[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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VESTIN REALTY MORTGAGE I, INC.
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(Exact name of registrant as specified in its charter)
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MARYLAND
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20-4028839
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(State or Other Jurisdiction of
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(I.R.S. Employer
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Incorporation or Organization)
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Identification No.)
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
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Smaller reporting company [X]
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Page
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ITEM 1.
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CONSOLIDATED FINANCIAL STATEMENTS
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VESTIN REALTY MORTGAGE I, INC.
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||||||||
CONSOLIDATED BALANCE SHEETS
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||||||||
ASSETS
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||||||||
June 30, 2011
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December 31, 2010
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|||||||
(Unaudited)
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||||||||
Assets
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||||||||
Cash
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$ | 5,775,000 | $ | 8,145,000 | ||||
Investment in marketable securities - related party
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747,000 | 326,000 | ||||||
Interest and other receivables, net of allowance of $187,000 at June 30, 2011 and $196,000 at December 31, 2010
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25,000 | 673,000 | ||||||
Notes receivable, net of allowance of $938,000 at June 30, 2011 and $945,000 at December 31, 2010
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-- | -- | ||||||
Real estate held for sale
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2,765,000 | 2,897,000 | ||||||
Investment in equity method investee held for sale
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5,499,000 | 5,379,000 | ||||||
Investment in real estate loans, net of allowance for loan losses of $4,910,000 at June 30, 2011 and $5,780,000 at December 31, 2010
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6,772,000 | 6,532,000 | ||||||
Other assets
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204,000 | 98,000 | ||||||
Total assets
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$ | 21,787,000 | $ | 24,050,000 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
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||||||||
Liabilities
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||||||||
Accounts payable and accrued liabilities
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$ | 266,000 | $ | 1,500,000 | ||||
Due to related parties
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51,000 | 741,000 | ||||||
Note payable
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386,000 | 277,000 | ||||||
Unearned revenue
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-- | 2,000 | ||||||
Total liabilities
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703,000 | 2,520,000 | ||||||
Commitments and contingencies
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||||||||
Stockholders' equity
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||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued
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-- | -- | ||||||
Treasury stock, at cost, 534,207 shares at June 30, 2011 and 455,607 shares at December 31, 2010
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(1,045,000 | ) | (941,000 | ) | ||||
Common stock, $0.0001 par value; 25,000,000 shares authorized; 6,875,066 shares issued and 6,340,859 outstanding at June 30, 2011 and 6,875,066 shares issued and 6,419,459 outstanding at December 31, 2010
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1,000 | 1,000 | ||||||
Additional paid-in capital
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62,262,000 | 62,262,000 | ||||||
Accumulated deficit
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(40,001,000 | ) | (39,785,000 | ) | ||||
Accumulated other comprehensive loss
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(133,000 | ) | (7,000 | ) | ||||
Total stockholders' equity
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21,084,000 | 21,530,000 | ||||||
Total liabilities and stockholders' equity
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$ | 21,787,000 | $ | 24,050,000 |
VESTIN REALTY MORTGAGE I, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS
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For The
Three Months Ended
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For The
Six Months Ended
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|||||||||||||||
6/30/2011
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6/30/2010
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6/30/2011
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6/30/2010
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|||||||||||||
Revenues
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||||||||||||||||
Interest income from investment in real estate loans
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$ | 103,000 | $ | 305,000 | $ | 231,000 | $ | 627,000 | ||||||||
Recovery of allowance for doubtful notes receivable
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21,000 | 10,000 | 21,000 | 10,000 | ||||||||||||
Other income
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-- | 2,000 | 2,000 | 56,000 | ||||||||||||
Total revenues
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124,000 | 317,000 | 254,000 | 693,000 | ||||||||||||
Operating expenses
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||||||||||||||||
Management fees - related party
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69,000 | 69,000 | 138,000 | 138,000 | ||||||||||||
Provision for loan loss
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-- | 234,000 | 127,000 | 234,000 | ||||||||||||
Interest expense
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5,000 | 2,000 | 12,000 | 2,000 | ||||||||||||
Professional fees
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81,000 | 133,000 | 273,000 | 581,000 | ||||||||||||
Other
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160,000 | 130,000 | 292,000 | 253,000 | ||||||||||||
Total operating expenses
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315,000 | 568,000 | 842,000 | 1,208,000 | ||||||||||||
Income (loss) from operations
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(191,000 | ) | (251,000 | ) | (588,000 | ) | (515,000 | ) | ||||||||
Non-operating income
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||||||||||||||||
Interest income from banking institutions
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2,000 | -- | 5,000 | -- | ||||||||||||
Discounted professional fees
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300,000 | -- | 300,000 | -- | ||||||||||||
Income from equity method investee held for sale
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225,000 | -- | 333,000 | -- | ||||||||||||
Total non-operating income
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527,000 | -- | 638,000 | -- | ||||||||||||
Income (loss) from real estate held for sale
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||||||||||||||||
Net gain on sale of real estate held for sale
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-- | 2,000 | -- | 23,000 | ||||||||||||
Expenses related to real estate held for sale
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(53,000 | ) | (48,000 | ) | (134,000 | ) | (102,000 | ) | ||||||||
Write-downs on real estate held for sale
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(132,000 | ) | (346,000 | ) | (132,000 | ) | (346,000 | ) | ||||||||
Total loss from real estate held for sale
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(185,000 | ) | (392,000 | ) | (266,000 | ) | (425,000 | ) | ||||||||
Income (loss) before provision for income taxes
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151,000 | (643,000 | ) | (216,000 | ) | (940,000 | ) | |||||||||
Provision for income taxes
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-- | -- | -- | -- | ||||||||||||
NET INCOME (LOSS)
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$ | 151,000 | $ | (643,000 | ) | $ | (216,000 | ) | $ | (940,000 | ) | |||||
Basic and diluted income (loss) per weighted average common share
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$ | 0.02 | $ | (0.10 | ) | $ | (0.03 | ) | $ | (0.14 | ) | |||||
Dividends declared per common share
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$ | -- | $ | -- | $ | -- | $ | -- | ||||||||
Weighted average common shares outstanding
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6,382,748 | 6,495,210 | 6,401,002 | 6,497,189 |
VESTIN REALTY MORTGAGE I, INC.
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||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF EQUITY AND OTHER COMPREHENSIVE LOSS
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||||||||||||||||||||||||||||||||
FOR THE SIX MONTHS ENDED JUNE 30, 2011
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||||||||||||||||||||||||||||||||
(UNAUDITED)
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||||||||||||||||||||||||||||||||
Treasury Stock
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Common Stock
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|||||||||||||||||||||||||||||||
Number of Shares
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Amount
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Number of Shares
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Amount
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Additional Paid-in-Capital
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Accumulated deficit
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Accumulated Other Comprehensive Loss
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Total
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|||||||||||||||||||||||||
Stockholders' Equity at
December 31, 2010
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455,607 | $ | (941,000 | ) | 6,419,459 | $ | 1,000 | $ | 62,262,000 | $ | (39,785,000 | ) | $ | (7,000 | ) | $ | 21,530,000 | |||||||||||||||
Comprehensive Loss:
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||||||||||||||||||||||||||||||||
Net Loss
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(216,000 | ) | (216,000 | ) | ||||||||||||||||||||||||||||
Unrealized Loss on Marketable Securities - Related Party
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(126,000 | ) | (126,000 | ) | ||||||||||||||||||||||||||||
Comprehensive Loss
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(342,000 | ) | ||||||||||||||||||||||||||||||
Treasury Stock
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78,600 | (104,000 | ) | (78,600 | ) | (104,000 | ) | |||||||||||||||||||||||||
Stockholders' Equity at
June 30, 2011 (Unaudited)
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534,207 | $ | (1,045,000 | ) | 6,340,859 | $ | 1,000 | $ | 62,262,000 | $ | (40,001,000 | ) | $ | (133,000 | ) | $ | 21,084,000 |
VESTIN REALTY MORTGAGE I, INC.
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||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
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||||||||
(UNAUDITED)
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||||||||
For The Six
Months Ended
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||||||||
06/30/11
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06/30/10
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|||||||
Cash flows from operating activities:
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||||||||
Net loss
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$ | (216,000 | ) | $ | (940,000 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
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||||||||
Provision for doubtful accounts related to receivable included in other expense
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-- | (4,000 | ) | |||||
Write-downs on real estate held for sale
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132,000 | 346,000 | ||||||
Gain on sale of real estate held for sale
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-- | (23,000 | ) | |||||
Recovery of allowance for doubtful notes receivable included in other income
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(21,000 | ) | (10,000 | ) | ||||
Provision for loan loss
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127,000 | 234,000 | ||||||
Prepaid interest income – unearned revenue
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-- | 6,000 | ||||||
Amortized interest income
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(2,000 | ) | (1,000 | ) | ||||
Income from equity method investee held for sale
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(333,000 | ) | -- | |||||
Change in operating assets and liabilities:
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||||||||
Interest and other receivables
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648,000 | 15,000 | ||||||
Due to/from related parties
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(690,000 | ) | (190,000 | ) | ||||
Other assets
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62,000 | 27,000 | ||||||
Accounts payable and accrued liabilities
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(1,235,000 | ) | (187,000 | ) | ||||
Net cash used in operating activities
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(1,528,000 | ) | (727,000 | ) | ||||
Cash flows from investing activities:
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||||||||
Investments in real estate loans
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(490,000 | ) | -- | |||||
Purchase of marketable securities – related party
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(547,000 | ) | ||||||
Proceeds from loan payoffs
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134,000 | 2,965,000 | ||||||
Proceeds related to real estate held for sale
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-- | 679,000 | ||||||
Proceeds from note receivable
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10,000 | 10,000 | ||||||
Distributions from investment in equity method investee held for sale
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213,000 | -- | ||||||
Net cash provided by (used in) investing activities
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(680,000 | ) | 3,654,000 | |||||
Cash flows from financing activities:
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||||||||
Principal payments on notes payable
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(58,000 | ) | (62,000 | ) | ||||
Purchase of treasury stock at cost
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(104,000 | ) | (13,000 | ) | ||||
Net cash used in financing activities
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(162,000 | ) | (75,000 | ) | ||||
NET CHANGE IN CASH
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(2,370,000 | ) | 2,852,000 | |||||
Cash, beginning of period
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8,145,000 | 1,543,000 | ||||||
Cash, end of period
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$ | 5,775,000 | $ | 4,395,000 | ||||
Supplemental disclosures of cash flows information:
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||||||||
Interest paid
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$ | 12,000 | $ | 2,000 | ||||
Non-cash investing and financing activities:
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||||||||
Adjustment to note receivable and related allowance
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$ | -- | $ | 468,000 | ||||
Note payable relating to prepaid D & O insurance policy
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$ | 167,000 | $ | 186,000 | ||||
Account receivable related to sale of loan collateral, held in escrow account
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$ | -- | $ | 506,000 | ||||
Write off of interest receivable and related allowance
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$ | -- | $ | 23,000 | ||||
Unrealized gain (loss) on marketable securities - related party
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$ | (126,000 | ) | $ | 182,000 |
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·
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Declines in real estate market conditions, which can cause a decrease in expected market value;
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·
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Discovery of undisclosed liens for community improvement bonds, easements and delinquent property taxes;
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·
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Lack of progress on real estate developments after we advance funds. We customarily utilize disbursement agents to monitor the progress of real estate developments and approve loan advances. After further inspection of the related property, progress on construction occasionally does not substantiate an increase in value to support the related loan advances;
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·
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Unanticipated legal or business issues that may arise subsequent to loan origination or upon the sale of foreclosed property; and
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·
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Appraisals, which are only opinions of value at the time of the appraisal, may not accurately reflect the value of the property.
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·
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Management commits to a plan to sell the properties;
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·
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The property is available for immediate sale in its present condition subject only to terms that are usual and customary;
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·
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An active program to locate a buyer and other actions required to complete a sale have been initiated;
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·
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The sale of the property is probable;
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·
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The property is being actively marketed for sale at a reasonable price; and
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·
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Withdrawal or significant modification of the sale is not likely.
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·
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The length of the time and the extent to which the market value has been less than cost;
|
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·
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The financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of the business that may affect the future earnings potential; or
|
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·
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The intent and ability of the holder to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.
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·
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Level 1 – Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
|
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·
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Level 2 – Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
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·
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Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement, which utilize the Company’s estimates and assumptions.
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Loan Type
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Number of Loans
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Balance *
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Weighted Average Interest Rate
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Portfolio Percentage
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Current Weighted Average Loan-To-Value, Net of Allowance for Loan Losses
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|||||||||||||||
Commercial
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10 | 11,422,000 | 10.57 | % | 97.78 | % | 88.74 | % | ||||||||||||
Construction
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1 | 166,000 | 8.00 | % | 1.42 | % | 92.00 | % | ||||||||||||
Land
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1 | 94,000 | 6.00 | % | 0.80 | % | 46.12 | % | ||||||||||||
Total
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12 | $ | 11,682,000 | 10.50 | % | 100.00 | % | 88.20 | % |
Loan Type
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Number of Loans
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Balance *
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Weighted Average Interest Rate
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Portfolio Percentage
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Current Weighted Average Loan-To-Value, Net of Allowance for Loan Losses
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|||||||||||||||
Commercial
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10 | $ | 12,053,000 | 11.39 | % | 97.89 | % | 91.00 | % | |||||||||||
Construction
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1 | 165,000 | 8.00 | % | 1.35 | % | 92.00 | % | ||||||||||||
Land
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1 | 94,000 | 6.00 | % | 0.76 | % | 46.12 | % | ||||||||||||
Total
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12 | $ | 12,312,000 | 11.30 | % | 100.00 | % | 90.37 | % |
*
|
Please see Balance Sheet Reconciliation below.
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Loan Type
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Number of Loans
|
June 30, 2011
Balance *
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Portfolio
Percentage
|
Number of Loans
|
December 31, 2010 Balance *
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Portfolio
Percentage
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||||||||||||||||||
First deeds of trust
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5 | $ | 6,183,000 | 52.93 | % | 5 | $ | 5,816,000 | 47.24 | % | ||||||||||||||
Second deeds of trust
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7 | 5,499,000 | 47.07 | % | 7 | 6,496,000 | 52.76 | % | ||||||||||||||||
Total
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12 | $ | 11,682,000 | 100.00 | % | 12 | $ | 12,312,000 | 100.00 | % |
*
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Please see Balance Sheet Reconciliation below.
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Non-performing and past due loans (a)
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$ | 6,634,000 | ||
July 2011 – September 2011
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742,000 | |||
October 2011 – December 2011
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2,102,000 | |||
January 2012 – March 2012
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490,000 | |||
April 2012 – June 2012
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94,000 | |||
Thereafter
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1,620,000 | |||
Total
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$ | 11,682,000 |
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(a)
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Amounts include the balances of non-performing loans and loans that have been extended subsequent to June 30, 2011.
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June 30, 2011
Balance *
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Portfolio Percentage
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December 31, 2010 Balance *
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Portfolio Percentage
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|||||||||||||
Arizona
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$ | 1,690,000 | 14.47 | % | $ | 1,323,000 | 10.74 | % | ||||||||
California
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537,000 | 4.60 | % | 1,523,000 | 12.37 | % | ||||||||||
Nevada
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4,085,000 | 34.97 | % | 4,096,000 | 33.27 | % | ||||||||||
Oregon
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4,434,000 | 37.96 | % | 4,434,000 | 36.02 | % | ||||||||||
Texas
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936,000 | 8.00 | % | 936,000 | 7.60 | % | ||||||||||
Total
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$ | 11,682,000 | 100.00 | % | $ | 12,312,000 | 100.00 | % |
*
|
Please see Balance Sheet Reconciliation below.
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June 30, 2011 Balance
|
December 31, 2010 Balance
|
|||||||
Balance per loan portfolio
|
$ | 11,682,000 | $ | 12,312,000 | ||||
Less:
|
||||||||
Allowance for loan losses (a)
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(4,910,000 | ) | (5,780,000 | ) | ||||
Balance per consolidated balance sheets
|
$ | 6,772,000 | $ | 6,532,000 |
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(a)
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Please refer to Specific Reserve Allowance below.
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Loan Type
|
Number Of Non-Performing Loans
|
Balance at
June 30, 2011
|
Allowance for Loan Losses
|
Net Balance at
June 30, 2011
|
||||||||||||
Commercial
|
3 | $ | 6,634,000 | $ | (2,949,000 | ) | $ | 3,685,000 | ||||||||
Total
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3 | $ | 6,634,000 | $ | (2,949,000 | ) | $ | 3,685,000 |
Loan Type
|
Number Of Non-Performing Loans
|
Balance at
December 31, 2010
|
Allowance for Loan Losses
|
Net Balance at
December 31, 2010
|
||||||||||||
Commercial
|
4 | $ | 8,157,000 | $ | (4,472,000 | ) | $ | 3,685,000 | ||||||||
Total
|
4 | $ | 8,157,000 | $ | (4,472,000 | ) | $ | 3,685,000 |
|
·
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Prevailing economic conditions;
|
|
·
|
Historical experience;
|
|
·
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The nature and volume of the loan portfolio;
|
|
·
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The borrowers’ financial condition and adverse situations that may affect the borrowers’ ability to pay;
|
|
·
|
Evaluation of industry trends; and
|
|
·
|
Estimated net realizable value of any underlying collateral in relation to the loan amount.
|
As of June 30, 2011
|
||||||||||||
Balance
|
Allowance for loan losses *
|
Balance, net of allowance
|
||||||||||
Non-performing loans – no related allowance
|
$ | -- | $ | -- | $ | -- | ||||||
Non-performing loans – related allowance
|
6,634,000 | (2,949,000 | ) | 3,685,000 | ||||||||
Subtotal non-performing loans
|
6,634,000 | (2,949,000 | ) | 3,685,000 | ||||||||
Performing loans – no related allowance
|
1,584,000 | -- | 1,584,000 | |||||||||
Performing loans – related allowance
|
3,464,000 | (1,961,000 | ) | 1,503,000 | ||||||||
Subtotal performing loans
|
5,048,000 | (1,961,000 | ) | 3,087,000 | ||||||||
Total
|
$ | 11,682,000 | $ | (4,910,000 | ) | $ | 6,772,000 |
As of December 31, 2010
|
||||||||||||
Balance
|
Allowance for loan losses*
|
Balance, net of allowance
|
||||||||||
Non-performing loans – no related allowance
|
$ | -- | $ | -- | $ | -- | ||||||
Non-performing loans – related allowance
|
8,157,000 | (4,472,000 | ) | 3,685,000 | ||||||||
Subtotal non-performing loans
|
8,157,000 | (4,472,000 | ) | 3,685,000 | ||||||||
Performing loans – no related allowance
|
1,967,000 | -- | 1,967,000 | |||||||||
Performing loans – related allowance
|
2,188,000 | (1,308,000 | ) | 880,000 | ||||||||
Subtotal performing loans
|
4,155,000 | (1,308,000 | ) | 2,847,000 | ||||||||
Total
|
$ | 12,312,000 | $ | (5,780,000 | ) | $ | 6,532,000 |
*
|
Please refer to Specific Reserve Allowances below.
|
Loan Type
|
Balance at
12/31/2010
|
Specific Reserve Allocation
|
Sales
|
Loan Pay Downs and Settlements
|
Transfers to REO
|
Balance at
6/30/11
|
||||||||||||||||||
Commercial
|
$ | 5,708,000 | $ | 127,000 | $ | -- | $ | (997,000 | ) | $ | -- | $ | 4,838,000 | |||||||||||
Construction
|
72,000 | -- | -- | -- | -- | 72,000 | ||||||||||||||||||
Total
|
$ | 5,780,000 | $ | 127,000 | $ | -- | $ | (997,000 | ) | $ | -- | $ | 4,910,000 |
Loan Type
|
Balance at
12/31/2009
|
Specific Reserve Allocation
|
Sales
|
Loan Pay Downs
|
Transfers to REO
|
Balance at
6/30/10
|
||||||||||||||||||
Commercial
|
$ | 12,395,000 | $ | 150,000 | $ | (2,494,000 | ) | $ | -- | $ | -- | $ | 10,051,000 | |||||||||||
Construction
|
161,000 | 84,000 | -- | -- | -- | 245,000 | ||||||||||||||||||
Total
|
$ | 12,556,000 | $ | 234,000 | $ | (2,494,000 | ) | $ | -- | $ | -- | $ | 10,296,000 |
As of June 30, 2011
|
||||||||||||||||||||||||
Total
|
Performing
|
Non-Performing
|
||||||||||||||||||||||
Loan Type
|
Number of Loans
|
Fund Balance
|
Number of Loans
|
Fund Balance
|
Number of Loans
|
Fund Balance
|
||||||||||||||||||
Commercial
|
6 | $ | 4,298,000 | 5 | $ | 3,298,000 | 1 | $ | 1,000,000 | |||||||||||||||
Construction
|
1 | 165,000 | 1 | 165,000 | -- | -- | ||||||||||||||||||
Total
|
7 | $ | 4,463,000 | 6 | $ | 3,463,000 | 1 | $ | 1,000,000 |
As of December 31, 2010
|
||||||||||||||||||||||||
Total
|
Performing
|
Non-Performing
|
||||||||||||||||||||||
Loan Type
|
Number of Loans
|
Fund Balance
|
Number of Loans
|
Fund Balance
|
Number of Loans
|
Fund Balance
|
||||||||||||||||||
Commercial
|
3 | $ | 2,679,000 | 2 | $ | 1,679,000 | 1 | $ | 1,000,000 | |||||||||||||||
Construction
|
1 | 165,000 | 1 | 165,000 | -- | -- | ||||||||||||||||||
Total
|
4 | $ | 2,844,000 | 3 | $ | 1,844,000 | 1 | $ | 1,000,000 |
|
·
|
Commercial – As of June 30, 2011 and December 31, 2010, we had 10 commercial loans; five and three of them, respectively, were modified pursuant to TDR. As of June 30, 2011 and December 31, 2010, five and three, respectively, of the loans were secured by second deeds of trust, and three and two, respectively, of the four and three loans, respectively, were considered performing prior to their restructuring. On January 1, 2011 the principal amount of one of the non-performing loan was reduced by approximately $1.0 million. Interest only payments are due monthly until August 2011, at which point payments of interest and principal will start. As of June 30, 2011 this loan was considered performing. As of August 15, 2011 there have been no additional changes in performance on remaining loans.
|
|
·
|
Construction – As of June 30, 2011 and December 31, 2010, we had one construction loan modified pursuant to TDR. As of August 15, 2011, the loan continues to perform as required by the loan modifications.
|
For The Three
Months Ended
June 30, 2011
|
For The Six
Months Ended
June 30, 2011
|
||||
Revenue
|
$
|
3,321,000
|
$
|
6,401,000
|
|
Expenses
|
$
|
(3,035,000
|
) $
|
(5,524,000
|
)
|
Net Income
|
$
|
591,000
|
$
|
877,000
|
|
Net income attributable to us
|
$
|
225,000
|
$
|
333,000
|
Fair Value Measurements at Reporting Date Using
|
||||||||||||||||||||
Quoted Prices in Active Markets For Identical Assets (Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
Balance
at 6/30/11
|
Carrying Value on Balance Sheet at 6/30/11
|
||||||||||||||||
Assets
|
||||||||||||||||||||
Investment in marketable securities - related party
|
$ | 747,000 | $ | -- | $ | -- | $ | 747,000 | $ | 747,000 | ||||||||||
Investment in real estate loans
|
$ | -- | $ | -- | $ | 6,802,000 | $ | 6,802,000 | $ | 6,772,000 |
Fair Value Measurements at Reporting Date Using
|
||||||||||||||||||||
Quoted Prices in Active Markets For Identical Assets (Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
Balance at 12/31/2010
|
Carrying Value on Balance Sheet at 12/31/2010
|
||||||||||||||||
Assets
|
||||||||||||||||||||
Investment in marketable securities - related party
|
$ | 326,000 | $ | -- | $ | -- | $ | 326,000 | $ | 326,000 | ||||||||||
Investment in real estate loans
|
$ | -- | $ | -- | $ | 6,660,000 | $ | 6,660,000 | $ | 6,532,000 |
Investment in real estate loans
|
||||
Balance on January 1, 2011
|
$ | 6,660,000 | ||
Change in temporary valuation adjustment included in net income (loss)
|
||||
Net increase in allowance for loan losses
|
(116,000 | ) | ||
Purchase and additions of assets
|
||||
New mortgage loans and mortgage loans bought
|
490,000 | |||
Reduction of allowance for loan losses relative to payment or settlement of investment in real estate loan
|
986,000 | |||
Sales, pay downs and reduction of assets
|
||||
Collections of principal and settlements of investment in real estate loans
|
(1,120,000 | ) | ||
Temporary change in estimated fair value based on future cash flows
|
(98,000 | ) | ||
Balance on June 30, 2011, net of temporary valuation adjustment
|
$ | 6,802,000 |
Investment in real estate loans
|
||||
Balance on January 1, 2010
|
$ | 19,605,000 | ||
Change in temporary valuation adjustment included in net loss
|
||||
Increase in allowance for loan losses
|
(234,000 | ) | ||
Sales, pay downs and reduction of assets
|
||||
Collections of principal and sales of investment in real estate loans
|
(5,965,000 | ) | ||
Reduction of allowance for loan losses related to sales and payments of investment in real estate loans
|
2,494,000 | |||
Temporary change in estimated fair value based on future cash flows
|
(45,000 | ) | ||
Balance on June 30, 2010, net of temporary valuation adjustment
|
$ | 15,855,000 |
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
For the
Six Months Ended
|
||||
June 30, 2011
|
||||
Net loss, as reported
|
$ | (216,000 | ) | |
Add (deduct):
|
||||
Provision for loan losses, net of recoveries
|
116,000 | |||
Write down of REO
|
132,000 | |||
Settlement of loan pursuant to troubled debt restructuring which was previously fully reserved
|
(986,000 | ) | ||
Total estimated taxable loss
|
(954,000 | ) | ||
Add : Estimated taxable loss attributable to TRS I, Inc.
|
-- | |||
Estimated REIT taxable loss
|
$ | (954,000 | ) |
Contractual Obligation
|
Total
|
Less Than 1 Year
|
1-3 Years
|
3-5 Years
|
More Than
5 Years
|
|||||||||||||||
Notes payable (1)
|
$ | 386,000 | $ | 386,000 | $ | -- | $ | -- | $ | -- | ||||||||||
Total
|
$ | 386,000 | $ | 386,000 | $ | -- | $ | -- | $ | -- |
|
(1)
|
See Note I – Notes Payable of the Notes to the Consolidated Financial Statements included in Part I, Item I Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
|
Changed Assumption
|
Increase (Decrease) in Interest Income
|
|||
Weighted average interest rate assumption increased by 1.0% or 100 basis points
|
$ | 181,000 | ||
Weighted average interest rate assumption increased by 5.0% or 500 basis points
|
$ | 904,000 | ||
Weighted average interest rate assumption increased by 10.0% or 1,000 basis points
|
$ | 1,807,000 | ||
Weighted average interest rate assumption decreased by 1.0% or 100 basis points
|
$ | (181,000 | ) | |
Weighted average interest rate assumption decreased by 5.0% or 500 basis points
|
$ | (904,000 | ) | |
Weighted average interest rate assumption decreased by 10.0% or 1,000 basis points
|
$ | (1,807,000 | ) |
Changed Assumption
|
Increase (Decrease) in Allowance for Loan Losses
|
|||
Allowance for loan losses assumption increased by 1.0% of loan portfolio
|
$ | 117,000 | ||
Allowance for loan losses assumption increased by 5.0% of loan portfolio
|
$ | 584,000 | ||
Allowance for loan losses assumption increased by 10.0% of loan portfolio
|
$ | 1,168,000 | ||
Allowance for loan losses assumption decreased by 1.0% of loan portfolio
|
$ | (117,000 | ) | |
Allowance for loan losses assumption decreased by 5.0% of loan portfolio
|
$ | (584,000 | ) | |
Allowance for loan losses assumption decreased by 10.0% of loan portfolio
|
$ | (1,168,000 | ) |
|
·
|
Declines in real estate market conditions that can cause a decrease in expected market value;
|
|
·
|
Discovery of undisclosed liens for community improvement bonds, easements and delinquent property taxes;
|
|
·
|
Lack of progress on real estate developments after we advance funds. We customarily utilize disbursement agents to monitor the progress of real estate developments and approve loan advances. After further inspection of the related property, progress on construction occasionally does not substantiate an increase in value to support the related loan advances;
|
|
·
|
Unanticipated legal or business issues that may arise subsequent to loan origination or upon the sale of foreclosed upon property; and
|
|
·
|
Appraisals, which are only opinions of value at the time of the appraisal, may not accurately reflect the value of the property.
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS
|
Period
|
(a) Total Number of Shares Purchased
|
(b) Average Price Paid per Share
|
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
(d) Maximum Number of (or Approximate Dollar Value) of Shares that May Yet Be Purchase Under the Plans or Programs
|
||||||||||||
April 1 – April 30, 2011
|
-- | $ | -- | -- | $ | 4,116,471 | ||||||||||
May 1 – May 31, 2011
|
78,600 | 1.31 | 78,600 | 4,013,475 | ||||||||||||
June 1 – June 30, 2011
|
-- | -- | -- | 4,013,475 | ||||||||||||
Total
|
78,600 | $ | 1.31 | 78,600 | $ | 4,013,475 |
ITEM 6.
|
EXHIBITS
|
Exhibit No.
|
Description of Exhibits
|
|
2.1(1)
|
Agreement and Plan of Merger between Vestin Fund I, LLC and the Registrant
|
|
3.1(1)
|
Articles of Incorporation of the Registrant
|
|
3.2(1)
|
Bylaws of the Registrant
|
|
3.3(1)
|
Form of Articles Supplementary of the Registrant
|
|
4.1(1)
|
Reference is made to Exhibits 3.1, 3.2 and 3.3
|
|
4.2(2)
|
Specimen Common Stock Certificate
|
|
4.3(1)
|
Form of Rights Certificate
|
|
10.1(1)
|
Form of Management Agreement between Vestin Mortgage, LLC and the Registrant
|
|
10.2(1)
|
Form of Rights Agreement between the Registrant and the rights agent
|
|
10.3 (4)
|
Agreement between Strategix Solutions, LLC and Vestin Realty Mortgage II, Inc. for accounting services.
|
|
21.1(2)
|
List of subsidiaries of the Registrant
|
|
31.1
|
Section 302 Certification of Michael V. Shustek
|
|
31.2
|
Section 302 Certification of Eric Bullinger
|
|
32
|
Certification Pursuant to 18 U.S.C. Sec. 1350
|
|
99.2R(3)
|
Vestin Realty Mortgage I, Inc. Code of Business Conduct and Ethics
|
(1)
|
Incorporated herein by reference to Post-Effective Amendment No. 3 to our Form S-4 Registration Statement filed on January 4, 2006 (File No. 333-125347)
|
|
(2)
|
Incorporated herein by reference to Post-Effective Amendment No. 4 to our Form S-4 Registration Statement filed on January 31, 2006 (File No. 333-125347)
|
|
(3)
|
Incorporated herein by reference to the Transition Report on Form 10-K for the ten month transition period ended April 30, 2006 filed on June 28, 2006 (File No. 000-51964)
|
|
(4)
|
Incorporated herein by reference to the Quarterly Report on Form 10-Q filed on May 8, 2009 (File No. 000-51964)
|
Vestin Realty Mortgage I, Inc.
|
||
By:
|
/s/ Michael V. Shustek
|
|
Michael V. Shustek
|
||
President and Chief Executive Officer
|
||
Date:
|
August 15, 2011
|
|
By:
|
/s/ Eric Bullinger
|
|
Eric Bullinger
|
||
Chief Financial Officer
|
||
Date:
|
August 15, 2011
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
/s/ Michael V. Shustek
|
Michael V. Shustek
|
Chief Executive Officer
|
Vestin Realty Mortgage I, Inc.
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
/s/ Eric Bullinger
|
Eric Bullinger
|
Chief Financial Officer
|
Vestin Realty Mortgage I, Inc.
|
|
(1)
|
The Registrant’s Report on Form 10-Q for the six ended June 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
|
/s/ Michael V. Shustek
|
Michael V. Shustek
|
Chief Executive Officer
|
Vestin Realty Mortgage I, Inc.
|
/s/ Eric Bullinger
|
Eric Bullinger
|
Chief Financial Officer
|
Vestin Realty Mortgage I, Inc.
|
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CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Interest and other receivables, allowance (in Dollars) | $ 187,000 | $ 196,000 |
Notes receivable, allowance (in Dollars) | 938,000 | 945,000 |
Investment in real estate loans, allowance for loan losses (in Dollars) | $ 4,910,000 | $ 5,780,000 |
Preferred stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, shares issued | ||
Treasury stock, shares | 534,207 | 455,607 |
Common stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 25,000,000 | 25,000,000 |
Common stock, shares issued | 6,875,066 | 6,875,066 |
Common stock, shares outstanding | 6,340,859 | 6,419,459 |
Document And Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 15, 2011
|
|
Document and Entity Information [Abstract] | Â | Â |
Entity Registrant Name | Vestin Realty Mortgage I, Inc. | Â |
Document Type | 10-Q | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Common Stock, Shares Outstanding | Â | 6,340,859 |
Amendment Flag | false | Â |
Entity Central Index Key | 0001328300 | Â |
Entity Current Reporting Status | Yes | Â |
Entity Voluntary Filers | No | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Well-known Seasoned Issuer | No | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
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Note F - Real Estate Held For Sale
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Real Estate Disclosure [Text Block] |
NOTE
F — REAL ESTATE HELD FOR SALE
At
June 30, 2011, we held five properties with a total carrying
value of approximately $2.8 million, which were acquired
through foreclosure and recorded as investments in real
estate held for sale (“REO”). On May
31, 2011, we recorded a write down on a property based on an
appraisal dated May 23, 2011. The total write down
was approximately $46,000, of which our portion was
approximately $16,000. On June 30, 2011 we
recorded a write down on a property based on an appraisal
dated July 13, 2011. The total write down was
approximately $0.7 million, of which our portion was
approximately $0.1 million.
|
Note K - Recent Accounting Pronouncements
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Description of New Accounting Pronouncements Not yet Adopted [Text Block] |
NOTE
K — RECENT ACCOUNTING PRONOUNCEMENTS
In
April 2011, FASB issued ASU 2011-02, “Receivables
(Topic 310): A Creditor’s Determination of Whether a
Restructuring is a Troubled Debt Restructuring”. This
amendment explains which modifications constitute troubled
debt restructurings (“TDR”). Under the new
guidance, the definition of a troubled debt restructuring
remains essentially unchanged, and for a loan modification to
be considered a TDR, certain basic criteria must still be
met. For public companies, the new guidance is effective for
interim and annual periods beginning on or after June 15,
2011, and applies retrospectively to restructuring occurring
on or after the beginning of the fiscal year of adoption. The
Company does not expect that the guidance effective in future
periods will have a material impact on its consolidated
financial statements.
In
May 2011, FASB issued ASU 2011-04 “Fair Value
Measurement (Topic 820): Amendments to Achieve Common Fair
Value Measurement and Disclosure Requirements in U.S. GAAP
and IFRSs.” The amendments in this update result in
common fair value measurement and disclosure requirements in
U.S. GAAP and IFRSs. Consequently, the amendments change the
wording used to describe many of the requirements in U.S.
GAAP for measuring fair value and for disclosing information
about fair value measurements. For many of the requirements,
the Board does not intend for the amendments in this update
to result in a change in the application of the requirements
in Topic 820. Some of the amendments clarify the
Board’s intent about the application of existing fair
value measurement requirements. Other amendments change a
particular principle or requirement for measuring fair value
or for disclosing information about fair value measurements.
For public entities, the new guideline is effective for
interim and annual periods beginning after December 15, 2011
and should be applied prospectively. The Company does not
expect that the guidance effective in future periods will
have a material impact on its consolidated financial
statements.
Presentation
of Comprehensive Income: In June 2011, the FASB issued ASU
2011-05, Comprehensive Income (Topic 220)—Presentation
of Comprehensive Income, which requires an entity to present
the total of comprehensive income, the components of net
income, and the components of other comprehensive income
either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. ASU
2011-05 eliminates the option to present the components of
other comprehensive income as part of the statement of
equity. The items that must be reported in other
comprehensive income or when an item of other comprehensive
income must be reclassified to net income were not changed.
ASU 2011-05 is effective for our fiscal year beginning
January 1, 2012 and must be applied retrospectively. Other
than the change in presentation, we have determined these
changes will not have an impact on the Consolidated Financial
Statements.
|
Note B - Summary of Significant Accounting Policies
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant Accounting Policies [Text Block] |
NOTE
B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
consolidated financial statements of the Company have been
prepared in accordance with the accounting principles
generally accepted in the United States of America
(“GAAP”). Management has included all
normal recurring adjustments considered necessary to give a
fair presentation of operating results for the periods
presented. Interim results are not necessarily
indicative of results for a full year. The
information included in this Form 10-Q should be read in
conjunction with information included in the 2010 annual
report filed on Form 10-K.
Management
Estimates
The
preparation of consolidated financial statements in
conformity with GAAP 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 consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could
differ from those estimates.
Cash
and Cash Equivalents
Cash
and cash equivalents include interest-bearing and
non-interest-bearing bank deposits, money market accounts,
short-term certificates of deposit with original maturities
of three months or less, and short-term instruments with a
liquidation provision of one month or less.
Revenue
Recognition
Interest
is recognized as revenue on performing loans when earned
according to the terms of the loans, using the effective
interest method. We do not accrue interest income
on loans once they are determined to be
non-performing. A loan is non-performing when,
based on current information and events, it is probable that
we will be unable to collect all amounts due according to the
contractual terms of the loan agreement or when the payment
of interest is 90 days past due. Cash receipts
will be allocated to interest income, except when such
payments are specifically designated by the terms of the loan
as principal reduction. Interest is recognized on
impaired loans on the cash basis method.
Investments
in Real Estate Loans
We
may, from time to time, acquire or sell investments in real
estate loans from or to our manager or other related parties
pursuant to the terms of our Management Agreement without a
premium. The primary purpose is to either free up
capital to provide liquidity for various reasons, such as
loan diversification, or place excess capital in investments
to maximize the use of our capital. Selling or
buying loans allows us to diversify our loan portfolio within
these parameters. Due to the short-term nature of
the loans we make and the similarity of interest rates in
loans we normally would invest in, the fair value of a loan
typically approximates its carrying
value. Accordingly, discounts or premiums
typically do not apply upon sales of loans and therefore,
generally no gain or loss is recorded on these transactions,
regardless of whether to a related or unrelated party.
Investments
in real estate loans are secured by deeds of trust or
mortgages. Generally, our real estate loans
require interest only payments with a balloon payment of the
principal at maturity. We have both the intent and
ability to hold real estate loans until maturity and
therefore, real estate loans are classified and accounted for
as held for investment and are carried at amortized
cost. Loans sold to or purchased from affiliates
are accounted for at the principal balance and no gain or
loss is recognized by us or any
affiliate. Loan-to-value ratios are initially
based on appraisals obtained at the time of loan origination
and are updated when new appraisals are received or when
management’s assessment of the value has changed, to
reflect subsequent changes in value
estimates. Original appraisals are generally dated
within 12 months of the date of loan origination and may be
commissioned by the borrower.
The
Company considers a loan to be impaired when, based upon
current information and events, it believes it is probable
that the Company will be unable to collect all amounts due
according to the contractual terms of the loan
agreement. The Company’s impaired loans
include troubled debt
restructuring, and performing and
non-performing loans in which full
payment of principal
or interest is not expected. The Company
calculates an allowance required for impaired loans based on
the present value of expected future cash flows discounted at
the loan’s effective interest rate, or at the
loan’s observable market price or the fair value of its
collateral.
Loans
that have been modified from their original terms are
evaluated to determine if the loan meets the definition of a
Troubled Debt Restructuring (“TDR”) as defined by
Accounting Standards Codification (“ASC”)
310-40. When the Company modifies the terms of an
existing loan that is considered a TDR, it is considered
performing as long as it is in compliance with the modified
terms of the loan agreement. If the modification
calls for deferred interest, it is recorded as interest
income as cash is collected.
Allowance
for Loan Losses
We
maintain an allowance for loan losses on our investments in
real estate loans for estimated credit
impairment. Our manager’s estimate of losses
is based on a number of factors including the types and
dollar amounts of loans in the portfolio, adverse situations
that may affect the borrower’s ability to repay,
prevailing economic conditions and the underlying collateral
securing the loan. Additions to the allowance are
provided through a charge to earnings and are based on an
assessment of certain factors, which may indicate estimated
losses on the loans. Actual losses on loans are
recorded as a charge-off or a reduction to the allowance for
loan losses. Generally, subsequent recoveries of
amounts previously charged off are added back to the
allowance and included as income.
Estimating
allowances for loan losses requires significant judgment
about the underlying collateral, including liquidation value,
condition of the collateral, competency and cooperation of
the related borrower and specific legal issues that affect
loan collections or taking possession of the
property. As a commercial real estate lender
willing to invest in loans to borrowers who may not meet the
credit standards of other financial institutional lenders,
the default rate on our loans could be higher than those
generally experienced in the real estate lending
industry. We and our manager generally approve
loans more quickly than other real estate lenders and, due to
our expedited underwriting process; there is a risk that the
credit inquiry we perform will not reveal all material facts
pertaining to a borrower and the security.
Additional
facts and circumstances may be discovered as we continue our
efforts in the collection and foreclosure
processes. This additional information often
causes management to reassess its estimates. In
recent years, we have revised estimates of our allowance for
loan losses. Circumstances that have and may
continue to cause significant changes in our estimated
allowance include, but are not limited to:
Real
Estate Held for Sale
Real
estate held for sale (“REO”) includes real estate
acquired through foreclosure and will be carried at the lower
of the recorded amount, inclusive of any senior indebtedness,
or the property's estimated fair value, less estimated costs
to sell, with fair value based on appraisals and knowledge of
local market conditions. While pursuing
foreclosure actions, we seek to identify potential purchasers
of such property. It is not our intent to invest
in or to own real estate as a long-term
investment. We seek to sell properties acquired
through foreclosure as quickly as circumstances permit,
taking into account current economic
conditions. The carrying values of REO are
assessed on a regular basis from updated appraisals,
comparable sales values or purchase offers.
Management
classifies REO when the following criteria are met:
Classification
of Operating Results from Real Estate Held for Sale
Generally,
operating results and cash flows from long-lived assets held
for sale are to be classified as discontinued operations as a
separately stated component of net income. Our
operations related to REO are separately identified in the
accompanying consolidated statements of operations.
Secured
Borrowings
Secured
borrowings provide an additional source of capital for our
lending activity. Secured borrowings allow us to
increase the diversification of our loan portfolio and to
invest in loans that we might not otherwise invest
in. We do not receive any fees for entering into
secured borrowing arrangements; however, we may receive
revenue for any differential of the interest spread, if
applicable. Loans in which unaffiliated investors
have participated through inter-creditor agreements
(“Inter-creditor Agreements”) are accounted for
as secured borrowings.
The
Inter-creditor Agreements provide us additional funding
sources for real estate loans whereby an unaffiliated
investor (the “Investor”) may participate on a
non-pari passu basis in certain real estate loans with us
and/or VRM II (collectively, the “Lead
Lenders”). In the event of borrower
non-performance, the Inter-creditor Agreements generally
provide that the Lead Lenders must repay the Investor’s
loan amount either by (i) continuing to remit to the Investor
the interest due on the participated loan amount; (ii)
substituting an alternative loan acceptable to the Investor;
or (iii) repurchasing the participation from the Investor for
the outstanding balance plus accrued interest.
Additionally,
an Investor may participate in certain loans with the Lead
Lenders through Participation Agreements. In the
event of borrower non-performance, the Participation
Agreement may allow the Investor to be repaid up to the
amount of the Investor’s investment prior to the Lead
Lender being repaid. Real estate loan financing
under the Participation Agreements are also accounted for as
a secured borrowing. We do not receive any
revenues for entering into secured borrowing
arrangements.
Investment
in Marketable Securities – Related Party
Investment
in marketable securities – related party consists of
stock in VRM II. The securities are stated at fair
value as determined by the closing market price as of June
30, 2011 and December 31, 2010. All securities are
classified as available-for-sale.
We
are required to evaluate our available-for-sale investment
for other-than-temporary impairment charges. We
will determine when an investment is considered impaired
(i.e., decline in fair value below its amortized cost), and
evaluate whether the impairment is other than temporary
(i.e., investment value will not be recovered over its
remaining life). If the impairment is considered
other than temporary, we will recognize an impairment loss
equal to the difference between the investment’s basis
and its fair value.
According
to the SEC Staff Accounting Bulletin, Topic 5: Miscellaneous
Accounting, M - Other Than
Temporary Impairment of Certain Investments in Debt and
Equity Securities, there are numerous factors to be
considered in such an evaluation and their relative
significance will vary from case to case. The
following are a few examples of the factors that,
individually or in combination, indicate that a decline is
other than temporary and that a write-down of the carrying
value is required:
Fair
Value Disclosures
Fair
value is defined as the price that would be received to sell
an asset or paid to transfer a liability (i.e. “the
exit price”) in an orderly transaction between market
participants at the measurement date. In
determining fair value, the Company uses various valuation
approaches, including quoted market prices and discounted
cash flows. The established hierarchy for inputs
used, in measuring fair value, maximizes the use of
observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used
when available. Observable inputs are inputs that
market participants would use in pricing the asset or
liability developed based on market data obtained from
independent sources. Unobservable inputs are
inputs that reflect a company’s judgment concerning the
assumptions that market participants would use in pricing the
asset or liability developed based on the best information
available under the circumstances. The fair value
hierarchy is broken down into three levels based on the
reliability of inputs as follows:
If
the volume and level of activity for an asset or liability
have significantly decreased, we will still evaluate our fair
value estimate as the price that would be received to sell an
asset or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed
sale) between market participants at the measurement date
under current market conditions. In addition,
since we are a publicly traded company, we are required to
make our fair value disclosures for interim reporting
periods.
Basic
and Diluted Earnings Per Common Share
Basic
earnings per share (“EPS”) is computed by
dividing net income available to common stockholders by the
weighted average number of common shares
outstanding. Diluted EPS is similar to basic EPS
except that the weighted average number of common shares
outstanding is increased to include the number of additional
common shares that would have been outstanding if the
dilutive potential common shares had been
exercised. We had no outstanding common share
equivalents during the three and six months ended June 30,
2011 and 2010.
Common
Stock Dividends
During
June 2008, our Board of Directors decided to suspend the
payment of dividends. We will continue to comply
with the REIT requirements and will distribute at least
ninety percent (90%) of our accumulated REIT taxable
income. Our Board of Directors will closely
monitor our operating results in order to determine when
dividends should be reinstated; however, we do not expect
them to be reinstating dividends in the foreseeable
future.
Treasury
Stock
On
February 21, 2008, our Board of Directors authorized the
repurchase of up to $5 million worth of our common
stock. Depending upon market conditions, shares
may be repurchased from time to time at prevailing market
prices through open market or privately negotiated
transactions. We are not obligated to purchase any
shares. Subject to applicable securities laws,
including SEC Rule 10b-18, repurchases may be made at such
times and in such amounts, as our management deems
appropriate. The share repurchase program may be
discontinued or terminated at any time, and we have not
established a date for completion of the share repurchase
program. The repurchases will be funded from our
available cash
Segments
We
operate as one business segment.
Reclassifications
Certain
amounts in the June 30, 2010 consolidated financial
statements have been reclassified to conform to the June 30,
2011 presentation.
Principles
of Consolidation
The
accompanying consolidated financial statements include, on a
consolidated basis, our accounts, and the accounts of our
wholly owned subsidiary. All significant
intercompany balances and transactions have been eliminated
in consolidation.
Income
Taxes
We
are organized and conduct our operations to qualify as a REIT
under Sections 856 to 860 of the Internal Revenue Code of
1986, as amended (the “Code”) and to comply with
the provisions of the Internal Revenue Code with respect
thereto. A REIT is generally not subject to
federal income tax on that portion of its REIT taxable income
(“Taxable Income”) which is distributed to its
stockholders, provided that at least 90% of Taxable Income is
distributed and provided that certain other requirements are
met. Our Taxable Income may substantially exceed
or be less than our net income as determined based on GAAP
because differences in GAAP and taxable net income consist
primarily of allowances for loan losses or doubtful accounts,
write-downs on REO, amortization of deferred financing cost,
capital gains and losses, and deferred
income. Certain assets of ours are held in a
taxable REIT subsidiary (“TRS”). The
income of a TRS is subject to federal and state income
taxes.
A
tax benefit from an uncertain tax position may be recognized
when it is more likely than not that the position will be
sustained upon examination, including resolutions of any
related appeals or litigation process, based on the technical
merits. Based on our evaluation, we have concluded
that there are no significant uncertain tax positions
requiring recognition on our consolidated financial
statements. The net income tax provisions for the
six months ended June 30, 2011 and 2010 were approximately
zero.
|
Note H - Related Party Transactions
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Related Party Transactions Disclosure [Text Block] |
NOTE
H — RELATED PARTY TRANSACTIONS
From
time to time, we may acquire or sell investments in real
estate loans from/to our manager or other related
parties. Pursuant to the terms of our Management
Agreement, such acquisitions and sales are made without any
mark up or mark down. No gain or loss is recorded
on these transactions, as it is not our intent to make a
profit on the purchase or sale of such
investments. The purpose is generally to diversify
our portfolio by syndicating loans, thereby providing us with
additional capital to make additional loans.
Transactions
with the Manager
Our
manager is entitled to receive from us an annual management
fee of up to 0.25% of our aggregate capital contributions
received by us and Fund I from the sale of shares or
membership units, paid monthly. The amount of
management fees paid to our manager for the three and six
months ended June 30, 2011 and 2010 was $69,000 and $138,000,
respectively for each period.
As
of June 30, 2011 and December 31, 2010, our manager owned
100,000 of our common shares, representing approximately
1.58% of our total outstanding common stock.
As
of June 30, 2011 and December 31, 2010, we did not owe or
have any receivables from our manager.
Transactions
with Other Related Parties
As
of June 30, 2011 and December 31, 2010, we owned 537,078 and
225,134 common shares, respectively, of VRM II,
representing approximately 4.09% and 1.71%, respectively, of
their total outstanding common stock. For the six
months ended June 30, 2011 and 2010, we recognized $0 in
dividend income from VRM II based on the number of shares we
held on the dividend record dates.
As
of June 30, 2011 and December 31, 2010, VRM II owned 538,178
and 533,675, respectively, of our common shares, representing
approximately 8.49% and 8.42%, respectively, of our total
outstanding common stock. For the six months ended
June 30, 2011 and 2010, we declared $0 in dividends payable
to VRM II based on the number of shares VRM II held on the
dividend record dates.
As
of June 30, 2011, we owed VRM II approximately $0.1 million,
primarily related to legal fees. As of December
31, 2010, we owed VRM II $0.7 million, primarily related to
legal fees.
As
of June 30, 2011, we had receivables from Fund III of
$2,000. As of December 31, 2010, we had
receivables from Fund III of $2,000.
During
the three and six months ended June 30, 2011, SCORP, Inc.,
dba Diligent Consulting and Analysis, an entity wholly owned
by Daniel B. Stubbs, the former Vice President of Vestin
Group, received consulting fees from VRM II, Fund II and us
of approximately $20,000 and $60,000, respectively. Our
pro-rata share of these fees totaled approximately $ 10,000
and $5,000, respectively.
|
Note M - Legal Matters Involving The Company
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Legal Costs, Policy [Policy Text Block] |
NOTE
M — LEGAL MATTERS INVOLVING THE COMPANY
In
April 2006, the lenders of the loans made to RightStar, Inc.
(“RightStar”) filed suit against the State of
Hawaii listing 26 causes of action, including allegations
that the State of Hawaii illegally blocked the lender’s
right to foreclose and take title to its collateral by
inappropriately attaching conditions to the granting of
licenses needed to operate the business, the pre-need trust
funds and the perpetual care trust funds and that the State
of Hawaii attempted to force the lenders to accept liability
for any statutory trust fund deficits while no such lender
liability exists under the laws of the State of
Hawaii. The State of Hawaii responded by filing
allegations against Vestin Mortgage and VRM II alleging that
these Vestin entities improperly influenced the former
RightStar trustees to transfer trust funds to VRM II.
On
May 9, 2007, we, VRM II, Vestin Mortgage, the State of Hawaii
and Comerica Incorporated (“Comerica”) announced
that an arrangement had been reached to auction the RightStar
assets. The auction was not successful. On June
12, 2007, the court approved the resolution agreement, which
provides that the proceeds of the foreclosure sale would be
allocated in part to VRM II, Vestin Mortgage and us and in
part to fund the trust’s statutory minimum
balances. We, VRM II, Vestin Mortgage, the State
of Hawaii and Comerica have pledged to cooperate to recover
additional amounts owed to the trusts and the creditors from
others. Should the recovery meet or exceed $9
million, all parties have agreed that no further litigation
between the state of Hawaii and Vestin will be reinstituted
related to the trusts’ statutory minimum
balances. The Vestin entities and the State of
Hawaii signed a new agreement that would permit the
foreclosure to proceed. On January 25, 2010, the
Circuit Court of the First Circuit for the State of Hawaii
confirmed the right of VRM I and its affiliates VRM II and
Vestin Mortgage, to acquire through foreclosure the RightStar
assets. On June 29, 2010 the First Circuit for the
State of Hawaii issued its final order allowing the
foreclosure. On July 13, 2010 we and VRM II
completed our foreclosure of these properties and we
classified them as Investment in Equity Method Investee Held
for Sale.
We,
VRM II and Vestin Mortgage (“Defendants”) were
defendants in a breach of contract class action filed in San
Diego Superior Court by certain plaintiffs who alleged, among
other things, that they were wrongfully denied roll-up rights
in connection with the merger of Fund I into VRM I and Fund
II into VRM II. The court certified a class of all
former Fund I unit holders and Fund II unit holders who voted
against the mergers of Fund I into VRM I and Fund II into VRM
II. The trial began in December 2009 and concluded
in January 2010. On February 11, 2010, the
Defendants were notified of a Tentative Statement of
Decision, in their favor issued by the Superior Court for the
State of California in San Diego following a
trial. In the Tentative Statement, the Court found
that there was no roll-up and therefore no breach of
contract. The Court entered final judgment for the
Defendants on March 18, 2010.Defendants and Plaintiffs agreed
to a post-judgment settlement by which Plaintiffs agreed not
to appeal the judgment in consideration of a waiver by the
Defendants of any claim to recover actual court costs from
the Plaintiffs. The Court granted final approval
of this settlement of post-judgment rights on July 9,
2010.
We,
Vestin Mortgage and Michael V. Shustek
(“Defendants”) were defendants in a civil action
filed by approximately 25 separate plaintiffs
(“Plaintiffs”) in District Court for Clark
County, Nevada. The Plaintiffs alleged, among
other things, that Defendants: breached certain alleged
contractual obligations owed to Plaintiffs; breached
fiduciary duties supposedly owed to Plaintiffs; and
misrepresented or omitted material facts regarding the
conversion of Fund I into VRM I. The action sought
monetary and punitive damages. On September 8,
2010, the parties agreed to settle the case. The
Settlement Agreement provides for the settlement and complete
release of all claims against the Defendants. The
settlement was made without admission of liability by the
Defendants.
In
addition to the matters described above, we are involved in a
number of other legal proceedings concerning matters arising
in the ordinary course of our business
activities. We believe we have meritorious
defenses to each of these actions and intend to defend them
vigorously. Other than the matters described
above, we believe that we are not a party to any pending
legal or arbitration proceedings that would have a material
adverse effect on our financial condition or results of
operations or cash flows, although it is possible that the
outcome of any such proceedings could have a material impact
on our operations in any particular period.
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Note I - Notes Payable
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Mortgage Notes Payable Disclosure [Text Block] |
NOTE
I — NOTES PAYABLE
In
April 2011, we financed a 12-month insurance policy for
Directors and Officers liability, with an annual interest
rate of 3.2%. The agreement required a down
payment of $56,000 and nine monthly payments of $19,000
beginning on May 27, 2011. As of June 30, 2011,
the outstanding balance of the note was $130,000.
On
December 3, 2010, we and VRM II mortgaged a mixed-use
property held for sale for $1.6 million, of which our portion
was approximately $0.3 million. The note has an
interest rate of 9%, payable monthly and a maturity date of
December 2, 2011.
|
Note G - Investments In Equity Method Investee Held For Sale
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6 Months Ended | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
|||||||||||||||||||||||||||||||||||||
Equity Method Investments Disclosure [Text Block] |
NOTE
G – INVESTMENTS IN EQUITY METHOD INVESTEE HELD FOR
SALE
As
discussed in Note M – Legal Matters Involving the
Company, during July 2010, we, VRM II and Vestin Mortgage
acquired through foreclosure the RightStar property, which
includes 4 cemeteries and 8 mortuaries in
Hawaii. Subsequent to our foreclosure of this
property, we and VRM II acquired our manager’s interest
in this property for $500,000, of which our portion was
$175,000. Our manager recorded no gain or loss as
a result of this transaction. At the time of
foreclosure, the RightStar assets of approximately $14.1
million, of which our portion was approximately $5.3 million,
were moved into Hawaii Funeral Services, LLC
(“HFS”) of which we hold an interest of
approximately 38% and VRM II holds an interest of
approximately 62%.
We
account for investments using the equity method of accounting
if the investments give us the ability to exercise
significant influence, but not control, over the investees.
Significant influence is generally deemed to exist if we have
an ownership interest in the voting stock of an incorporated
investee of between 20% and 50%, although other factors, such
as representation on an investee’s board of managers,
specific voting and veto rights held by each investor and the
effects of commercial arrangements, are considered in
determining whether equity method accounting is appropriate.
We record our respective interests in the losses or income of
such investees within the equity-method investees held for
sale category on our statements of operations for each
period. The carrying amount of our equity-method investments
held for sale is recorded on our consolidated balance sheets
as investments in equity-method investees held for
sale.
We
evaluate our investments in the equity-method investees for
impairment each quarter by comparing the carrying amount of
each investment to its fair value. Because no active market
exists for the investees’ limited liability company
membership interests, we evaluate our investments in the
equity-method investees for impairment based on our
evaluation of the fair value of the equity-method
investees’ net assets relative to their carrying
values. If we ever were to determine that the carrying values
of our investments in equity-method investees were greater
than their fair values, we would write the investments down
to their fair values.
The
consolidated financial statements of HFS also include the
accounts of the funeral merchandise and service trusts,
cemetery merchandise and service trusts, and cemetery
perpetual care trusts (“Trusts”) in which they
have a variable interest and are the primary beneficiary.
Intercompany balances and transactions have been eliminated
in consolidation with HFS.
The
Trusts are variable interest entities as defined in
Accounting Standard Codification Topic 810-10. In accordance
with this guidance, HFS has determined that they are the
primary beneficiary of these trusts, as they absorb a
majority of the losses and returns associated with these
trusts. They consolidate the Trust investments with a
corresponding amount recorded as Trusts’ corpus.
The
following is summary of the results of operations related to
the assets held for sale for the three and six months ended
June 30, 2011:
|
Note C - Financial Instruments and Concentrations of Credit Risk
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Financial Insruments And Concentrations OfCredit Risk [Text Block] |
NOTE
C — FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT
RISK
Financial
instruments consist of cash, interest and other receivables,
notes receivable, accounts payable and accrued liabilities,
due to/from related parties and notes payable. The
carrying value of these instruments approximates their fair
values due to their short-term nature. Marketable
securities – related party and investment in real
estate loans are further described in Note J – Fair
Value.
Financial
instruments with concentration of credit and market risk
include cash, interest and other receivables, marketable
securities - related party, notes receivable, accounts
payable and accrued liabilities, due to/from related parties,
notes payable, and loans secured by deeds of trust.
We
maintain cash deposit accounts and certificates of deposit
that, at times, may exceed federally-insured
limits. To date, we have not experienced any
losses. As of June 30, 2011 and December 31, 2010,
we had approximately $0.3 million and $6.6 million,
respectively, in excess of the federally-insured
limits.
As
of June 30, 2011, 38%, 35% and 15% of our loans were in
Oregon, Nevada and Arizona, respectively, compared to 36%,
33% and 11%, at December 31, 2010,
respectively. As a result of this geographical
concentration of our real estate loans, the downturn in the
local real estate markets in these states has had a material
adverse effect on us.
At
June 30, 2011, the aggregate amount of loans to our three
largest borrowers represented approximately 57% of our total
investment in real estate loans. These real estate
loans consisted of commercial loans, located in Oregon,
Arizona and Nevada, with first lien positions in Oregon and
Nevada and a second lien position in Arizona. The
interest rates on these loans ranged from 10% to 15%, and had
an aggregate outstanding balance due to us of approximately
$6.6 million. As of June 30, 2011, the loans in
Oregon and Arizona were considered non-performing, see
“Non-Performing Loans” in Note D – Investments in
Real Estate Loans. At December 31, 2010,
the aggregate amount of loans to our three largest borrowers
represented approximately 58% of our total investment in real
estate loans. These real estate loans consisted of
commercial loans, located in Oregon, Arizona and California
with one at first lien position and two at second lien
position, interest rates between 12% and 15%, and an
aggregate outstanding balance of approximately $7.2
million. As of December 31, 2010, all of our
largest loans were considered non-performing, see
“Non-Performing Loans in Note D – Investments
in Real Estate Loans.
The
success of a borrower’s ability to repay its real
estate loan obligation in a large lump-sum payment may be
dependent upon the borrower’s ability to refinance the
obligation or otherwise raise a substantial amount of
cash. With the weakened economy, credit continues
to be difficult to obtain and as such, many of our borrowers
who develop and sell commercial real estate projects have
been unable to complete their projects, obtain takeout
financing or have been otherwise adversely
impacted. In addition, an increase in interest
rates over the loan rate applicable at origination of the
loan may have an adverse effect on our borrower’s
ability to refinance.
Common
Guarantors
As
of June 30, 2011 and December 31, 2010, two loans totaling
approximately $2.2 million, representing approximately 18.8%
and 17.9%, respectively, of our portfolio’s total
value, had a common guarantor. As of June 30, 2011
and December 31, 2010, both loans were fully reserved and
both were non-performing loans.
As
of June 30, 2011 and December 31, 2010, two loans totaling
approximately $5.0 million and $6.0 million, respectively,
representing approximately 42.6% and 48.4%, respectively, of
our portfolio’s total value, had a common
guarantor. As of June 30, 2011 and December 31,
2010, we recognized an allowance for loan loss on these loans
totaling $2.3 million for each period. As of June
30, 2011 one of these loans was considered
non-performing.
As
of May 16, 2011, the other loan changed from non-performing
to performing following compliance with adjusted terms
pursuant to a troubled debt restructuring. For
additional information regarding this troubled debt
restructuring, see “Troubled Debt Restructuring”
in Note D – Investments in
Real Estate Loans.
As
of June 30, 2011 and December 31, 2010, two loans totaling
approximately $1.5 million and $1.1 million, respectively,
representing approximately 12.8% and 9.1%, respectively, of
our portfolio’s total value, had a common
guarantor. These loans are considered
performing.
For
additional information regarding the above non-performing
loans, see “Non-Performing Loans” in Note D
– Investments
In Real Estate Loans.
|
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