mezzanine or equity) in multifamily projects collateralizing mortgage loans owned by the Company; (iii) investments in limited partnerships, equities, real estate investment trusts or closed-end funds owning a portfolio of mortgage and/or real estate assets; or (iv) other corporate debt or corporate equity securities or government fixed-income instruments that provide increased call protection relative to the Company's securities. Corporate debt that is rated below investment grade will be limited to less than 5% of the Company's total assets. As of June 30, 2000, and December 31, 1999, approximately 79% of the Company's total assets consisted of mortgage securities insured or guaranteed by the U.S. government or an agency thereof. At June 30, 2000, management determined no allowance for credit losses was necessary. E) Other Investments Other investments consist of: (i) non-voting preferred stock of a corporation owning interests in real estate limited partnerships, and (ii) investments in limited partnerships owning real estate. F) Net income per Share Net income per share is based on the weighted average number of common shares and common equivalent shares (e.g., stock options), if dilutive, outstanding during the period. Basic net income per share is computed by dividing net income available to shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the diluted net income available to common shareholders by the weighted average number of common shares and common equivalent shares outstanding during the period. The common equivalent shares are calculated using the treasury stock method which assumes that all dilutive common stock equivalents are exercised and the funds generated by the exercise are used to buy back outstanding common stock at the average market price during the reported period. - 6 - As more fully discussed in Note 8, options to purchase 520,000 and 300,000 shares of common stock were granted on April 6, 1998, and August 13, 1999, respectively. During the quarter ended June 30, 2000, the average price of the Company's stock was slightly greater than the exercise price of the options granted on August 13, 1999. As such, exercise of such options under the treasury stock method is slightly dilutive. Accordingly, these dilutive securities were considered in fully diluted earnings per share. With regard to the options granted on April 6, 1998, the exercise price is greater than the average stock price during the quarters ended June 30, 2000, and June 30, 1999; therefore, exercise of such options under the treasury stock method would be anti-dilutive. Accordingly, these potentially dilutive securities were not considered in fully diluted earnings per share. The following table sets forth the reconciliation of the weighted average shares outstanding for the calculation of basic earnings per share to the weighted average shares outstanding for the calculation of fully diluted earnings per share for each period presented:
For the Three For the Three For the Six For the Six Months Ended Months Ended Months Ended Months Ended June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 -------------- -------------- ------------- ------------- Weighted average shares outstanding for 8,877,434 9,055,142 8,906,186 9,055,142 basic earnings per share Add effect of assumed shares issued under treasury stock method for stock options 14,973 - 11,282 - Weighted average shares outstanding for -------------- --------------- ------------- -------------- diluted earnings per share 8,892,407 9,055,142 8,917,468 9,055,142 ============== =============== ============= ==============
G) Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" requires the Company to display and report comprehensive income, which includes all changes in Stockholders' Equity with the exception of additional investments by or dividends to shareholders. Comprehensive income for the Company includes net income and the change in net unrealized holding gains (losses) on investments. Comprehensive income for the three and six months ended June 30, 2000, and 1999 was as follows:
For the Three For the Three For the Six For the Six Months Ended Months Ended Months Ended Months Ended June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 (Unaudited) (Unaudited) (Unaudited) (Unaudited) --------------- --------------- ------------- ------------- Net income $ 1,420,488 $ 1,513,960 $ 2,915,239 $ 2,766,358 Other comprehensive income (loss) Unrealized holding gains (losses) Net unrealized holding gains (losses) arising during the period 139,701 (2,351,261) (2,375,887) (1,548,616) Plus: reclassification adjustment for losses included in net income 78,996 - 78,996 - --------------- ---------------- -------------- -------------- Change in net unrealized holding gains (losses) 218,697 (2,351,261) (2,296,891) (1,548,616) --------------- ---------------- -------------- -------------- Comprehensive income (loss) $ 1,639,185 $ (837,301) $ 618,348 $ 1,217,742 =============== ================ ============== ==============
H) Federal Income Taxes The Company has elected to be taxed as a real estate investment trust (REIT) under the provisions of the Internal Revenue Code and the corresponding provisions of state law. As such, no provision for income taxes has been made in the accompanying consolidated financial statements. - 7 - I) New Accounting Pronouncement In June, 1998, the Financial Accounting Standards Board issued Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities " (FAS 133). Certain provisions of FAS 133 were amended by Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" (FAS 138) in June, 2000. The statements provide new accounting and reporting standards for the use of derivative instruments. Adoption of the statements is required by the Company effective January 1, 2001. Management intends to adopt the statements as required in fiscal 2001. Management believes that the impact of such adoption will not be material to the financial statements. Although the Company has not historically used such derivative instruments, it is not precluded from doing so. In the future, management anticipates using such derivative instruments only as hedges to manage interest rate risk. Management does not anticipate entering into derivatives for speculative or trading purposes. 3. Mortgage Securities The following table presents the Company's mortgage securities as of June 30, 2000 and December 31, 1999.
June 30, 2000 (Unaudited) December 31, 1999 ----------------- ----------------- FNMA Certificates $ 381,307,750 $ 359,891,164 GNMA Certificates 34,927,772 43,678,897 FHLMC Certificates 10,527,924 13,220,884 Commercial mortgage-backed securities 17,131,000 16,650,544 Private label CMOs 42,202,526 42,278,222 ----------------- ----------------- $ 486,096,972 $ 475,719,711 ================= =================
At June 30, 2000, and December 31, 1999, mortgage securities consisted of pools of adjustable-rate mortgage securities with carrying values of $455,599,401 and $444,140,267, respectively, and fixed-rate mortgage securities with carrying values of $30,497,571 and $31,579,444, respectively. The Federal National Mortgage Association (FNMA) Certificates are backed by first mortgage loans on pools of single-family properties. The FNMA Certificates are debt securities issued by FNMA and are guaranteed by FNMA as to the full and timely payment of principal and interest on the underlying loans. The Government National Mortgage Association (GNMA) Certificates are backed by first mortgage loans on multifamily residential properties and pools of single-family properties. The GNMA Certificates are debt securities issued by a private mortgage lender and are guaranteed by GNMA as to the full and timely payment of principal and interest on the underlying loans. The Federal Home Loan Mortgage Corporation (FHLMC) Certificates are backed by first mortgage loans on pools of single-family properties. The FHLMC Certificates are debt securities issued by FHLMC and are guaranteed by FHLMC as to the full and timely payment of principal and interest on the underlying loans. The commercial mortgage securities are rated AA or A by Standard and Poor's. The private label CMOs (collateralized mortgage obligations) are rated AAA by Standard and Poor's. - 8 - At June 30, 2000, and December 31, 1999, all mortgage securities were classified as available-for-sale and as such are carried at their fair value. The following table presents the amortized cost, gross unrealized gains, gross unrealized losses and fair value of mortgage securities at June 30, 2000, and December 31, 1999, respectively:
June 30, 2000 (Unaudited) Dec. 31, 1999 ------------------ ------------------ Amortized cost $ 494,021,816 $ 481,176,498 Gross unrealized gains 232,068 461,675 Gross unrealized losses (8,156,912) (5,918,462) ------------------ ------------------ Fair value $ 486,096,972 $ 475,719,711 ================== ==================
4. Corporate Debt Securities Corporate debt securities are classified as held-to-maturity. The following table presents the amortized cost, gross unrealized gains, gross unrealized losses and fair value of the corporate debt securities as of June 30, 2000, and December 31, 1999:
As of June 30, 2000 As of (Unaudited) December 31, 1999 ------------------ ------------------ Amortized cost $ 12,830,082 $ 8,020,026 Gross unrealized gains - 92,211 Gross unrealized losses (723,632) (174,487) ------------------ ------------------ Fair value $ 12,106,450 $ 7,937,750 ================== ==================
5. Corporate Equity Securities Corporate equity securities are classified as available-for-sale. The following table presents the cost, gross unrealized gains, gross unrealized losses and fair value of the corporate equity securities as of June 30, 2000, and December 31, 1999:
As of June 30, 2000 As of (Unaudited) December 31, 1999 ------------------ ------------------ Cost $ 9,543,926 $ 3,102,798 Gross unrealized gains 627,483 224,865 Gross unrealized losses (428,292) (196,840) ------------------ ------------------- Fair value $ 9,743,117 $ 3,130,823 ================== ==================
- 9 - 6. Other Investments Other investments consisted of the following as of June 30, 2000 and December 31, 1999:
As of June 30, 2000 As of (Unaudited) Dec. 31, 1999 -------------- ------------- Investment in Retirement Centers Corporation $ 2,431,116 $ 2,389,980 Investment in and advances to real estate limited partnerships 830,366 830,366 ------------- ------------- Total $ 3,261,482 3,220,346 ============= =============
The Company's investment in Retirement Centers Corporation (RCC) represents a 95% ownership interest in such corporation. The Company owns 100% of the non-voting preferred stock of RCC and a third party owns 100% of the common stock. The Company accounts for its investment in RCC on the equity method. As of June 30, 2000, RCC owned (i) a limited partnership interest in a real estate limited partnership which operates an assisted living center located in Salt Lake City, Utah, and (ii) a 127-unit apartment property located in Omaha, Nebraska, which was acquired on January 12, 2000. As of December 31, 1999, RCC's investments consisted of (i) its interest in the real estate limited partnership referenced above and (ii) cash which was utilized to acquire the apartment property on January 12, 2000. Investments in and advances to real estate limited partnerships consist of investments in or advances made to four limited partnerships which own the properties underlying certain mortgage securities owned by the Company. These investments are not insured or guaranteed but rather are collateralized by the value of the real estate underlying the real estate owned by such limited partnerships. They are accounted for under the equity method of accounting. Certain of the investments have a zero carrying value and, as such, earnings are recorded only to the extent distributions are received. Such investments have not been reduced below zero through recognition of allocated investment losses since the Company has no legal obligation to provide additional cash support to the underlying property partnerships as it is not the general partner, nor has it indicated any commitment to provide this support. 7. Repurchase Agreements As of June 30, 2000, the Company had outstanding balances of $472,415,829 under 48 repurchase agreements with a weighted average borrowing rate of 6.62% and a weighted average remaining maturity of 2.3 months. As of June 30, 2000, all of the Company's borrowings were fixed-rate term repurchase agreements with original maturities that range from one to twelve months. As of December 31, 1999, the Company had outstanding balances of $452,101,803 under 38 repurchase agreements with a weighted average borrowing rate of 5.72%. At June 30, 2000, the repurchase agreements had the following remaining maturities:
Within 30 days $ 335,651,408 30 to 90 days 5,809,750 90 days to one year 130,954,671 ------------- $ 472,415,829 =============
The repurchase agreements are collateralized by the Company's mortgage securities and corporate debt securities with an aggregate current face value of approximately $485.5 million and corporate equity securities with a current market value of approximately $9.7 million. The repurchase agreements bear interest at rates that are LIBOR based. - 10 - 8. Stockholders' Equity 1997 Stock Option Plan - --------------------- The Company has a 1997 Stock Option Plan (the Plan) which authorizes the granting of options to purchase an aggregate of up to 1,000,000 shares of the Company's common stock, but not more than 10% of the total outstanding shares of the Company's common stock. The Plan authorizes the Board of Directors, or a committee of the Board of Directors, to grant Incentive Stock Options (ISOs) as defined under section 422 of the Internal Revenue Code, Non-Qualified Stock Options (NQSOs) and Dividend Equivalent Rights (DERs) to eligible persons, other than non-employee directors. Non-employee directors are eligible to receive grants of NQSOs with DERs pursuant to the provisions of the Plan. The exercise price for any options granted to eligible persons under the Plan shall not be less than the fair market value of the common stock on the day of the grant. The options expire if not exercised ten years after the date granted. On April 6, 1998, 500,000 ISOs were granted to buy common shares at an exercise price of $9.375 per share (the 1998 Grant). In addition, 20,000 NQSOs were issued at an exercise price of $9.375 per share. On August 13, 1999, 300,000 ISOs were granted to buy common shares at an exercise price of $4.875 per share (the 1999 Grant). Prior to the 1998 Grant, no other options were outstanding. As of June 30, 2000 and December 31, 1999, respectively, 450,000 and 325,000 ISOs were vested and exercisable. As of June 30, 2000 and December 31, 1999, 20,000 NQSOs were vested and exercisable. As of June 30, 2000, no options had been exercised. In addition to the options granted on April 6, 1998, 500,000 and 5,000 DERs were also granted on the ISOs and NQSOs, respectively, based on the provisions of the Plan. No DERs were granted on the ISOs granted on August 13, 1999. DERs on ISOs vest on the same basis as the options. DERs on NQSOs became fully vested in April, 1999. Payments are made on vested DERs only. Vested DERs are paid only to the extent of ordinary income and not on returns of capital. Dividends paid on ISOs are charged to stockholders' equity when declared and dividends paid on NQSOs are charged to earnings when declared. For the three and six months ended June 30, 2000, the Company recorded charges of $70,000 and $105,000, respectively, to stockholders' equity (included in dividends paid or accrued) associated with the DERs on ISOs and charges of $700 and $2,100, respectively, to earnings associated with DERs on NQSOs. For the three and six months ended June 30, 1999, the Company recorded charges of $31,250 and $47,500, respectively, to stockholders' equity (included in dividends paid or accrued) associated with DERs on ISOs and charges of $1,250 and $1,900, respectively, to earnings associated with DERs on NQSOs. The options and related DERs issued were accounted for under the provisions of SFAS 123, "Accounting for Stock Based Compensation". Because the ISOs were not issued to officers who are direct employees of the Company, ISOs granted were accounted for under the option value method as variable grants and a periodic charge will be recognized based on the vesting schedule. The charge for options which vested immediately with the 1998 Grant was included as capitalized transaction costs in connection with the Merger. Until fixed and determinable, management estimates the value of the ISOs granted as of each balance sheet date using a Black-Scholes valuation model, as adjusted for the discounted value of dividends not to be received under the unvested DERs. In the absence of comparable historical market information for the Company, management originally utilized assumptions consistent with activity of a comparable peer group of companies including an estimated option life, a volatility rate, a risk-free rate and a current dividend yield (or 0% if the related DERs are issued). For the three and six months ended June 30, 2000, as part of operations, the Company reflected earnings charges of $55,821 and $152,675, respectively, representing the value of ISOs/DERs granted over their vesting period. For the three and six months ended June 30, 1999, as part of operations, the Company reflected earnings charges of $58,899 and $117,798, respectively, representing the value of the ISOs/DERs granted over their vesting period. NQSOs granted were accounted for using the intrinsic method and, accordingly, no earnings charge was reflected since the exercise price was equal to the fair market value of the common stock at the date of the grant. - 11 - Dividends/Distributions - ----------------------- The Company declared the following distributions during 2000 and 1999:
Amount per Declaration Date Record Date Payment Date Share - ---------------- ------------ ------------ ----------- During 2000: March 17, 2000 April 14, 2000 May 17, 2000 $ .140 June 14, 2000 June 30, 2000 August 17, 2000 $ .140 During 1999: March 24, 1999 April 5, 1999 May 17, 1999 $ .265 (1) June 14, 1999 June 30, 1999 August 17, 1999 $ .125 (1) As part of the Merger transaction, the Company made quarterly distributions of $.265 per common share ($1.06 per common share per year) in the first year following the Merger (i.e. through the first quarter of 1999.)
Stock Repurchase Plan - --------------------- In connection with the Company's 400,000 share repurchase program, the Company purchased and retired 112,500 shares during the six months ended June 30, 2000, at an aggregate cost of $558,452 (33,100 shares at an aggregate cost of $166,282 for the three months ended June 30, 2000). Since implementing the stock repurchase program during the fourth quarter of 1999, through June 30, 2000, the Company has purchased and retired 197,100 shares at an aggregate cost of $970,660. 9. Related Party Transactions The Advisor manages the operations and investments of the Company and performs administrative services for the Company. In turn, the Advisor receives a management fee payable monthly in arrears in an amount equal to 1.10% per annum of the first $300 million of Stockholders' Equity of the Company, plus .80% per annum of the portion of Stockholders' Equity of the Company above $300 million. The Company also pays the Advisor, as incentive compensation for each fiscal quarter, an amount equal to 20% of the dollar amount by which the annualized Return on Equity for such fiscal quarter exceeds the amount necessary to provide an annualized Return on Equity equal to the Ten-Year U.S. Treasury Rate plus 1%. For the three and six months ended June 30, 2000, the Advisor earned a base management fee of $179,422 and $362,347, respectively, and incentive compensation of $53,969 and $125,229, respectively. For the three and six months ended June 30, 1999, the Advisor earned a base management fee of $192,964 and $382,786, respectively, and incentive compensation of $89,689 and $134,607, respectively. America First Properties Management Company L.L.C., (the Manager), provides property management services for certain of the multifamily properties in which the Company has an interest. The Manager receives a management fee equal to a stated percentage of the gross revenues generated by the properties under management, ranging from 3.5% to 5% of gross revenues. Such fees paid by the Company for the three and six months ended June 30, 2000, amounted to $97,017 and $191,566, respectively. Such fees paid by the Company for the three and six months ended June 30, 1999, amounted to $82,082 and $167,445, respectively. - 12 - Item 2. AMERICA FIRST MORTGAGE INVESTMENTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company was incorporated in Maryland on July 24, 1997. The Company began operations on April 10, 1998 when it merged with three partnerships: America First Participating/Preferred Equity Mortgage Fund Limited Partnership ("Prep Fund 1"), America First Prep Fund 2 Limited Partnership ("Prep Fund 2"), America First Prep Fund 2 Pension Series Limited Partnership ("Pension Fund"). America First Mortgage Advisory Corporation (the "Advisor") provides advisory services to the Company in connection with the conduct of the Company's business activities. The Company's principal investment strategy includes leveraged investing in adjustable rate mortgage securities and mortgage loans. Since commencing operations and through June 30, 2000, the Company purchased mortgage securities with a face value at the time of purchase of approximately $630.5 million (mortgage securities with a face value of approximately $59.4 million were purchased during the six months ended June 30, 2000). The Company has elected to be treated as a real estate investment trust ("REIT") for federal income tax purposes beginning with its 1998 taxable year and, as such, anticipates distributing annually at least 95% of its taxable income, subject to certain adjustments. Generally, cash for such distributions is expected to be largely generated from the Company's operations, although the Company may borrow funds to make distributions. On June 14, 2000, the Company's board of directors declared a dividend of $.14 per share for the quarter ended June 30, 2000, payable on August 17, 2000, to shareholders of record as of June 30, 2000. On March 17, 2000, the Company's board of directors declared a dividend of $.14 per share for the quarter ended March 31, 2000, payable on May 17, 2000, to shareholders of record as of April 14, 2000. The Company's operations for any period may be affected by a number of factors including the investment assets held, general economic conditions affecting underlying borrowers and, most significantly, factors which affect the interest rate market. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors beyond the control of the Company. Due to the on-going implementation of the Company's investment strategy, the currently reported financial information is not necessarily indicative of the Company's future operating results or financial condition. Liquidity and Capital Resources The Company's principal sources of capital consist of borrowings under repurchase agreements, principal payments received on its portfolio of mortgage securities and cash provided by operations. Principal uses of cash include the acquisition of investment securities, the payment of operating expenses and the payment of dividends to shareholders. During the six months ended June 30, 2000, the Company acquired $78.5 million of mortgage securities, corporate debt securities and corporate equity securities. Financing for these acquisitions was provided primarily through the utilization of repurchase agreements, supplemented by cash flow from operations of $7.0 million. Net borrowings under such repurchase agreements totaled $20.3 million during the six months ended June 30, 2000. The Company also received principal payments of $47.8 million on its mortgage securities during the six months ended June 30, 2000. Other uses of funds during the six months ended June 30, 2000, consisted of $2.6 million for dividend payments and $.6 million for the acquisition of 112,500 shares of its own common stock pursuant to a stock repurchase program implemented in the fourth quarter of 1999. The Company's borrowings under repurchase agreements totaled $472.4 million at June 30, 2000, and had a weighted average borrowing rate of 6.62% as of such date. At June 30, 2000, the repurchase agreements had balances of between $.6 million and $62.2 million. These arrangements have original terms to maturity ranging from one month to twelve months and annual interest rates based on LIBOR. To date, the Company has not had any significant margin calls on its repurchase agreements that were related to a decrease in the value of its collateral. - 13 - In connection with the Company's 400,000 share repurchase program, the Company purchased and retired 112,500 shares during the six months ended June 30, 2000, at an aggregate cost of $558,452. Since implementing the stock repurchase program during the fourth quarter of 1999, through June 30, 2000, the Company has purchased and retired 197,100 shares at an aggregate cost of $970,660. The Company believes it has adequate financial resources to meet its obligations as they come due and fund committed dividends as well as to actively pursue its investment policy. Results of Operations Three Month Period Ended June 30, 2000 Compared to 1999 During the three months ended June 30, 2000, total interest and dividend income for the Company increased $2.7 million (43%) as compared to total interest and dividend income for the three months ended June 30, 1999. This increase is primarily the result of a 35% increase in the Company's average interest earning assets from $395 million to $532 million for the respective periods in 1999 and 2000. Also contributing to the increase was an increase in the annualized yield on the Company's average interest earning assets to 6.84% for the three months ended June 30, 2000, up from 6.43% for the comparable period in 1999. The Company's interest expense increased $3.3 million (77%) for the three months ended June 30, 2000 compared to the comparable period in 1999. Such increase is primarily due to a 43% increase in average amount of funds borrowed from $334 million to $479 million for the respective periods in 1999 and 2000. In addition, the Company's interest cost on such borrowed funds increased to an average of 6.38% for the three months ended June 30, 2000 up from 5.17% for the three months ended June 30, 1999. As a result of the narrowing of the Company's interest rate margin, net interest and dividend income decreased by 28% from $2,027,937 for the quarter ended June 30, 1999 to $1,459,222 for the quarter ended June 30, 2000. This reduction was partially offset by a $292,000 increase in income from other investments and a $63,000 increase in gain on the sale of investments during the second quarter of 2000 compared to the second quarter of 1999. The increase in income from other investments was due to an increase in cash flow received by the Company from its investment in real estate limited partnerships which reflects improved operating results at these properties. Gain on the sale of investments increased due primarily to the sale of more investment securities at gains during the second quarter of 2000 compared to the same period in 1999. During the quarter ended June 30, 2000, the Company sold corporate debt securities and corporate equity securities for a gain of $199,000 which was partially offset by a loss of $79,000 on the sale of numerous small pools of fixed-rate mortgage securities. This compares to a gain of $57,000 realized on the sale of corporate equity securities during the quarter ended June 30, 1999. General and administrative expenses for the Company for the three months ended June 30, 2000 decreased $116,000 as compared to the three months ended June 30, 1999. Approximately $36,000 of such decrease is due to expenses incurred in 1999 by a consolidated subsidiary which was liquidated in December 1999. Also contributing to the decrease were reductions of $36,000 and $14,000 in incentive compensation and base management fees, respectively, payable to the Advisor by the Company. The remaining decrease of $30,000 is attributable to decreases in other general and administrative expenses. Six Month Period Ended June 30, 2000 Compared to 1999 During the six months ended June 30, 2000, total interest and dividend income for the Company increased $6.7 million (60%) as compared to total interest and dividend income for the six months ended June 30, 1999. This increase is primarily the result of a 51% increase in the Company's average interest earning assets from $342 million to $518 million for the respective periods in 1999 and 2000. Also contributing to the increase was an increase in the annualized yield on the Company's average interest earning assets to 6.89% for the six months ended June 30, 2000, up from 6.54% for the comparable period in 1999. The Company's interest expense increased $7.1 million (96%) for the six months ended June 30, 2000 compared to the comparable period in 1999. Such increase - 14 - is primarily due to a 65% increase in funds borrowed from $280 million to $462 million for the respective periods in 1999 and 2000. In addition, the Company's interest cost on such borrowed funds increased to an average of 6.31% for the six months ended June 30, 2000 up from 5.32% for the six months ended June 30, 1999. As a result of the narrowing of the Company's interest rate margin, net interest and dividend income decreased by 12% from $3,711,855 for the six months ended June 30, 1999 to $3,267,218 for the six months ended June 30, 2000. This reduction was partially offset by a $254,000 increase in income from other investments and a $65,000 increase in gain on the sale of investments during the first six months of 2000 compared to the first six months of 1999. The increase in income from other investments was due to an increase in cash flow received by the Company from its investment in real estate limited partnerships which reflects improved operating results at these properties. Gain on the sale of investments increased due primarily to the sale of more investment securities at gains during the first six months of 2000 compared to the same period in 1999. During the six months ended June 30, 2000, the Company sold corporate debt securities and corporate equity securities for a gain of $199,000 which was partially offset by a loss of $79,000 on the sale of numerous small pools of fixed-rate mortgage securities. This compares to a gain of $55,000 realized on the sale of corporate equity securities and a number of small pools of fixed-rate mortgage securities during the six months ended June 30, 1999 General and administrative expenses for the Company for the six months ended June 30, 2000 decreased $271,000 as compared to the six months ended June 30, 1999. Approximately $81,000 of such decrease is due to expenses incurred in 1999 by a consolidated subsidiary which was liquidated in December 1999. The remaining decrease of $190,000 is primarily attributable to decreases in various servicing, filing fees and printing costs. Other Matters The Company at all times intends to conduct its business so as to not become regulated as an investment company under the Investment Company Act of 1940. If the Company were to become regulated as an investment company, then, among other things, the Company's ability to use leverage would be substantially reduced. The Investment Company Act exempts entities that are "primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate" (i.e. "Qualifying Interests"). Under the current interpretation of the staff of the SEC, in order to qualify for this exemption, the Company must maintain at least 55% of its assets directly in Qualifying Interests. In addition, unless certain mortgage securities represent an undivided interest in the entire pool backing such mortgage securities (i.e. "whole pool" mortgage securities), such mortgage securities may be treated as securities separate from the underlying mortgage loan, thus, may not be considered Qualifying Interests for purposes of the 55% exemption requirement. Accordingly, the Company monitors its compliance with this requirement in order to maintain its exempt status. As of June 30, 2000, the Company determined that it is in and has maintained compliance with this requirement. Forward Looking Statements When used in this Form 10-Q, in future SEC filings or in press releases or other written or oral communications, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project" or similar expressions are intended to identify "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions that such forward looking statements speak only as of the date made and that various factors including regional and national economic conditions, changes in levels of market interest rates, credit and other risks of lending and investment activities, and competitive and regulatory factors could affect the Company's financial performance and could cause actual results for future periods to differ materially from those anticipated or projected. The Company does not undertake and specifically disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in the Company's market risk since December 31, 1999. - 15 - PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds. On May 31, 2000, the Company issued 7,804 shares of its common stock to its four non-employee directors in partial payment of the annual retainer paid by the Company to such directors. Each such director was entitled to payment of a number of shares determined by dividing $10,000 by the closing sale price of the common stock on the date of issuance which was $5-1/8. The issuance of these shares is exempt from registration under the Securities Act of 1933, as amended (the "Securities Act") under Section 4(2) thereof in that the transaction did not involve a public offering. Item 4. Submission of Matters to Vote of Securities Holders. The Company held its Annual Meeting of Stockholders on May 25, 2000 for the purpose of electing two directors and ratifying the appointment of its auditors. The following sets forth the results of the election of officers: NAME OF NOMINEE FOR WITHHELD ---------------- --------------- ----------- Michael L Dahir 7,909,683 (99%) 77,199 (1%) George H. Krauss 7,908,175 (99%) 78,707 (1%) There was no solicitation in opposition to the nominees by the Stockholders. The ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors for the Company for the fiscal year ending December 31, 2000 was approved by the Stockholders with 7,844,253 votes FOR (98%), 53,077 votes AGAINST (1%), and 89,552 votes ABSTAINED OR BROKER NON-VOTES (1%). Further information regarding these matters is contained in the Company's Proxy Statement dated March 30, 2000. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 2.1 Agreement and Plan of Merger by and among the Registrant, America First Participating/Preferred Equity Mortgage Fund Limited Partnership, America First Prep Fund 2 Limited Partnership, America First Prep Fund 2 Pension Series Limited Partnership and certain other parties, dated as of July 29, 1997 (incorporated herein by reference to Exhibit 2.1 of the Registration Statement on Form S-4 dated February 12, 1998, filed by the Registrant pursuant to the Securities Act of 1933 (Commission File No. 333-46179)). 3.1 Amended and Restated Articles of Incorporation of the Registrant (incorporated herein by reference to Form 8-K dated April 10, 1998, filed by the Registrant pursuant to the Securities Exchange Act of 1934 (Commission File No. 1-13991)). 3.2 Amended and Restated Bylaws of the Registrant (incorporated herein by reference to Form 8-K dated April 10, 1998, filed by the Registrant pursuant to the Securities Exchange Act of 1934 (Commission File No. 1-13991)). 4.1 Specimen of Common Stock Certificate of the Company. (incorporated herein by reference to Exhibit 4.1 of the Registration Statement on Form S-4 dated February 12, 1998, filed by the Registrant pursuant to the Securities Act of 1933 (Commission File No. 333-46179)). 10.1 Advisory Agreement, dated April 9, 1998, by and between the Company and the Advisor (incorporated herein by reference to Form 8-K dated April 10, 1998 filed by - 16 - the Company pursuant to the Securities Exchange Act of 1934 (Commission File No. 1-13991)). 10.2 Employment Agreement of Stewart Zimmerman (incorporated herein by reference to Exhibit 10.2 of the Registration Statement on Form S-4 dated February 12, 1998, filed by the Company pursuant to the Securities Act of 1933 (Commission File No. 333-46179)). 10.3 Employment Agreement of William S. Gorin (incorporated herein by reference to Exhibit 10.3 of the Registration Statement on Form S-4 dated February 12, 1998, filed by the Company pursuant to the Securities Act of 1933 (Commission File No. 333-46179)). 10.4 Employment Agreement of Ronald A. Freydberg (incorporated herein by reference to Exhibit 10.4 of the Registration Statement on Form S-4 dated February 12, 1998, filed by the Company pursuant to the Securities Act of 1933 (Commission File No. 333-46179)). 10.5 Addendum to Employment Agreement of Stewart Zimmerman (incorporated herein by reference to Form 10-Q dated March 31, 2000, filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 (Commission File No. 1-13991)). 10.6 Addendum to Employment Agreement of William S. Gorin (incorporated herein by reference to Form 10-Q dated March 31, 2000, filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 (Commission File No. 1-13991)). 10.7 Addendum to Employment Agreement of Ronald A. Freydberg (incorporated herein by reference to Form 10-Q dated March 31, 2000, filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 (Commission File No. 1-13991)). 10.8 Amended and Restated 1997 Stock Option Plan of the Company (incorporated herein by reference to Form 10-K dated December 31, 1999, filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 (Commission File No. 1-13991)). 10.9 Form of Dividend Reinvestment Plan (incorporated herein by reference to Appendix C of the Registration Statement on Form S-4 dated February 12, 1998, filed by the Registrant pursuant to the Securities Act of 1933 (Commission File No. 333-46179)). 27. Financial Data Schedule (b) Reports on Form 8-K The Registrant did not file any reports on Form 8-K during the quarter for which this report is filed. - 17 - 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: August 11, 2000 AMERICA FIRST MORTGAGE INVESTMENTS, INC. By /s/ Stewart Zimmerman Stewart Zimmerman President and Chief Executive Officer By /s/ Gary Thompson Gary Thompson Authorized Officer and Chief Financial Officer - 18 - EX-27 2 0002.txt
5 6-MOS DEC-31-2000 JUN-30-2000 17,133,134 508,670,171 3,466,226 0 0 540,664,848 0 0 540,664,848 475,541,797 0 88,739 0 0 65,034,312 540,664,848 0 3,889,199 0 0 973,960 0 0 2,915,239 0 0 0 0 0 2,915,239 .33 .33
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