-----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, IKLlVkvqPc45zLotJ+RIDfQlyZM9fK4cIuHk93W6WhQybWmgQhf9mkE8x94m5e0t oKLTK4tn2y3MKDGGF5O2zQ== 0000773337-96-000005.txt : 19960816 0000773337-96-000005.hdr.sgml : 19960816 ACCESSION NUMBER: 0000773337-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTENNIAL MORTGAGE INCOME FUND II CENTRAL INDEX KEY: 0000773337 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330112106 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15448 FILM NUMBER: 96613327 BUSINESS ADDRESS: STREET 1: 1540 S LEWIS STREET CITY: ANAHEIM STATE: CA ZIP: 92805 BUSINESS PHONE: 7145028484225 MAIL ADDRESS: STREET 2: 1540 S LEWIS STREET CITY: ANAHEIM STATE: CA ZIP: 92805 10-Q 1 CENTENNIAL MORTGAGE INCOME FUND II 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, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from N/A to N/A Commission File Number: 0-15448 CENTENNIAL MORTGAGE INCOME FUND II (Exact name of registrant as specified in its charter) California 33-0112106 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1540 South Lewis Street, Anaheim, California 92805 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (714)502-8484 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 PART I ITEM 1. FINANCIAL STATEMENTS CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES A Limited Partnership Consolidated Balance Sheets (Unaudited)
June 30, December 31, Assets 1996 1995 - ----------------------------------------------------------------- Cash and cash equivalents $ 513,000 $ 854,000 Restricted cash 12,000 11,000 Short-term investments --- 102,000 Real estate loans receivable, earning 22,000 25,000 Real estate loans receivable from unconsolidated investees, earning (note 4) 1,247,000 1,033,000 Real estate loans receivable from unconsolidated investees, nonearning (note 4) 215,000 798,000 - ----------------------------------------------------------------- 1,484,000 1,856,000 Less allowance for possible loan losses 8,000 8,000 - ----------------------------------------------------------------- Net real estate loans receivable 1,476,000 1,848,000 Real estate owned, net, held for sale (note 3) 11,316,000 11,314,000 Less allowance for possible loan losses on real estate owned 2,545,000 2,545,000 - ----------------------------------------------------------------- Net real estate owned 8,771,000 8,769,000 See accompanying notes to consolidated financial statements 1 CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES A Limited Partnership Consolidated Balance Sheets (Continued) (Unaudited) June 30, December 31, Assets 1996 1995 - ----------------------------------------------------------------- Due from affiliates 2,000 --- Other assets 30,000 21,000 - ----------------------------------------------------------------- $ 10,804,000 $ 11,605,000 ================================================================= Liabilities and Partners' Equity - ----------------------------------------------------------------- Note payable $ 165,000 $ 185,000 Accounts payable and accrued liabilities 7,000 6,000 Interest and property taxes payable on real estate owned 240,000 203,000 Payable to affiliates (note 4) 1,000 3,000 - ----------------------------------------------------------------- Total liabilities 413,000 397,000 Partners' equity (deficit) -- 29,141 limited partnership units outstanding at June 30, 1996 and December 31, 1995 General partners (195,000) (195,000) Limited partners 10,586,000 11,403,000 - ----------------------------------------------------------------- Total partners' equity 10,391,000 11,208,000 Contingencies (note 5) - ----------------------------------------------------------------- $ 10,804,000 $ 11,605,000 =================================================================
See accompanying notes to consolidated financial statements 2 CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES A Limited Partnership Consolidated Statements of Operations (Unaudited)
Six Months Three Months Ended June 30, Ended June 30, 1996 1995 1996 1995 - ----------------------------------------------------------------- Revenue: Interest income on loans to nonaffiliates, including fees $ 8,000 $ 23,000 $ 4,000 $ 12,000 Interest income on loans to unconsolidated investees, including fees 51,000 --- 27,000 --- Interest-bearing deposits 14,000 27,000 6,000 13,000 Income from operations of real estate owned 62,000 68,000 31,000 35,000 - ----------------------------------------------------------------- Total revenue 135,000 118,000 68,000 60,000 Expenses: Provision for possible losses --- 100,000 --- 100,000 Share of losses in unconsolidated investees 587,000 310,000 442,000 157,000 Operating expenses from operations of real estate owned 35,000 37,000 18,000 21,000 Operating expenses from operations of real estate owned paid to affiliates 6,000 6,000 3,000 3,000 Expenses associated with non-operating real estate owned 183,000 110,000 90,000 71,000 See accompanying notes to consolidated financial statements 3 CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES A Limited Partnership Consolidated Statements of Operations (Continued) (Unaudited) Six Months Three Months Ended June 30, Ended June 30, 1996 1995 1996 1995 - ----------------------------------------------------------------- Depreciation and amortization expense 4,000 4,000 1,000 2,000 Interest expense 8,000 10,000 4,000 4,000 General and administrative, affiliates 88,000 64,000 46,000 37,000 General and administrative, nonaffiliates 41,000 38,000 14,000 20,000 Mortgage investment servicing fees paid to affiliates (note 4) --- 18,000 --- 9,000 - ----------------------------------------------------------------- Total expenses 952,000 697,000 618,000 424,000 - ----------------------------------------------------------------- Net loss $(817,000) $(579,000) $(550,000) $(364,000) ================================================================= Net loss per limited partnership unit $ (28.04) $ (19.87) $ (18.87) $ (12.49) =================================================================
See accompanying notes to consolidated financial statements 4 CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES A Limited Partnership Consolidated Statement of Partners' Equity (Unaudited)
For the six months ended June 30, 1996 Total General Limited Partners' Partners Partners Equity - ----------------------------------------------------------------- Balance at December 31, 1995 $ (195,000) $ 11,403,000 $ 11,208,000 Net loss --- (817,000) (817,000) - ----------------------------------------------------------------- Balance at June 30, 1996 $ (195,000) $ 10,586,000 $ 10,391,000 =================================================================
See accompanying notes to consolidated financial statements 5 CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES A Limited Partnership Consolidated Statements of Cash Flows (Unaudited)
For the six months ended June 30, 1996 and 1995 1996 1995 - ----------------------------------------------------------------- Cash flows from operating activities: Net loss $ (817,000) $ (579,000) Adjustments to reconcile net loss to net cash used in operating activities: Provision for possible losses --- 100,000 Amortization of unearned loan fees and discounts (1,000) --- Interest accrued to principal on loans to affiliates (51,000) --- Depreciation expense 4,000 4,000 Equity in losses of unconsolidated investees 587,000 310,000 Changes in assets and liabilities: Increase in other assets (13,000) (14,000) Increase in due from affiliates (2,000) --- Decrease in payable to affiliates (2,000) (3,000) Increase (decrease) in accounts payable and accrued liabilities 1,000 (8,000) Increase (decrease) in interest and taxes payable on real estate owned 37,000 (11,000) See accompanying notes to consolidated financial statements 6 CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES A Limited Partnership Consolidated Statements of Cash Flows (Continued) (Unaudited) For the six months ended June 30, 1996 and 1995 1996 1995 - ----------------------------------------------------------------- Net cash used in operating activities (257,000) (201,000) - ----------------------------------------------------------------- Cash flows from investing activities: Principal collected on loans 32,000 3,000 Advances on loans made to unconsolidated investees (note 4) (195,000) (121,000) Additions to real estate owned (2,000) --- Increase in restricted cash (1,000) --- Decrease in short-term investments 102,000 --- - ----------------------------------------------------------------- Net cash used in investing activities (64,000) (118,000) - ----------------------------------------------------------------- Cash flows from financing activities: Principal payments on notes payable (20,000) (19,000) - ----------------------------------------------------------------- Net decrease in cash (341,000) (338,000) Beginning cash and cash equivalents 854,000 1,908,000 - ----------------------------------------------------------------- Ending cash and cash equivalents $ 513,000 $ 1,570,000 ================================================================= Supplemental disclosures of cash flow information: Cash paid during the six months for: Interest $ 8,000 $ 10,000
See accompanying notes to consolidated financial statements 7 CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES A Limited Partnership Notes to Consolidated Financial Statements (Unaudited) June 30, 1996 and 1995 (1) BUSINESS Centennial Mortgage Income Fund II (the "Partnership") has historically invested in commercial, industrial and residential income-producing real property through mortgage investments consisting of participating first mortgage loans, other equity participation loans, construction loans, and wrap-around and other junior loans. The Partnership's underwriting policy for granting credit was to fund loans secured by first and second deeds of trust on real property. The Partnership's area of concentration is in California. As of June 30, 1996, most of the loans secured by operating properties have been repaid to the Partnership. However, during recent years, real estate market values for undeveloped land in California have declined severely. As the loans secured by undeveloped land became delinquent, the Partnership elected to foreclose on certain of these loans, thereby increasing real estate owned balances. As a result, the Partnership has become a direct investor in this real estate and intends to manage operating properties and develop raw land until such time as the Partnership is able to sell this real estate owned. As required by the Partnership Agreement, the Partnership is currently in the repayment stage, and as a result, cash proceeds from mortgage investments are no longer available for reinvestment. (2) BASIS OF PRESENTATION The consolidated financial statements are unaudited and reflect all adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim periods. Results for the six months ended June 30, 1996 and 1995 are not necessarily indicative of results which may be expected for any other interim period, or for the year as a whole. 8 Information pertaining to the six months ended June 30, 1996 and 1995 is unaudited and condensed inasmuch as it does not include all related footnote disclosures. The condensed consolidated financial statements do not include all information and footnotes necessary for fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Notes to consolidated financial statements included in Form 10-K for the year ended December 1995 on file with the Securities and Exchange Commission, provide additional disclosures and a further description of accounting policies. Net Loss per Limited Partnership Unit Net loss per limited partnership unit was based on the weighted average number of limited partnership units outstanding of 29,141 for all periods presented. Impaired Loans The Partnership considers a loan to be impaired when based upon current information and events, it believes it is probable that the Partnership will be unable to collect all amounts due according to the contractual terms of the loan agreement. In determining impairment, the Partnership considers large non- homogeneous loans including nonaccrual loans, troubled debt restructuring and performing loans which exhibit, among other characteristics, high loan-to-value ratios, low debt-coverage ratios, or other indications that the borrowers are experiencing increased levels of financial difficulty. The Partnership bases the measurement of collateral-dependent impaired loans on the fair value of the loan's collateral. The amount by which the recorded investment of the loan exceeds the measure of the impaired loan's value is recognized by recording a valuation allowance. At June 30, 1996, the carrying value of loans that are considered to be impaired under SFAS 114 totaled $215,000 (all of which were on nonaccrual status). At June 30, 1996, there was no allowance for possible loan losses determined in accordance with the provisions of SFAS 114, related to loans considered impaired under SFAS 114 recorded by the Partnership. However, the unconsolidated investees have recorded an allowance for losses of $4,180,000 and the Partnership's proportionate share of losses in unconsolidated investees reflects this allowance. 9 There was a $4,000 investment in impaired loans during the six months ended June 30, 1996. For the six months ended June 30, 1996, the Partnership recognized no interest income nor cash basis income on these impaired loans. Carrying Value of Real Estate Owned, Held for Sale Effective January 1, 1996, the Partnership adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 requires that long-lived assets to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. An impairment loss shall be measured as the amount by which the carrying amount of the asset exceeds the fair value of the assets. SFAS 121 requires that assets to be disposed of not be depreciated while they are held for disposal. (3) REAL ESTATE OWNED
Real estate owned consists of the following: (dollars in thousands) June 30, December 31, 1996 1995 - ----------------------------------------------------------------- 1. Office building in San Bernardino, CA $ 837 $ 837 2. 45 acres in Sacramento, CA 4,128 4,126 3. Proposed marina and condominiums in Redwood City, CA 5,360 5,360 4. 10.66 acres in Roseville, CA 1,003 1,003 - ----------------------------------------------------------------- Subtotal 11,328 11,326 Less accumulated depreciation 12 12 - ----------------------------------------------------------------- Total real estate owned $ 11,316 $ 11,314 =================================================================
10 In accordance with SFAS 121, the Partnership carries real estate owned, held for sale, at the lower of carrying amount or fair value less costs to sell. The estimated fair values were determined by using appraisals, discounted cash flows and/or other valuation techniques. The actual market price of real estate can only be determined by negotiation between independent third parties in a sales transaction. (4) TRANSACTIONS WITH AFFILIATES Under the provisions of the Partnership Agreement, Centennial Corporation, ("CC"), is entitled to receive from the Partnership mortgage investment servicing fees for loans serviced equal to an annual rate of 1/4 of 1 percent of the committed amount to be funded by the Partnership. Mortgage investment servicing fees for the six and three months ended June 30, 1995 were $18,000 and $9,000. There were no mortgage investment servicing fees incurred for the six and three months ended June 30, 1996. Under the provisions of the Partnership Agreement, the general partners are to receive compensation for their services in supervising the affairs of the Partnership. This partnership management compensation shall be equal to 10 percent of the cash available for distribution, as defined in the Partnership Agreement. The general partners will not receive this compensation until the limited partners have received a 12 percent per annum cumulative return on their adjusted invested capital, but are entitled to receive a 5 percent interest in cash available for distribution in any year until this provision has been met. Adjusted invested capital is defined as the original capital invested less distributions from mortgage reductions. Payments to the general partners have been limited to 5 percent of cash available for distribution as the limited partners have not received their 12 percent per annum cumulative return. Under this provision of the Partnership Agreement, no distributions were paid to the general partners during the six and three months ended June 30, 1996 or 1995. The Partnership owns 50 percent of the outstanding capital stock of two corporations which have not been consolidated in the accompanying financial statements, LCR Development, Inc., ("LCR") and BKS Development Inc., ("BKS"). The balance of outstanding capital stock in these corporations is owned by Centennial Mortgage Income Fund ("CMIF"), an affiliate. LCR has invested in a joint venture, Silverwood Homes ("Silverwood") which is constructing homes in Lancaster, CA. The Partnership has participated in making several loans to these corporations and 11 this joint venture. Under the equity method of accounting, these loans are a component of the Partnership's investment in LCR and BKS, and therefore, the Partnership has recorded losses by LCR and BKS as a reduction of the carrying value of these loans receivable. The Partnership holds a 50 percent participation in an unsecured note in the amount of $2,115,000 due from LCR. The Partnership's share of the note at June 30, 1996 is $1,059,000 and the Partnership had applied $1,022,000 of cumulative losses from unconsolidated investees against the carrying value of the note as of that same date. The Partnership has not accrued its share of interest on this note which was approximately $217,000 as of June 30, 1996. Silverwood began constructing a model home complex at the project in June 1995. Construction commenced in September 1995 on Phase I at the project. At June 30, 1996, the Partnership holds a 50 percent participation in three notes, due from Silverwood consisting of a land development loan, a model home loan and a home construction loan. The Partnership's disbursed balance of the $3,265,700 development loan at June 30, 1996, is $643,000. The Partnership's disbursed balance of the $490,000 model loan at June 30, 1996 is $238,000. At June 30, 1996 the Partnership's disbursed balance of the $1,034,000 Phase I construction loan is $367,000. 12 The consolidated balance sheet and income statement of LCR have not been consolidated in the Partnership's financial statements. The Partnership accounts for its investment in this corporation using the equity method. The following represents condensed financial information for LCR Development, Inc. at June 30, 1996 and for the six months ended June 30, 1996: LCR Development, Inc. Consolidated Balance Sheet
June 30, Assets 1996 - ----------------------------------------------------------------- Cash $ 2,000 Real estate owned, held for investment 5,902,000 Less allowance for losses on real estate investments 1,337,000 - ----------------------------------------------------------------- Net real estate owned 4,565,000 Organization costs 2,000 - ----------------------------------------------------------------- $ 4,569,000 ================================================================= Liabilities and Stockholders' Deficit - ----------------------------------------------------------------- Notes payable to affiliates $ 6,299,000 Payable to affiliates 2,000 Interest and taxes payable on real property 313,000 - ----------------------------------------------------------------- Total liabilities 6,614,000 Stockholders' deficit (2,045,000) - ----------------------------------------------------------------- $ 4,569,000 =================================================================
13 LCR Development, Inc. Consolidated Statement of Operations
Six months ended June 30, 1996 - ----------------------------------------------------------------- Provision for losses on real estate owned $ 550,000 Interest expense 113,000 Selling and marketing expenses 100,000 General and administrative 91,000 - ----------------------------------------------------------------- Net (loss) $ (854,000) =================================================================
The Partnership holds a 50 percent participation in a note secured by a first trust deed in the amount of $3,894,000 due from BKS. The Partnership's share of the note receivable at June 30, 1996 is $1,951,000 and the Partnership had applied $1,773,000 of cumulative losses from unconsolidated investees against the carrying value of the note as of that same date. The Partnership had not accrued its share of interest on this note which was approximately $562,000 as of June 30, 1996. 14 The balance sheet and statement of operations of BKS have not been consolidated in the Partnership's financial statements. The Partnership accounts for its investment in this corporation using the equity method. The following represents condensed financial information for BKS at June 30, 1996 and for the six months ended June 30, 1996: BKS Development, Inc. Balance Sheet
June 30, Assets 1996 - ----------------------------------------------------------------- Cash $ 1,000 Real property 5,199,000 Less allowance for losses on real estate investments 2,843,000 - ----------------------------------------------------------------- Net real estate owned 2,356,000 - ----------------------------------------------------------------- $ 2,357,000 ================================================================= Liabilities and Stockholders' Deficit - ----------------------------------------------------------------- Bonds payable $ 698,000 Note payable to affiliates 3,898,000 Interest and property taxes payable on real property 1,307,000 - ----------------------------------------------------------------- Total liabilities 5,903,000 Stockholders' deficit (3,546,000) - ----------------------------------------------------------------- $ 2,357,000 =================================================================
15 BKS Development, Inc. Statement of Operations
Six months ended June 30, 1996 - ----------------------------------------------------------------- Interest expense $ 92,000 Provision for losses 150,000 Property taxes 72,000 General and administrative 5,000 - ----------------------------------------------------------------- Net (loss) $ (319,000) =================================================================
(5) CONTINGENCIES There are no material pending legal proceedings other than ordinary routine litigation incidental to the Partnership's business. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL References to the "Partnership" in the following discussion refers to Centennial Mortgage Income Fund II and its wholly-owned subsidiaries. The Partnership had net losses and losses per limited partnership unit of $(817,000) and $(28.04) and $(550,000) and $(18.87), respectively, for the six and three months ended June 30, 1996 and ($579,000) and $(19.87) and $(364,000) and $(12.49), respectively, for the six and three months ended June 30, 1995. The increase in losses from 1995 to 1996 is primarily the result of an increase in losses in unconsolidated investees and an increase in expenses associated with non-operating real estate owned which were partially offset by an increase in net interest income and a decrease in the provision for possible losses. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the Partnership had $513,000 in unrestricted cash and interest-bearing deposits. The Partnership had no unfunded loan commitments to nonaffiliates at June 30, 1996. Sources of funds are expected to be from the sale of real estate owned. Future operations of real estate owned are not expected to be a significant source of funds. The Partnership funded advances on loans to unconsolidated investees totaling $195,000 and received payoffs and paydowns on loans totaling $32,000 during the six months ended June 30, 1996. During the first six months of 1996, the Partnership disbursed funds for the improvement of real estate owned totaling $2,000. The Partnership's notes payable commitments consist of interest and principal payments due of approximately $58,000 payable during the next twelve months. In addition to the note payable commitments, the Partnership's principal capital requirements include: (i) real property taxes on real estate owned of approximately $512,000 payable during the next twelve months (including taxes accrued and delinquent as of June 30, 1996), and (ii) selling, general and administrative costs. Interest and property taxes payable on real estate owned as of June 30, 1996 consisted of $240,000 in delinquent real estate taxes on the proposed marina in Redwood City. The Partnership can apply for a 5 year redemption plan on a portion of the property taxes due in 1996 to ease liquidity constraints, if necessary. These commitments are expected to be paid from existing cash reserves and the sale of real estate owned. Several of the Partnership's real estate assets are listed for sale; however, if liquidity becomes a major concern in 1996, management may find it necessary to significantly reduce the asking prices on one or more assets in order to generate liquidity. The Partnership is continuously evaluating various alternative strategies for liquidating its real estate assets under current market conditions. These alternative strategies include the potential joint venture and/or build out of certain of the Partnership's properties in order to increase their marketability and maximize the return to the limited partners. In the event the Partnership decides to implement some of these strategies, it may require the investment of proceeds received from the payoff of existing loans and the sale of other real estate assets. The decision to invest additional cash in existing assets will only be made if, based on management's best judgment at the time, there is a clear indication that such investment should generate a significantly greater return to the limited partners than any other strategies available to the Partnership. Effective with the third quarter of 1991, the Partnership suspended cash distributions to partners due to a decline in liquidity and the uncertainty of the cash requirements for existing and potential real estate owned. Pursuant to the Partnership Agreement, 60 months after the closing of the offering, cash proceeds from mortgage investments are no longer available for reinvestment by the Partnership. Management believes that current and projected liquidity is sufficient to fund operating expenses and to meet the contractual obligations and cash flow operating requirements of the Partnership. However, although no new mortgage investments shall be made, the general partners expect that the cash proceeds from future mortgage reductions will be retained by the Partnership until such time as the Partnership has sufficient cash to fulfill the operating requirements of the real estate owned by the Partnership. RESULTS OF OPERATIONS Due to the downturn in the real estate industry in California, several of the Partnership's loans have become nonperforming and subsequently real estate owned. As a result, interest income on loans to nonaffiliates continues to decline. Interest income on loans to nonaffiliates, including fees decreased to $8,000 and $4,000 for the six and three months ended June 30, 1996 from $23,000 and $12,000 for the six and three months ended June 30, 1995. The decrease in interest income on loans for the six and three months ended June 30, 1995 to 1996 is primarily due to the payoff of a large loan receivable in 1995. Interest income on loans to unconsolidated investees, including fees totaled $51,000 and $27,000 for the six and three months ended June 30, 1996. There was no comparable income for the same periods in 1995. Interest income on loans to unconsolidated investees represents interest earned on the Silverwood loans. The outstanding principal balance of loans on nonaccrual at June 30, 1996 totaled $215,000. There were no loans on nonaccrual at June 30, 1995. Loans on "nonaccrual" refers to loans upon which the Partnership is no longer accruing interest. Management's policy is to cease accruing interest on loans when interest and/or principal repayments become 90 days past due. Had interest accrued throughout the first six months of 1996 on the affiliated nonaccrued loans, interest income would have been approximately $189,000 higher than was actually reported for that period. The real estate owned balance at June 30, 1996 and 1995 was $8,771,000 and $8,736,000, respectively. The following sections entitled Nonaccrual Loans and Real Estate Owned provide a detailed analysis of these assets. NONACCRUAL LOANS During 1994, the Partnership converted a 50 percent participation in a note secured by a second trust deed into a 50 percent participation in a $2,115,000 unsecured note representing a workout loan due from LCR, an affiliate. This loan and an additional loan funded by CMIF reflect the majority of the cost basis of single family lots contributed to Silverwood Homes. LCR's only source of repayment of this note is proceeds from the sale of the fully developed lots. Management has estimated the proceeds for repayment of this note to be less than the original principal balance of the loan. As a result, the loan has been placed on nonaccrual. The participating principal balance and nonaccrued interest balances at June 30, 1996 are $1,059,000 and $217,000, respectively. As discussed in note 4, the Partnership has reduced the carrying value of this note by $1,022,000, its share of losses from this unconsolidated investee. During 1994, the Partnership acquired a 50 percent participation in a $3,894,000 note due from BKS. The loan is secured by 283 acres in Bakersfield, CA. The property has declined in value and is subject to delinquent bonds and taxes. As a result, the Partnership has placed the loan on nonaccrual. The participating principal balance and nonaccrued interest balance at June 30, 1996 are $1,951,000 and $562,000, respectively. As discussed in note 4, the Partnership has reduced the carrying value of this note by $1,773,000, its share of losses from this unconsolidated investee. REAL ESTATE OWNED A description of the Partnership's principal real estate owned follows: Office Building in San Bernardino, California The Partnership funded a loan during January 1988 with an original committed amount of $921,000 which was secured by a second trust deed on an office building comprised of 15,894 square feet of rentable space located in San Bernardino, California. The loan was provided as gap financing behind a first deed of trust in the amount of $350,000 to another financial institution. The borrower was unable to payoff the loan at maturity and the Partnership foreclosed on April 20, 1993. The Partnership restructured the note secured by the first trust deed to a more favorable term and rate. The project is 69 percent leased and is beginning to generate positive net operating income. The property generated net operating income before debt service of $21,000 during the first six months of 1996. The property is being marketed for sale. The carrying value at June 30, 1996 was $837,000 less depreciation of $12,000. The property is encumbered by a fully amortizing note secured by a first trust deed of $165,000 which will be paid off on December 31, 1999. 45 Acres in Sacramento, California The Partnership funded a loan in 1987 with a committed amount of $4,000,000 secured by a first trust deed on 44.52 acres in Sacramento, California. The loan was provided for the development of offsite improvements. The maturity date was February 1, 1991. The borrower was unable to obtain construction financing and bring interest current. The Partnership accepted a grant deed on the property on March 10, 1992. The property is zoned for multi-family and light industrial use. The Partnership is in the process of rezoning and subdivision of portions of the property to facilitate one escrow on a portion of the property. The Partnership is not expecting to realize any material gains or losses related to this potential sale and there is no assurance that this escrow will actually close. At June 30, 1996, the carrying value of this asset was $4,128,000. Proposed Marina and Condominiums in Redwood City, California On April 7, 1989, the Partnership foreclosed on a land loan and now owns the property. The Partnership originally committed $3,487,000 for a land loan located in Redwood, California. The purpose of the loan was to acquire the land and provide for the planning of a 122-slip marina plus an office building and restaurant. The original maturity date of October 21, 1986 was extended to March 1, 1987. In March 1987, the borrower filed bankruptcy. The property is included in real estate owned at its carrying value of $5,360,000. Management has obtained an extension on the 404B1 permit for the marina through March 1996 and is currently working on the next extension. The 404B1 permit enables the owner to build the currently proposed 104-slip boat marina. The Partnership has completed approximately 70 percent of the dredging of the marina site. Residential sales in this entire area have seen a steady decline over the last 2-3 years, however the area appears to have stabilized. As a result, management is pursuing both, (i) the sale or joint venture of the property and (ii) Partnership buildout of the project and sale thereafter. 10.66 Acres in Roseville, California The Partnership funded a loan in 1990 with an original committed amount of $2,779,000 secured by a second deed of trust on 982 acres in Roseville, California. The borrower failed to make the required yearly principal payment to the first and second trust deed holders. The first trust deed holder filed a notice of default for nonpayment. Management negotiated a settlement agreement to accept a 10.66 acre commercial site as payment in full for the $2,779,000 note. This property had a carrying value at June 30, 1996 of $1,003,000 and has no additional debt. This area has seen an increase in residential development during 1995 which hopefully will increase interest in this property. Management is marketing the property for sale and is evaluating a possible rezone. INTEREST ON INTEREST-BEARING DEPOSITS Interest on interest-bearing deposits totaled $14,000 and $6,000 for the six and three months ended June 30, 1996 and $27,000 and $13,000 for the six and three months ended June 30, 1995. Interest on interest-bearing deposits represents interest earned on Partnership funds invested, for liquidity, in time certificate and money market deposits. The decrease in income on interest- bearing deposits is principally due to decreased cash balances for the six and three months ended June 30, 1996. INCOME FROM OPERATIONS OF REAL ESTATE OWNED Income from operations of real estate owned consists of operating revenues of $62,000 and $31,000 for the six and three months ended June 30, 1996 and $68,000 and $35,000 for the six and three months ended June 30, 1995. The 1996 and 1995 revenues are from the office building in San Bernardino. PROVISION FOR POSSIBLE LOSSES There was no provision for possible losses for the six and three months ended June 30, 1996. The provision for possible losses was $100,000 for the six and three months ended June 30, 1995. The 1995 provision relates to the office building in San Bernardino. The provision for possible losses results from the change in the allowance for possible loan losses on and the allowance for possible losses on real estate owned net of chargeoffs, if any. Management believes that the allowance for possible loan losses at June 30, 1996 is adequate to absorb the known and inherent risk in the Partnership's loan and real estate owned portfolio. SHARE OF LOSSES IN UNCONSOLIDATED INVESTEES The Partnership has invested in corporations in which it has less than a majority ownership and accounts for these investments using the equity method. The Partnership's share of losses in these unconsolidated investees was $587,000 and $442,000 for the six and three months ended June 30, 1996 and $310,000 and $157,000 for the six and three months ended June 30, 1995. The share of losses consists primarily of a provision for losses on real estate owned, interest expense, selling and marketing expense, and general and administrative expense related to the single family development owned by LCR and the 283 acres in Bakersfield owned by BKS. OTHER EXPENSES Operating expenses from operations of real estate owned were $35,000 and $18,000 for the six and three months ended June 30, 1996 and $37,000 and $21,000 for the six and three months ended June 30, 1995. These expenses were associated with the office building in San Bernardino. Operating expenses from operations of real estate owned paid to affiliates were $6,000 and $3,000 for the six and three months ended June 30, 1996 and $6,000 and $3,000 for the six and three months ended June 30, 1995. The operating expenses consist of property management fees paid to an affiliate. Expenses associated with non-operating real estate owned were $183,000 and $90,000 for the six and three months ended June 30, 1996 and $110,000 and $71,000 for the six and three months ended June 30, 1995. The expenses relate to the proposed marina and condominiums in Redwood City, the 45 acres in Sacramento, and the 10.66 acres in Roseville. The increase for the six and three months ended June 30, 1996 is due to an increase in costs due to development of the 45 acres in Sacramento and a retroactive downward adjustment of property taxes related to the proposed marina and condominiums in Redwood City which was recorded in 1995. There was no corresponding retroactive adjustment in 1996. Depreciation and amortization expense was $4,000 and $1,000 for the six and three months ended June 30, 1996 and $4,000 and $2,000 for the six and three months ended June 30, 1995. Interest expense was $8,000 and $4,000 for the six and three months ended June 30, 1996 and $10,000 and $4,000 for the six and three months ended June 30, 1995. The interest expense relates to the office building in San Bernardino. The decrease for 1996 is due to the amortization of the note secured by the office building in San Bernardino. General and administrative expenses, affiliates was $88,000 and $46,000 for the six and three months ended June 30, 1996 and $64,000 and $37,000 for the six and three months ended June 30, 1995. These expenses are primarily salary allocation reimbursements paid to affiliates. The increase for 1996 is primarily due to an $18,000 change in billing methodology from mortgage investment servicing fees to salary allocations. General and administrative expenses, nonaffiliates totaled $41,000 and $14,000 for the six and three months ended June 30, 1996 and $38,000 and $20,000 for the six and three months ended June 30, 1995. These expenses consist of other costs associated with the administration of the Partnership and real estate owned. The increase for 1996 is primarily due to moving expenses. Mortgage investment servicing fees paid to affiliates for the six and three months ended June 30, 1995 totaled $18,000 and $9,000. There were no mortgage investment servicing fees paid to affiliates incurred for the six and three months ended June 30, 1996. This consists of fees paid to Centennial Corporation, for servicing the Partnership's loan and real estate owned portfolio. During 1996, the Partnership no longer incurs mortgage investment servicing fees for servicing the Partnership's real estate owned portfolio. PART II Other Information Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) None (b) None Signatures Pursuant to the requirements of Section 13 or 15(d) 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. CENTENNIAL MORTGAGE INCOME FUND AND SUBSIDIARIES A California Limited Partnership By:/s/John B. Joseph _________________________________ John B. Joseph General Partner August 14, 1996 By:/s/Ronald R. White _________________________________ Ronald R. White General Partner August 14, 1996 By: CENTENNIAL CORPORATION General Partner /s/Joel H. Miner _________________________________ Joel H. Miner Chief Financial Officer August 14, 1996 EX-27 2 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 1,000 3-MOS DEC-31-1995 JUN-30-1996 525 0 1,484 8 0 557 0 0 10,804 248 165 0 0 0 10,391 10,804 0 135 0 0 0 0 8 (817) 0 (817) 0 0 0 (817) (28.04) (28.04)
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