10-QT 1 a030110q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM l0-Q Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For Quarter Ended March 31, 2001 Commission file number O-17248 OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership (Exact Name of Registrant as Specified In Its Charter) California 68-0023931 ---------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2221 Olympic Boulevard Walnut Creek, California 94595 ------------------------------ ----- (Address of principal executive office) (Zip Code) (925) 935-3840 -------------- (Registrant's Telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements
OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership Consolidated Balance Sheets March 31, 2001 and December 31, 2000 (UNAUDITED) March 31 December 31 2001 2000 ---- ---- ASSETS Cash and cash equivalents $ 12,962,120 $ 6,234,479 Certificates of deposit -- 50,000 Loans secured by trust deeds, net of allowance for losses of $4,000,000 in 2001 and 2000 221,424,014 219,273,464 Interest and other receivables 1,953,190 2,015,630 Real estate held for sale, net of allowance for losses of $984,000 in 2001 and $1,136,000 in 2000 3,556,304 5,547,419 Real estate held for investment, net of accumulated depreciation and amortization of $163,104 in 2001 and $107,215 in 2000 12,975,860 13,078,189 ------------- ------------- $252,871,488 $246,199,181 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Accrued distributions payable $ 626,004 $ 641,764 Due to general partner 526,093 569,267 Accounts payable and accrued liabilities 86,205 105,640 Note payable 6,023,217 6,023,217 ------------- -------------- Total Liabilities 7,261,519 7,339,888 ------------- -------------- Minority interest 101,680 102,103 -------------- --------------- PARTNERS' CAPITAL: General partner 2,397,117 2,334,845 Limited partners (units subject to redemption) 243,111,172 236,422,345 ----------- ----------- Total partners' capital 245,508,289 238,757,190 ----------- ----------- $252,871,488 $246,199,181 =========== ===========
The accompanying notes are an integral part of these financial statements.
OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership Consolidated Statements of Income For the Three Months Ended March 31, 2001 and 2000 (Unaudited) For the Three Months Ended -------------------------- March 31 March 31 2001 2000 ---- ---- REVENUES: Interest income on loans secured by trust deeds $ 6,057,192 $ 5,568,102 Gain on sale of real estate, net 975,350 -- Rental income 621,749 237,384 Other income 114,390 79,300 ------------ ------------- Total revenues 7,768,681 5,884,786 ----------- ----------- EXPENSES: Management fees to general partner 473,632 1,093,538 Servicing fees to general partner 142,917 126,939 Carried interest to general partner 25,921 23,685 Administrative 7,875 7,875 Legal and accounting 14,630 45,109 Rental expenses 423,569 105,948 Interest expense 127,868 -- Minority interest (423) -- Other 80,174 4,976 ------------ ------------ Total expenses 1,296,163 1,408,070 ------------ ------------ Net income $ 6,472,518 $ 4,476,716 =========== =========== Net income allocated to general partner $ 63,558 $ 44,004 =========== ============= Net income allocated to limited partners $ 6,408,960 $ 4,432,712 ========== =========== Net income allocated to limited partners per weighted average limited partnership unit (240,931,000 and 216,320,000 average units) $ .027 $.020 ==== ====
The accompanying notes are an integral part of these financial statements.
OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2001 and 2000 (UNAUDITED) March 31 March 31 2001 2000 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 6,472,518 $ 4,476,716 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of real estate properties (975,350) -- Depreciation and amortization 55,889 -- Changes in operating assets and liabilities: Interest receivable 62,440 246,371 Accounts payable and accrued liabilities (19,435) (133,718) Due to general partner (43,174) 16,205 --------------- -------------- Net cash provided by operating activities 5,552,888 4,605,574 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of loans secured by trust deeds (47,296,370) (22,588,083) Principal collected on loans 282,503 376,649 Loan payoffs 44,863,317 14,693,605 Sales of loans secured by trust deeds at face value -- 3,155,913 Investment in real estate properties (62,771) 1,579 Net proceeds from disposition of real estate properties 3,075,676 89,440 Investment in corporate joint venture -- (943,065) Minority interest in corporate joint venture (423) -- Proceeds from maturities of certificates of deposit 50,000 -- --------------- -------------- Net cash provided by (used in) investing activities 911,932 (5,213,962) -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of partnership units 5,693,968 6,682,853 Accrued distributions payable (15,760) 11,252 Partners' cash distributions (1,903,087) (1,763,188) Partners' capital withdrawals (3,512,300) (4,320,370) ------------- ------------- Net cash provided by financing activities 262,821 610,547 -------------- -------------- INCREASE IN CASH AND CASH EQUIVALENTS 6,727,641 2,159 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,234,479 5,216,326 -------------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,962,120 $ 5,218,485 ============= ============ Supplemental Disclosures of Cash Flow Information Cash paid during the year for interest 134,853 --
See note 2 for supplemental disclosure of non-cash investing activities. The accompanying notes are an integral part of these financial statements. OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership Notes to Consolidated Financial Statements March 31, 2001 (1) Summary of Significant Accounting Policies In the opinion of the management of the Partnership, the accompanying unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial information included therein. These financial statements should be read in conjunction with the audited financial statements included in the Partnership's Form 10-K for the fiscal year ended December 31, 2000 filed with the Securities and Exchange Commission. The results of operations for the three-month period ended March 31, 2001 are not necessarily indicative of the operating results to be expected for the full year. The consolidated financial statements include the accounts of the Partnership and its majority-owned limited liability company. All significant inter-company transactions and balances have been eliminated in consolidation. (2) Loans Secured by Trust Deeds The Partnership's investment in loans delinquent greater than ninety days is $18,147,000 and $8,014,000 as of March 31, 2001 and December 31, 2000, respectively. As of March 31, 2001, $13,017,000 of the delinquent loans has a specific related allowance for credit losses totaling $1,225,000. There is a non-specific allowance for credit losses of $2,775,000 for the remaining delinquent balance and for other current loans. The Partnership has discontinued the accrual of interest on all loans that are delinquent greater than ninety days. As of March 31, 2001 and December 31, 2000, loans past maturity totaled approximately $27,368,000 and $46,070,000, respectively. Of the past maturity loans at March 31, 2001, $14,061,000 represent loans for which interest payments are delinquent more than ninety days. During the three months ended March 31, 2001 and 2000, the Partnership refinanced loans totaling $1,900,000 and $10,304,000, respectively. (3) Real Estate Held for Sale During the quarter ended March 31, 2001, the Partnership sold a light industrial building located in Oakland, California for cash of $1,328,000, resulting in a gain to the Partnership of approximately $875,000. In addition, a commercial building located in San Ramon, California was sold for cash of $1,390,000, resulting in a gain to the Partnership of approximately $151,000. In addition, one house and one improved lot located in Lake Don Pedro, California were sold for cash of $186,000, resulting in a loss to the Partnership of approximately $51,000. OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership Notes to Consolidated Financial Statements March 31, 2001 (4) Transactions with Affiliates The General Partner of the Partnership, Owens Financial Group, Inc. (OFG), is entitled to receive from the Partnership a management fee of up to 2.75% per annum of the average unpaid balance of the Partnership's mortgage loans at the end of each of the preceding twelve months for services rendered as manager of the Partnership. All of the Partnership's loans are serviced by OFG, in consideration for which OFG receives up to .25% per annum of the unpaid principal balance of the loans. OFG, at its sole discretion may, on a monthly basis, adjust the management and servicing fees as long as they do not exceed the allowable limits calculated on an annual basis. In determining the management and servicing fees and hence the yield to the Partnership, OFG may consider a number of factors, including the then-current market yields. Even though the fees for a particular month may exceed one-twelfth of the maximum limits, at the end of the calendar year the sum of the fees collected for each of the twelve months may not exceed the stated limits. Management fees amounted to approximately $474,000 and $1,094,000 for the three months ended March 31, 2001 and 2000, respectively. Service fee payments to OFG approximated $143,000 and $127,000 for the three months ended March 31, 2001 and 2000, respectively. The maximum servicing fees were paid to the General Partner during the quarter ended March 31, 2001. If the maximum management fees had been paid to the General Partner during the quarter, the management fees would have been $1,572,000 (increase of $1,098,000), which would have reduced net income allocated to limited partners by approximately 17.0% and net income allocated to limited partners per weighted avearage limited partner unit by approximately 18.5% to $.022. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements Some of the information in this Form 10-Q may contain forward-looking statements. Such statements can be identified by the use of forward-looking words such as "may," "will," "expect," "anticipate," "estimate," "continue" or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial conditions or state other forward-looking information. When considering such forward-looking statements you should keep in mind the risk factors and other cautionary statements in the Partnership's Form 10-Q. Although management of the Partnership believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, there are certain factors, in addition to these risk factors and cautioning statements, such as general economic conditions, local real estate conditions, adequacy of reserves, or weather and other natural occurrences that might cause a difference between actual results and those forward-looking statements. Results of Operations Three Months Ended March 31, 2001 Compared to 2000 The net income increase of $1,996,000 (44.6%) for 2001 compared to 2000, was due to: o an increase in interest income on loans secured by trust deeds of $489,000; o an increase in net gain on sale of real estate of $975,000; o an increase in rental income of $384,000; and o a decrease in management fees to General Partner of $620,000. The net income increase in 2001 as compared to 2000, was offset by: o an increase in rental expenses of $318,000; and o an increase in interest expense of $128,000. Interest income on loans secured by trust deeds increased $489,000 (8.8%) for the three months ended March 31, 2001, as compared to the same period in 2000. This increase was a result of an increase in the weighted average yield of the loan portfolio from 11.17% for the three months ended March 31, 2000 to 11.60% for the three months ended March 31, 2001. In addition, the average loan portfolio grew by 7.6% for the quarter ended March 31, 2001 as compared to 2000. The increased income resulting from the growth in the weighted average yield and the average loan portfolio were offset by an increase in loans greater than 90 days delinquent in payments as of March 31, 2001 as compared to March 31, 2000. See "Financial Condition - Loan Portfolio" below. Gain on sale of real estate increased by $975,000 (100%). The increase in gain on sale of real estate was due to the sales of three properties during the quarter ended March 31, 2001 (see "Real Estate Properties Held for Sale and Investment" below). No properties were sold during the quarter ended March 31, 2000. The increase in rental income of $384,000 (161.9%) was primarily a result of the purchase of the retail development in Greeley, Colorado in July 2000. Management fees to the General Partner are paid pursuant to the Partnership Agreement between the General Partner and Limited Partners. Management fees decreased by $620,000 (56.7%) during the quarter ended March 31, 2001 as compared to 2000, primarily due to the increased delinquencies experienced on the Partnership's loan portfolio during the quarter. See "Financial Condition - Loan Portfolio" below. The increase in rental expenses of $318,000 (299.8%) during the quarter ended March 31, 2001 as compared to 2000 was a result of the purchase of the retail development in Greeley, Colorado in July 2000. The increase in interest expense of $128,000 (100%) during the quarter ended March 31, 2001 as compared to 2000 was a result of the purchase of the retail development in Greeley, Colorado and the related incurrment of debt on the new property. Financial Condition March 31, 2001 and December 31, 2000 Loan Portfolio The number of Partnership mortgage investments decreased from 116 to 107 and the average loan balance increased from $1,925,000 to $2,107,000 between December 31, 2000 and March 31, 2001. Approximately $18,147,000 (8.1%) and $8,014,000 (3.6%) of the loans invested in by the Partnership were more than 90 days delinquent in payment as of March 31, 2001 and December 31, 2000, respectively. Of these amounts, approximately $802,000 (0.36%) and $5,202,000 (2.3%), respectively, were in the process of foreclosure, and approximately $2,665,000 (1.2%) and $65,000 (0.03%), respectively, involved loans to borrowers who were in bankruptcy. Loans more than 90 days delinquent increased by $10,133,000 (126%) from December 31, 2000 to March 31, 2001, primarily due to one large loan which became delinquent during the quarter ended March 31, 2001. Management believes that the loan, with an outstanding principal balance of $12,259,000, may result in a loss to the Partnership and, therefore, has established a specific loan loss reserve of $1,000,000 related to this loan. The loan is expected to payoff as the condominium units securing the loan are sold over the next several months in 2001. Loans in the process of foreclosure decreased by $4,400,000 (84.5%) due to one loan that became current during the quarter and one loan in which the borrower entered bankruptcy and, thus, it is no longer in foreclosure. A total loan loss reserve in the amount of $4,000,000 was maintained on the books of the Partnership as of March 31, 2001 and December 31, 2000, respectively. As of March 31, 2001 and December 31, 2000, approximately 55% and 54% of the Partnership's mortgage loans are secured by real property located in Northern California. The Partnership's investment in residential loans rose by $5,000,000 (3,448%) since December 31, 2000 due to the investment in one residential loan located in Los Altos, California. All but one of the Partnership's residential loans are first trust deeds and none of these loans is delinquent in payments more than 90 days as of March 31, 2001. The Partnership's investment in construction loans decreased by $11,535,000 (27.9%) since December 31, 2000. This decrease was primarily due to the completion of construction and lease-up of the related properties of several of the Partnership's construction loans that resulted in a change in classification to income-producing. Real Estate Properties Held for Sale and Investment The Partnership currently holds title to ten properties held for sale and investment in the amount of $16,532,000, net of allowance for losses of $984,000. Nine of the ten properties were acquired through foreclosure between January 1, 1993 and March 31, 2001. One of the properties is a retail commercial development located in Greeley, Colorado, which was acquired via a reverse, like-kind exchange in July 2000, from the sale of a previous property that the Partnership had acquired through foreclosure. When the Partnership acquires property by foreclosure, it typically earns less income on those properties than could be earned on mortgage loans and may not be able to sell the properties in a timely manner. During the three months ended March 31, 2001, the Partnership acquired no properties through foreclosure. During the quarter ended March 31, 2001, the Partnership sold a light industrial building located in Oakland, California for cash of $1,450,000, resulting in a gain to the Partnership of approximately $875,000. In addition, a commercial building located in San Ramon, California was sold for cash of $1,390,000, resulting in a gain to the Partnership of approximately $151,000. In addition, one house and one improved lot located in Lake Don Pedro, California were sold for cash of $146,000, resulting in a loss to the Partnership of approximately $51,000. Two of the Partnership's ten properties do not currently generate revenue. Expenses from rental properties have increased from approximately $106,000 to $424,000 (299.8%) for the three months ended March 31, 2000 and 2001, respectively, and revenues associated with these properties have increased from $237,000 to $622,000 (161.9%). The increases in income and expenses are a result of the purchase of the Greeley, Colorado property in July 2000, as discussed above. Interest and Other Receivables Interest and other receivables decreased from approximately $2,016,000 as of December 31, 2000 to $1,953,000 as of March 31, 2001 ($63,000 or 3.1%) due primarily to the increase in loans greater than 90 days delinquent in payments (see "Financial Condition - Loan Portfolio" above). Interest income is not being accrued on these delinquent loans as of March 31, 2001. Accounts Payable and Accrued Liabilities and Due to General Partner Accounts payable and accrued liabilities decreased from approximately $106,000 as of December 31, 2000 to $86,000 as of March 31, 2001 ($20,000 or 18.9%) due primarily to decreased interest expense accrued on the Greeley, Colorado note payable as of March 31, 2001 and due to the repayment of a security deposit on the Oakland property that was sold during the quarter. Due to General Partner decreased form approximately $569,000 as of December 31, 2000 to $526,000 as of March 31, 2001 ($43,000 or 8.2%) due to decreased management fees owed to the General Partner pursuant to the Partnership Agreement (see "Results of Operations" above). Asset Quality Some losses are normal when lending money and the amounts of losses vary as the loan portfolio is affected by changing economic conditions and financial experiences of borrowers. There is no precise method of predicting specific losses or amounts that ultimately may be charged off on particular segments of the loan portfolio. The conclusion that a Partnership loan may become uncollectible, in whole or in part, is a matter of judgment. Although lenders such as banks and savings and loans are subject to regulations that require them to perform ongoing analyses of portfolio, loan to value ratios, reserves, etc., and to obtain current information regarding its borrowers and the securing properties, the Partnership is not subject to these regulations and has not adopted these practices. Rather, management of the General Partner, in connection with the quarterly closing of the accounting records of the Partnership and the preparation of the financial statements, evaluates the Partnership's mortgage loan portfolio. Based upon this evaluation, a determination is made as to whether the allowance for loan losses is adequate to cover potential losses of the Partnership. As of March 31, 2001, management believes that the allowance for loan losses of $4,000,000 is adequate. As of then, loans secured by trust deeds include $18,102,000 in loans delinquent over 90 days, of which $802,000 was invested in loans that were in the process of foreclosure. Due to the loan-to-value criteria established by the General Partner, in its opinion, the mortgage loans held by the Partnership appear in general to be adequately secured. The General Partner's judgment of the adequacy of loan loss reserves includes consideration of: o economic conditions; o borrowers' financial condition; o evaluation of industry trends; o review and evaluation of loans identified as having loss potential; and o quarterly review by the Board of Directors. Liquidity and Capital Resources Sales of Units to investors and portfolio loan payoffs provide the capital for new mortgage investments. If general market interest rates were to rise substantially, investors might turn to interest-yielding investments other than Partnership Units, which would reduce the liquidity of the Partnership and its ability to make additional mortgage investments to take advantage of the generally higher interest rates. In contrast, a significant increase in the dollar amount of loan payoffs and additional limited partner investments without the origination of new loans of the same amount would increase the liquidity of the Partnership. This increase in liquidity could result in a decrease in the yield paid to limited partners as the Partnership would be required to invest the additional funds in lower yielding, short term investments. There was little variation in the percentage of capital withdrawals to total capital invested by the limited partners between 1994 and 2001, excluding regular distributions of net income to limited partners. Withdrawal percentages have been 7.37%, 6.11%, 7.85%, 6.63%, 7.33%, 7.99%, 6.64%, and 5.78% for the years ended December 31, 1994, 1995, 1996, 1997, 1998, 1999 and 2000, and the quarter ended March 31, 2001 (annualized). These percentages are the annual average of the limited partners' capital withdrawals in each calendar quarter divided by the total limited partner capital as of the end of each quarter. The limited partners may withdraw, or partially withdraw, from the Partnership and obtain the return of their outstanding capital accounts at $1.00 per Unit within 61 to 91 days after written notices are delivered to the General Partner, subject to the following limitations, among others: o No withdrawal of Units can be requested or made until at least one year from the date of purchase of those Units, for Units purchased on or after February 16, 1999, other than Units received under the Partnership's Reinvested Distribution Plan. o Any such payments are required to be made only from net proceeds and capital contributions (as defined) during said 91-day period. o A maximum of $100,000 per partner may be withdrawn during any calendar quarter. o The General Partner is not required to establish a reserve fund for the purpose of funding such payments. o No more than 10% of the total outstanding limited partnership interests may be withdrawn during any calendar year except upon dissolution of the Partnership. Contingency Reserves The Partnership maintains cash, cash equivalents and marketable securities as contingency reserves in an aggregate amount of 2% of the limited partners' capital accounts to cover expenses in excess of revenues or other unforeseen obligations of the Partnership. Although the General Partner believes that contingency reserves are adequate, it could become necessary for the Partnership to sell or otherwise liquidate certain of its investments to cover such contingencies on terms which might not be favorable to the Partnership. Current Economic Conditions The current economic climate in Northern California and the Western United States has shown increasing signs of a slowdown. Despite the Partnership's ability to purchase mortgage loans with relatively strong yields which has resulted in increased net yields paid to the limited partners, increased competition or changes in the economy could have the effect of reducing mortgage yields in the future. Current loans with relatively high yields could be replaced with loans with lower yields, which in turn could reduce the net yield paid to the limited partners. In addition, if there is less demand by borrowers for loans and, thus, fewer loans for the Partnership to invest in, the Partnership will invest its excess cash in shorter-term alternative investments yielding considerably less than the current investment portfolio. The General Partner has the ability to purchase delinquent loans from the Partnership as long as certain criteria outlined in the Partnership Agreement are met. Although the General Partner has purchased delinquent loans from the Partnership in the past, they are not required to do so; therefore, the Partnership could sustain losses with respect to loans secured by properties located in areas of declining real estate values. This could result in a reduction of the net income of the Partnership for a year in which those losses occur. There is no way of making a reliable estimate of these potential losses at the present time. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Partnership is not presently involved in any material legal proceedings. Item 6(b). Reports on Form 8-K No reports on Form 8-K have been filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: May 11, 2001 OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership By: Owens Financial Group, Inc., General Partner Dated: May 11, 2001 By: /s/William C. Owens ------------ --------------------- William C. Owens, President Dated: May 11, 2001 By: /s/Bryan H. Draper ------------ ------------------ Bryan H. Draper, Chief Financial Officer Dated: May 11, 2001 By: /s/Melina A. Platt ------------ ------------------ Melina A. Platt, Controller