UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
(Mark One)
(X) Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2002
Commission File Number: 333-11625
-------------------
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3240473
- ------------------------------- ----------------------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
50 California Street
Suite 2020
San Francisco, California 94111
- --------------------------------------- --------------
(Address of principal executive office) (zip code)
(415) 288-9575
- --------------------------------------------------------------------------------
(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 twelve 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
------- -------
As of May 3, 2002, the registrant's common shares closed at $17.30 per share and
the aggregate market value of the registrant's common shares held by
non-affiliates of the registrant was approximately $5,680,991. At that date
approximately 328,381 shares of $.01 par value common stock were held by
non-affiliates of the registrant. The shares are listed on the American Stock
Exchange.
PART I
ITEM 1.
FINANCIAL STATEMENTS
2
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Balance Sheet
(Unaudited) (Audited)
March 31, 2002 December 31, 2001
-------------- -----------------
ASSETS
Cash and cash equivalents $ 972,921 $ 441,909
Restricted cash 853,717 1,285,382
Marketable securities 10,436 --
Accounts receivable 376,771 292,588
Due from affiliates 70,138 --
Notes receivable:
Lines of credit to related parties 3,657,681 4,217,408
Mortgage notes receivable 19,079,564 17,738,923
Allowance for loan losses (203,000) (180,000)
------------ ------------
Net Receivable 22,534,245 21,776,331
Real estate owned 228,000 234,527
Investments in affiliates 1,063,261 1,062,210
Origination costs (net) 227,392 227,392
Prepaid items (net) 65,172 23,062
------------ ------------
Total assets $ 26,402,053 $ 25,343,401
============ ============
LIABILITIES AND STOCKHOLDERS'S EQUITY
Liabilities
Mortgage note holdbacks $ 853,717 $ 1,285,382
Loans payable 11,076,218 9,613,292
Due to affiliate -- 126,984
Other liabilities 228,438 223,202
------------ ------------
Total liabilities 12,158,373 11,248,860
------------ ------------
Stockholders' Equity
Preferred stock, $.01 par value; 675,000 shares authorized; 2,138 2,138
213,819 shares issued and outstanding at December 31, 2001;
213,820 shares issued and outstanding at March 31, 2002
Additional paid in capital - preferred stock 5,669,123 5,669,123
Less: 3,176 preferred shares held in treasury at cost (86,944) (86,944)
Common stock, $.01 par value; 5,000,000 shares authorized; 4,952 4,952
495,161 shares issued and outstanding at December 31, 2001;
495,161 shares issued and outstanding at March 31, 2002
Additional paid in capital - common stock 9,370,895 9,370,895
Less: 85,066 common shares held in treasury at cost (2001) -- (1,041,812)
Less: 78,742 common shares held in treasury at cost (2002) (988,411) --
Retained Earnings 271,927 176,189
------------ ------------
Total stockholders' equity 14,243,680 14,094,541
------------ ------------
Total liabilities and stockholders' equity $ 26,402,053 $ 25,343,401
============ ============
See accompanying notes to financial statement.
3
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Statement of Operations
(Unaudited)
Three Months Ended
March 31,
2002 2001
---- ----
REVENUES
Interest income $ 675,611 $ 410,896
Interest income from affiliates 59,205 132,093
Investment income from affiliates 1,052 68,503
Other income 5,610 13,610
--------- ---------
Total revenues 741,478 625,102
--------- ---------
EXPENSES
Loan servicing fees to related parties 128,000 99,912
Management fees to related parties 65,000 57,956
Interest expense on loans 105,500 102,032
Interest expense on loans from related parties 6,858 --
Provision for loan losses 23,000 28,854
Taxes 12,000 4,600
Amortization 11,167 19,313
General and administrative 75,021 42,235
--------- ---------
Total expenses 426,546 354,902
--------- ---------
INCOME BEFORE GAIN (LOSS) ON REO 314,932 270,200
--------- ---------
Operating expenses of REO (1,426) (5,709)
Gain (Loss) on Real Estate Owned (6,527) --
--------- ---------
NET INCOME $ 306,979 $ 264,491
========= =========
PREFERRED DIVIDENDS $ 88,422 $ 144,172
--------- ---------
NET INCOME AVAILABLE TO COMMON $ 218,557 $ 120,319
========= =========
BASIC EARNINGS PER
COMMON SHARE $ 0.53 $ 0.26
DILUTED EARNINGS PER
COMMON SHARE $ 0.42 $ 0.25
DIVIDENDS PAID PER
COMMON SHARE $ 0.30 $ 0.255
WEIGHTED AVERAGE COMMON
SHARES - BASIC EARNINGS 410,705 465,920
WEIGHTED AVERAGE COMMON
SHARES - DILUTED EARNINGS 521,132 472,423
See accompanying notes to financial statements.
4
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Statement of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 306,979 $ 264,491
Adjustments to reconcile net income to cash:
Amortization 11,167 19,493
(Gain) loss on real estate owned 6,527 --
(Increase) decrease in prepaid items (33,775) (24,568)
(Income) loss from investment in affiliates (1,052) (68,503)
Provision for loan losses 23,000 28,854
(Increase) decrease in accounts receivable (84,183) 87,901
Increase (decrease) in due to affiliates (197,122) (99,028)
Increase (decrease) in other liabilities 5,236 33,809
----------- -----------
Net cash provided by (used in) operating activities 36,777 242,449
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in warehouse lines of credit 559,727 (2,005,495)
Increase in marketable securities (10,436) --
Investments in mortgage notes receivable (3,614,242) (2,801,755)
Repayments of mortgage notes receivable 2,273,601 3,145,219
Net proceeds from sale of real estate owned -- 108,250
Capital costs of real estate owned -- (4,626)
----------- -----------
Net cash provided by (used in) investing (791,350) (1,558,407)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans 1,462,926 2,126,551
Loan fees paid (19,500) --
Purchase of treasury stock (11,840) (38,229)
Sale of treasury stock 65,241 --
Preferred dividends paid (88,421) (144,172)
Common dividends paid (122,821) (119,277)
----------- -----------
Net cash provided by (used in) financing activities 1,285,585 1,824,873
----------- -----------
NET INCREASE (DECREASE) IN CASH 531,012 508,915
CASH AT BEGINNING OF PERIOD 441,909 368,241
----------- -----------
CASH AT END OF PERIOD $ 972,921 $ 877,156
=========== ===========
SUPPLEMENTAL CASHFLOW INFORMATION:
Interest expense paid $ 112,358 $ 86,830
Taxes paid $ 800 $ 1,600
See accompanying notes to financial statements.
5
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2002
1. Organization.
------------
Capital Alliance Income Trust Ltd., A Real Estate Investment Trust (the
"Trust"), a Delaware corporation, invests primarily in mortgage loans
secured by real estate. The Trust was formed December 12, 1995 as a
mortgage investment trust, which invests primarily in loans secured by
deeds of trust on one-to-four unit residential properties as the loan's
primary collateral.
The Trust acquired an investment in Capital Alliance Funding Corporation
("CAFC"), a taxable subsidiary, during the second quarter of 1997. The
investment in CAFC is accounted for by the equity method and its
financial statements are not consolidated with those of the Trust. The
Trust holds 100% of the non-voting preferred stock of CAFC with a 99%
economic interest in CAFC. CAFC acquires loans for sale, secured by deeds
of trust on one-to-four unit residential property as the loans primary
collateral. The investment in CAFC is reported in "Investments in
affiliates" on the Trust's Balance Sheet and in "Equity in earnings of
affiliates" in the Trust's Statement of Operations. CAFC's audited
Balance Sheet and Statement of Operations are summarized in Note 10.
Capital Alliance Advisors, Inc. (the "Manager") originates, services and
sells the Trust's and CAFC's loans.
2. Basis of presentation.
---------------------
The accompanying financial statements include the accounts of the Trust.
The financial information presented has been prepared from the books and
records without audit. The accompanying financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and the footnotes required by accounting
principles generally accepted in the United States of America for
complete statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such financial statements, have been included.
These financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended December 31,
2001 filed pursuant to 15d-2 on Form 10-K with the Securities and
Exchange Commission.
The unaudited interim financial statements for the three months ended
March 31, 2002 and March 31, 2001 represent the financial statements of
the Trust.
3. Summary of significant accounting policies and nature of operations.
--------------------------------------------------------------------
Revenue recognition. Interest income is recorded on the accrual basis of
accounting in accordance with the terms of the loans. When the payment of
principal or interest is 90 or more days past due, management reviews the
likelihood that the loan will be repaid. For these delinquent loans,
management continues to record interest income and establishes a loan
loss reserve as necessary to protect against losses in the loan portfolio
including accrued interest. However, if the mortgage's collateral is
considered insufficient to satisfy the outstanding balance and estimated
foreclosure and sales costs, interest is not accrued.
6
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2002
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that effect
the accounts reported in financial statements and the accompanying notes.
Actual results could differ from those estimates.
Cash and cash equivalents. Cash and cash equivalents include cash and
liquid investments with an original maturity of three months or less. The
Trust deposits cash in financial institutions insured by the Federal
Deposit Insurance Corporation. At times, the Trust's account balances may
exceed the insured limits.
Fair value of financial instruments. For cash and cash equivalents, the
carrying amount is a reasonable estimate of fair value. For mortgage note
receivables, fair value is estimated by discounting the future cash flows
using the current interest rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities. It was determined that the difference between the carrying
amount and the fair value of the mortgage notes receivable is immaterial.
Concentration of credit risk. The Trust holds numerous mortgage notes
receivable. These notes are secured by deeds of trust on residential
properties located primarily in California, which results in a
concentration of credit risk. The value of the portfolio may be affected
by changes in the economy or other conditions of the geographic area.
Loan loss reserve. Management reviews its loan loss provision
periodically and the Trust maintains an allowance for losses from
receivables at an amount that management believes is sufficient to
protect against potential losses inherent in the loan portfolio. Accounts
receivable deemed uncollectible are written off or reserved. The Trust's
actual losses may differ from the estimate. The Trust does not accrue
interest income on impaired loans.
Real estate owned. Real estate owned results from foreclosure of loans
and at time of foreclosure is recorded at the lower of carrying amount or
fair value of the property minus estimated costs to sell. Any senior debt
to which the asset is subject is reported as mortgage payable. Subsequent
to foreclosure, the foreclosed asset value is periodically reviewed and
is adjusted to fair value. No depreciation is taken on the real estate
held for sale. Income and expenses related to real estate owned are
recorded as rental income, interest expense of real estate owned and as
operating expenses of real estate owned on the Statements of Operations.
Investments. The Trust owns 100% of the non-voting preferred shares and
has a 99% economic interest in CAFC. As the Trust does not own the voting
common shares of CAFC or control CAFC, its investment in CAFC is
presented by the equity method of accounting. Under this method, original
equity investments are recorded at cost and adjusted by the Trust's share
of earnings or losses and decreased by dividends received.
Origination costs. Origination costs relating to mortgage notes
receivable are capitalized and amortized over the term of the notes.
Income taxes. The Trust intends at all times to qualify as a real estate
investment trust ("REIT") for federal income tax purposes, under Sections
856 through 860 of the Internal revenue Code of 1986, as amended and
applicable Treasury Regulations. Therefore, the Trust will not be subject
to federal corporate income taxes, if the Trust distributes at least 90%
7
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2002
of its taxable income to its shareholders. To qualify as a REIT, the
trust must elect to be so treated and must meet on a continuing basis
certain requirements relating to the Trusts organization, sources of
income, nature of assets, and distribution of assets to shareholders. The
Trust must maintain certain records and request certain information from
its stockholders designed to disclose actual ownership of its stock. In
addition the Trust must satisfy certain gross income requirements and
certain asset tests at the close of each quarter of its taxable year.
If the Trust fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Trust will be subject to tax
on its taxable income at regular corporate rates. Distributions to
stockholders in any year in which the Trust fails to qualify will not be
deductible by the Trust nor will they be required to be made. Unless
entitled to relief under specific statutory provisions, the Trust will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost.
Based on the Trust's belief that it has operated in a manner so as to
allow it to elect to be taxed as a REIT since inception, no provision for
federal income taxes has been made in the financial statements.
For the three-month period ended March 31, 2002 and March 31, 2001, the
distributions per preferred and common share are allocated 100% as
ordinary income for tax purposes.
Earnings per share. Earnings per share and shares outstanding have been
adjusted on the Statement of Operations for the three to one reverse
stock split made May 11, 2001.
Reclassifications. Certain 2001 amounts may have been reclassified to
conform to 2002 classifications. Such reclassifications had no effect on
reported net income.
4. Restricted cash and mortgage note holdbacks.
-------------------------------------------
Pursuant to mortgage loan agreements between the Trust and certain of its
borrowers, a portion of the loan proceeds are held by the Trust in
segregated accounts to be disbursed to borrowers upon completion of
improvements on the secured property. As of March 31, 2002 and December
31, 2001, mortgage note holdbacks from the consummation of mortgage loans
made amounted to $853,717 and $1,285,382 respectively.
5. Accounts receivable.
-------------------
Accounts receivable consists of accrued interest on mortgage notes
receivable and other amounts due from borrowers.
6. Lines of credit to related parties
----------------------------------
The Trust entered into a loan purchase agreement on December 12, 1997
with Capital Alliance Funding Corporation ("CAFC"). Under the terms of
the agreement, the Trust advances funds to CAFC to acquire mortgage loans
secured by real estate. The Trust then acquires all of CAFC's right,
title and interest in such loans. CAFC is obligated to reacquire the
loans from the Trust at a preset price. As of March 31, 2002 and December
31, 2001, the Trust advanced to CAFC $3,657,681 and $4,217,408.
8
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2002
The interest rate on this line of credit varies with market conditions
and is payable monthly. As of March 31, 2002 and December 31, 2001, the
applicable interest rate was 7.0%.
The Trust entered into a loan purchase agreement on January 1, 1998 with
CAlliance Mortgage Trust, which subsequently merged into the Mortgage
Division of CAlliance Realty Fund, LLC ("CRF") on May 30, 2000. Under the
terms of the agreement, the Trust advances funds to CRF to acquire
mortgage loans secured by real estate. The Trust then acquires all of
CRF's right, title and interest in such loans.
CRF is obligated to reacquire the loans from the Trust at a preset
price. Annual interest on this line of credit of between 7.00% and 12%
varies with market conditions and is payable monthly. As of March 31,
2002 and December 31, 2001, no borrowings from the Trust were
outstanding. The Trust also borrows on an unsecured basis from CRF with
interest payable monthly at an annual rate of between 5.0% and 12.0%. As
of March 31, 2002 and December 31, 2001, the Trust had repaid all
borrowings from CRF.
7. Mortgage notes receivable.
-------------------------
Mortgage notes receivable represent home equity loans secured by
residential real estate. At their original origination, all loans have a
combined loan-to-value of not more than 75% of the underlying
collateral's appraisal. The Trust is subject to the risks inherent in
finance lending including the risk of borrower default and bankruptcy.
Mortgage notes receivable are stated at the principal outstanding.
Interest on the mortgages is usually due monthly and principal is usually
due as a balloon payment at loan maturity. The balances as of March 31,
2002 and December 31, 2001, were $17,738,923 and $19,079,564,
respectively.
8. Loan loss reserve.
-----------------
The Trust measures loan impairment based on the fair value of the related
collateral since all loans subject to this measurement are collateral
dependent. Management believes a $203,000 loan loss reserve is adequate
to protect against potential losses inherent in all receivables as of
March 31, 2002. The Trust's actual losses may differ from the estimate.
9. Real estate owned.
-----------------
As of March 31, 2002 and December 31, 2001, the Trust owned two
properties with a balance of $228,000 and $234,527, respectively.
9
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2002
10. Investment in affiliates.
------------------------
Capital Alliance Funding Corporation.
------------------------------------
On April 11, 1997 the Trust formed a non-qualified REIT subsidiary,
Capital Alliance Funding Corporation ("CAFC"), to conduct a mortgage
banking business. The Trust owns all of the outstanding Series "A"
Preferred Stock (2,000 shares of non-voting stock), which constitutes a
99% economic interest in CAFC. The Trust's Manager owns all of the Common
Shares (1,000 shares) of CAFC, which constitutes a 1% economic interest,
and has 100% voting control. The Trust's Manager also manages CAFC and
provides mortgage origination and sale services for CAFC. The Trust
accounts for its investment in CAFC by the equity method.
10
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2002
CAPITAL ALLIANCE FUNDING CORPORATION
BALANCE SHEET
As of As of
March 31, December 31,
(Unaudited) (Audited)
2002 2001
---- ----
ASSETS
Cash and cash equivalents $ 184,942 $ 338,146
Restricted cash 451,124 517,655
Accounts receivable 98,980 164,261
Mortgage notes receivable 5,592,614 8,631,751
Allowance for loan losses (119,458) (118,000)
------------ ------------
Net receivable 5,473,156 8,513,751
Real estate owned 805,687 567,000
Investment in affiliate 5,000 5,000
Other assets 30,738 45,934
------------ ------------
Total assets $ 7,049,627 $ 10,151,747
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Mortgage note holdbacks $ 451,124 $ 517,655
Warehouse lines of credit 5,414,481 8,423,103
Due to affiliates 30,477 12,283
Other liabilities 98,761 144,984
------------ ------------
Total liabilities 5,994,843 9,098,025
------------ ------------
Stockholders' equity
Preferred shares, no par value, 2,000 shares -- --
authorized, 2,000 shares issues and outstanding
Common shares, no par value, 1,000 shares
authorized, 1,000 shares issued and outstanding
Additional paid in capital 1,925,730 1,925,730
Accumulated deficit (870,946) (872,008)
------------ ------------
Total stockholders' equity 1,054,784 1,053,722
------------ ------------
Total liabilities and stockholders' equity $ 7,049,627 $ 10,151,747
============ ============
11
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2002
CAPITAL ALLIANCE FUNDING CORPORATION
STATEMENT OF OPERATIONS
(unaudited)
Three Months Ended Three Months Ended
March 31, March 31,
2002 2001
---- ----
REVENUES
Interest income $ 209,444 $ 160,545
Loan origination income 96,730 181,809
Service release premium 1,235 12,517
Other income 2,430 4,352
--------- ---------
Total revenues 309,839 359,223
--------- ---------
EXPENSES
Management fees to related party 4,958 12,512
Interest expense on warehouse lines of credit 87,027 116,046
Loan origination costs 48,707 40,345
Provision for loan losses 1,458 11,667
Wages and salaries 124,227 101,766
General and administrative 24,313 7,315
Taxes 9,055 6,849
--------- ---------
Total expense 299,745 296,500
--------- ---------
INCOME BEFORE GAIN (LOSS) ON
REAL ESTATE OWNED 10,094 62,723
Gain on real estate owned -- 9,900
Property holding costs on real estate owned (9,031) (3,427)
--------- ---------
NET INCOME $ 1,063 $ 69,196
========= =========
12
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2002
The following are selected footnote disclosures from CAFC's financial
statements:
Accounts receivable
-------------------
Accounts receivable consists primarily of amounts due from borrowers
for items such as interest, property taxes, insurance, and interest on
a first deed mortgage that were paid by CAFC on behalf of the property
securing the mortgage notes. As of March 31, 2002 and December 31,
2001, amounts due from borrowers were $98,980 and $164,261,
respectively.
Mortgage notes receivable
-------------------------
Mortgage notes receivable are stated at the principal outstanding.
Interest on the loans is due monthly. The loans are secured by first
and junior deeds of trust on commercial and residential properties.
CAFC is subject to the risks inherent in mortgage lending including the
risk of borrower default and bankruptcy. The balances as of March 31,
2002 and December 31, 2001 were $5,592,614 and $8,631,751,
respectively.
Some of the mortgage loans originated and purchased by CAFC are held
for sale to CAIT. The remaining originations and purchases are
designated for sale to independent third parties. CAIT's purchase price
is the mortgage loans outstanding balance (par value) plus any accrued
interest. Loans designated for sale to a third party are pre-approved
for purchase by the third party, before the loan is acquired by CAFC.
Sales to third parties are usually greater than CAFC's total purchase
price.
Loan loss reserve.
-----------------
CAFC measures loan impairment based on the fair value of the related
collateral since all loans subject to this measurement are collateral
dependent. Management believes a $119,458 loan loss reserve is adequate
to protect against potential losses inherent in all receivables as of
March 31, 2002. CAFC's actual losses may differ from the estimate.
Real estate owned
-----------------
As of December 31, 2001, CAFC held one foreclosed property with a value
of $567,000. As of March 31, 2002, CAFC held two properties with a
value of $805,687.
Warehouse lines of credit.
-------------------------
As of March 31, 2002, CAFC had borrowed $1,756,800 of funds under a
warehouse line of credit. The Company receives advances under the
agreement, up to a maximum of $5,000,000, with the mortgage loans
pledged as collateral against the advances received and with a
permissible warehouse period of ninety (90) days. Interest is at LIBOR
(London Interbank Offered Rate for U.S. dollar deposits) plus 1.50%
(3.52% at March 31, 2002) during the permissible warehouse period and
is payable monthly. Interest on loans that are held for more than 90
days is LIBOR plus 3.00% (5.02% at March 31, 2002). Maturity date for
this line of credit is May 2002.
As of March 31, 2002, the Company had borrowed $3,657,681 of funds
under a warehouse line of credit with CAIT. The funds are secured by
pledged mortgage loans as collateral. Interest on this
13
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2002
warehouse line of credit is adjusted monthly depending on market rates
and is currently at 7% per annum.
Both warehouse lines of credit are revolving lines that are paid down
as the mortgage loans, held as collateral, are sold.
Related party transactions.
--------------------------
The Manager earns an administration fee equal to 25 basis points on
loans funded for the benefit of CAFC as defined in the First Amended
Residential Mortgage Loan Services Agreement.
As described in Note 6, CAFC received an advance of $3,657,681 under a
warehouse line of credit from CAIT, and accrued interest of $20,849
related to this line of credit as of March 31, 2002 and reported on the
Balance Sheet as Due to Affiliates. CAIT charges a variable interest
rate on this warehouse line of credit determined by current market
rates. The rate charged to CAFC on the line of credit as of March 31,
2002 and December 31, 2001 was 7% per annum.
On occasion CAFC and its affiliates had related receivables and
payables arising from ordinary business transactions. As of March 31,
2002, CAFC had a payable of $2,836 to the Manager. This account is
shown on the balance sheet as part of Due To Affiliates. No interest is
charged on these inter-company accounts.
CAFC paid $5,000 in 2001 for an option to purchase Sierra Capital
Corporate Advisors (SCCA).
11. Notes payable.
-------------
As of March 31, 2002 and December 31, 2001, the Trust had borrowed
$6,926,616 and $6,964,300, with outstanding accrued interest of $24,125
and $23,668, respectively. The Trust receives advances under the
agreement up to a maximum of $7,000,000, with the mortgage loans
pledged as collateral against the advances received. The annual
interest rate is the preceding 30-day average of 1-month LIBOR (London
Interbank Offered Rate for U.S. dollar deposits 30-day average at March
31, 2002 was 2.02%) plus 2.00% and is payable monthly. Maturity date
for this line of credit is September 2002.
As of March 31, 2002 and December 31, 2001, the Trust had borrowed
$4,000,000 and $2,250,000, with accrued interest of $18,083 and
$11,301, respectively under a second term loan. The Trust receives
advances under the agreement up to a maximum of $4,000,000, with the
mortgage loans pledged as collateral against the advances received.
Annual interest is the applicable prime rate (4.75% as of March 31,
2001) plus 0.50% and is payable monthly. The maturity date for this
line of credit is April 2003.
Both term loans are revolving lines that are paid down as the mortgage
loans, held as collateral, are sold. The accrued interest liability is
reported as a part of Other Liabilities.
The Trust has financed a portion of its stock repurchases by borrowing
on margin from a brokerage. The amount borrowed on margin is charged at
14
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2002
the broker call rate (3.5% as of March 31, 2002) plus 0.75%. Margin
debt is callable at the discretion of the lender. As of March 31, 2002,
the Trust owed $149,602 in margin debt.
12. Related party transactions.
--------------------------
The Manager, which is owned by several of the directors and their
affiliates, contracted with the Trust to provide management and
advisory services and receives fees for these services from the Trust.
The Manager is also entitled to reimbursement from the Trust for
clerical and administrative services at cost based on relative
utilization of facilities and personnel. The Manager is also reimbursed
by CAFC for direct expenses and administrative services.
The Manager receives a management fee equal to one-twelfth (1/12) of 1%
annually of the book value of mortgages, mortgage-related investments
and real property ("Gross Mortgage Assets") of the Trust plus
one-twelfth (1/12) of one-half percent (1/2%) of the book value of the
non-mortgage assets of the Trust computed at the end of each month. The
management fee also includes reimbursement for the direct costs of
overseeing the administration and disposition of real estate owned by
the Trust and CAFC and includes any applicable incentive compensation.
The total management fees paid by the Trust to the Manager were $65,000
and $57,956 for the three months ended March 31, 2002 and 2001,
respectively.
The Manager's REO fee for management and administration of the
properties obtained through foreclosure of mortgage notes held is $500
per month for each property held by the Trust and CAFC. The Manager
earned $4,500 and $7,500 in REO management fees for the three months
ended March 31, 2002 and 2001, respectively.
The Manager's incentive compensation for each fiscal quarter, equals
25% of the net income of the Trust in excess of an annualized return on
common equity for such quarter equal to the ten year U.S. Treasury Rate
plus 2.00%, provided that the payment of such incentive compensation
does not reduce the Trust's annualized return on common equity for such
quarter to less than the ten year U.S. Treasury Rate after the
preferred dividend has been paid. The incentive compensation for the
three months ended March 31, 2002 was $2,483. No incentive compensation
was earned during the three months ended March 31, 2001. Incentive
compensation awards are reported as part of the management fees.
The Manager also receives a loan origination and servicing fee equal to
one-twelfth (1/12) of 2% annually of the Gross Mortgage Assets of the
Trust computed at the end of each month. The Trust capitalizes 55% of
this fee as loan origination costs and amortizes them over the average
life of the loans originated in the month. The remaining 45% of the fee
is expensed as the portion attributed for servicing. For the three
months ended March 31, 2002 and 2001 the Trust incurred loan
origination and servicing costs of $128,000 and $99,912, respectively.
On occasions the Trust and its affiliates had related receivables and
payables arising from ordinary business transactions. As of March 31,
2002, the Trust had a receivable of $20,849 from CAFC, a receivable of
$52,200 from the Manager and a payable of $2,911 to Sierra Capital
Companies. As of December 31, 2001, the Trust had a receivable of $740
from CAFC, a receivable of $150 from Sierra Capital Corporate Advisors
and a payable of $127,874 to the Manager. These accounts are netted on
the balance sheet and shown as Due From Affiliates of $70,138 as of
15
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2002
March 31, 2002 and as Due To Affiliates of $126,984 as of December 31,
2001. No interest is charged on these inter- company accounts.
As described in Note 6 and the related party section of Note 10, as of
March 31, 2002 and December 31, 2001 the Trust advanced $3,657,681 and
$4,217,408 to CAFC under lines of credit to affiliates.
13. Preferred, common and treasury stock.
------------------------------------
The Preferred Shareholders are entitled to a dividend preference in an
amount equal to an annualized return on the Adjusted Net Capital
Contribution of Preferred Shares at each dividend record date during
such year (or, if the Directors do not set a record date, as of the
first day of the month). The annualized return is the lesser of: (a)
10.25%, (b) 1.50 % over the Prime Rate (determined on a not less than
quarterly basis) or (c) the rate set by the Board of Directors. The
preferred dividend preference is not cumulative.
After declaring dividends for a given year to the Preferred
Shareholders in the amount of the dividend preference, no further
dividends may be declared on the Preferred Shares for the subject year,
until the dividends declared on each Common Share for that year equals
the dividend preference for each Preferred Share for such year. Any
additional dividends generally will be allocated such that the amount
of dividends per share to the Preferred Shareholders and Common
Shareholders for the subject year are equal. The Preferred
Shareholder's distribution preference and additional dividends, if any,
are not cumulative.
Preferred Shareholders are entitled to receive all liquidating
distributions until they have received an amount equal to their
aggregate adjusted net capital contribution. Thereafter, Common
Shareholders are entitled to all liquidation distributions until the
aggregate adjusted net capital contributions of all Common Shares has
been reduced to zero. Any subsequent liquidating distributions will be
allocated among Common Shareholders and Preferred Shareholders pro
rata.
The Preferred Shares are redeemable by a shareholder, subject to the
consent of the Board of Directors, annually on June 30 for redemption
requests received by May 15 of such year. The Board of Directors may in
its sole discretion deny, delay, postpone or consent to any or all
requests for redemption. The redemption amount to be paid for
redemption of such Preferred Shares is the Adjusted Net Capital
Contribution plus unpaid accrued dividends, divided by the Aggregate
Net Capital Contributions plus accrued but unpaid dividends
attributable to all Preferred Shares outstanding, multiplied by the net
asset value of the Trust attributable to the Preferred Shares which
shall be that percentage of the Trust's net asset value that the
Aggregate Adjusted Net Capital Contributions of all Preferred Shares
bears to the Adjusted Net Capital Contributions of all Shares
outstanding.
The Trust has the power to redeem or prohibit the transfer of a
sufficient number of Common and/or Preferred Shares or the exercise of
warrants and/or options and to prohibit the transfer of shares to
persons that would result in a violation of the Trust's shareholding
requirements. The Bylaws provide that only with the explicit approval
of the Trust's Board of Directors may a shareholder own more than 9.8%
of the total outstanding shares.
16
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2002
One Shareholder Warrant was issued for every 10 Common Shares purchased
in the Trust's initial public offering. Each Shareholder Warrant
entitled the holder to purchase one Common Share. The exercise price
for each Shareholder Warrant was $5.60, which may be exercised during
the 25th through the 48th month after April 28, 1997. On April 28, 2001
all issued warrants expired unexercised.
The 1998 Incentive Stock Option Plan, adopted by the board of directors
and approved by stockholders, provided options for the purchase of a
total of 247,500 Common Shares of the Trust. Officers and employees of
the Manager, and Directors of the board are the eligible recipients of
the options. The options have a term of 10 years with a first exercise
date generally two (2) to six (6) months after the date of the grant.
Options for the purchase of 68,875 shares were granted April 1, 1999
with an exercise price of $13.50 per new Common Share (as adjusted for
the 1 for 3 reverse stock split on May 11, 2001). On February 2, 2000,
options for the purchase of 109,750 shares were granted with an
adjusted exercise price of $9.00 per new Common Share. On February 8,
2001, options for the purchase of 68,875 shares were granted with an
adjusted exercise price of $9.06 per new Common Share. The exercise of
common stock options reduced the number and cost of shares held in the
Trust's treasury. As of March 31, 2002, 13,224 options for the purchase
of 13,224 shares of common stock were exercised.
On June 19, 2001 the Board of Directors increased the Common Stock
repurchase authorization to $550,000. On March 10 2002, the repurchase
authorization was increased to $695,000. As of March 31, 2002, the
Trust's cumulative Common Stock purchases reached 91,966. Exercised
Common Stock options reduced the treasury's Common Stock balance to
78,742 shares. Separately, in a private transaction, the results of
which are included in the cumulate number of common stock purchased,
the Board of Directors authorized the purchase of 47,500 Common Shares
at $13.50. This transaction closed on September 3, 2001.
On November 17, 2000, the Trust duly approved (subject to satisfaction
of miscellaneous filing requirements) a one share for each three shares
(1 for 3) reverse stock split of its Common and Preferred Shares which
became effective at the close of business on May 11, 2001. Upon
effectiveness of the reverse split, one (1) new Common Share and one
(1) new Series "A" Preferred Share was exchanged for each three (3)
outstanding Common and Preferred Share, respectively, and there were
approximately 495,161 issued and outstanding Common Shares and
approximately 213,819 issued and outstanding Preferred Shares. As a
result, the December 31, 2000 Common Share treasury balance became
27,160 post-split shares and the December 31, 2000 Preferred Share
treasury balance became 3,176 post-split shares, each with $.01 par
value. On May 14, 2001, the commencement of post-split trading, the
price of a Common Share on the American Stock Exchange was increased to
three (3) times the closing price of such shares on May 11, 2001 and
the Adjusted Net Capital Contribution attributable to each Series "A"
Preferred Share was increased to approximately $26.51 per share, three
(3) times the existing Adjusted Net Capital Contribution of each such
Preferred Share (approximately $8.83) as of March 31, 2001. The
authorized capital of the Trust remained unchanged with 5,000,000
Common Shares and 675,000 Series "A" Preferred Shares authorized.
17
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the three-month period ended March 31, 2002
14. Earnings per share.
------------------
The following table is a reconciliation of the numerator and
denominators of the basic and diluted earnings per common share.
Quarter Ended Quarter Ended
March 31, 2002 March 31, 2001
-------------- --------------
Numerator:
Net income $306,979 $264,491
Less: Preferred Dividend 88,422 144,172
-------- --------
Numerator for basic and diluted
earnings per share $218,557 $120,319
-------- --------
Denominator:
Basic weighted average shares 410,705 465,920
Effect of common repurchases 0 0
Effect of dilutive options 110,427 6 ,503
-------- --------
Diluted weighted average shares 521,132 472,423
-------- --------
Basic earnings per common share $ 0.53 $ 0.26
-------- --------
Diluted earnings per common share $ 0.42 $ 0.25
-------- --------
18
PART I
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The financial statements of Capital Alliance Income Trust Ltd., A Real Estate
Investment Trust (the "Trust") dated herein were prepared from the unaudited
books and ledgers of the Trust.
General
Recent Trends. The Trust invests in non-conforming mortgage loans on
one-to-four unit residential properties because management believes that there
is a large demand for non-conforming mortgage loans on these kinds of properties
which produce higher yields without comparably higher credit risks when compared
with conforming mortgage loans. Management invests primarily in A-, B/C
credit-rated home equity loans secured by deeds of trust. In general, B and C
credit-rated home equity loans are made to borrowers with lower credit ratings
than borrowers of higher credit quality, such as A credit-rated home equity
loans. Home equity loans rated A-, B/C tend to have higher rates of loss and
delinquency, but higher rates of interest than borrowers of higher credit
quality.
Management believes there is strong demand for non-conforming mortgage
loans by borrowers and strong demand by investors for high yielding,
non-conforming mortgages for securitization
Loan Origination and Loan Servicing. Mortgage loan origination consists of
establishing a relationship with a borrower or his broker, obtaining and
reviewing documentation concerning the credit rating and net worth of borrowers,
inspecting and appraising properties that are proposed as the subject of a home
equity loan, processing such information and underwriting and funding the
mortgage loan. Mortgage loan servicing consists of collecting payments from
borrowers, accounting for interest payments, holding escrow funds until
fulfillment of mortgage loan requirements, contacting delinquent borrowers,
foreclosing in the event of unremedied defaults and performing other
administrative duties. Mortgage loan origination and loan servicing were
provided to the Trust by CAAI, its Manager.
Commitments and Contingencies. As of March 31, 2002, the Trust's loan
portfolio included 111 loans totaling $19,079,564 of which 14 loans totaling
$2,496,361 representing 13% of the loan portfolio were delinquent over two
months. Four of these delinquent loans totaling $624,505 were paid off in full
and three delinquent loans totaling $512,150 were brought current by May 1,
2002. After adjusting the March 31, 2002 delinquent balances for these payments,
the delinquencies in excess of two months are seven loans totaling $1,359,700 or
7% of the loan portfolio. In assessing the collectibility of these delinquent
mortgage loans, management has established a loan loss reserve of $203,000, if
it is necessary to foreclose upon the mortgage loans.
The Trust generally issues loan commitments only on a conditional basis
and generally funds such loans promptly upon removal of any conditions.
Accordingly, the Trust did not have any commitments to fund loans as of March
31, 2002 and March 31, 2001.
Results of Operations
The historical information presented herein is not necessarily indicative
of future operations.
Three months ended March 31, 2002 and 2001. Revenues for the first
quarter increased to $741,478 as compared to $625,102 for the same period in the
prior year. The increase in revenue, during the first three months of 2002 was
due to CAIT's larger portfolio providing additional revenue of $263,715. The
investment income from CAFC declined to $1,052 from $68,503 for the same period
in the prior year.
19
Expenses for the first quarter 2002 increased to $426,546 as compared to
$354,902 for the same period in the prior year. The increased expenses during
the first three months of 2002 were primarily due to $35,132 of increased
advisory fees earned by the Manager, and increased general and administrative
costs of $32,786 for administering a larger portfolio.
Inflation
The financial statements of the Trust, prepared in accordance with
generally accepted accounting principles, report the Trust's financial position
and operating results in terms of historical dollars and does not consider the
impact of inflation. Inflation affects the Trust's operations primarily through
its effect on interest rates, since interest rates normally increase during
period of high inflation and decrease during periods of low inflation. When
interest rates increase, the demand for mortgage loans and a borrower's ability
to qualify for mortgage financing may be adversely affected.
Liquidity and Capital Resources
Mortgage loans that are paid off, the disposition of real estate owned,
existing bank loan facilities, and additional lines of credit anticipated to be
acquired during 2002 will be sufficient to meet the liquidity needs of the
Trust's businesses for the next 12 months.
As of January 1, 2002, the Trust had $441,909 of cash and cash
equivalents. After taking into effect the various transactions discussed below,
cash and cash equivalents at March 31, 2002 were $972,921. The following
summarizes the changes in net cash provided by operating activities, net cash
used for investing activities, and net cash provided by financing activities.
Net cash provided by operating activities during the three months ended
March 31, 2002 and 2001 was $37,276 and $242,447, respectively.
During 2002 Net Income provided $306,979, an increase in accounts
receivable used $84,183 and a decrease in due to affiliates used $197,122.
During 2001 Net Income provided $264,491, a decrease in accounts receivable used
$87,901 and a decrease in due to affiliates used $99,028.
Net cash provided by (used in) investing activities for the three months
ended March 31, 2002 and 2001 was ($791,349) and ($1,558,407), respectively. The
use of cash in 2002 is primarily due to increased mortgage notes receivable
which used $1,340,641 and reduced affiliate warehouse borrowing which provided
$559,727. The use of cash in 2002 is primarily due to a $2,005,495 increase in
warehouse lines of credit to affiliates.
Net cash provided by financing activities during the three months ended
March 31, 2002 and 2001 was $1,285,085 and $1,824,873, respectively. The 2002
results are reduced by $211,242 for the payment of dividends and increased by
borrowings of $1,462,926. The 2001 results are reduced by $263,449 for the
payment of dividends and increased by borrowings of $2,126,551. The 2001 results
are from the payment of dividends.
The Trust has two term facilities for $7,000,000 and $4,000,000 with two
different lenders. Management believes that cash flow from operations, the
mortgage loans that are paid off, the disposition of real estate owned, existing
bank loan facilities, and additional lines of credit anticipated to be acquired
during 2002 will be sufficient to meet the liquidity needs of the Trust's
businesses for the next 12 months.
Critical Accounting Policies
The adequacy of reserving for inherent, but unknown loan losses is the
Trust's most critical accounting issue. The Trust's current policy is to
maintain a loss reserve of at least 1% of its loan portfolio. As of March 31,
2002, the loss reserve totaled $203,000 or 1.05% of the loan portfolio. Based
20
upon the historicaloperating results of the Trust's core business, a 1% reserve
would be adequate to offset the portfolio's inherent losses.
Similarly, the adequacy of reserving for inherent, but unknown loan
losses by CAFC can significantly impact the Trust's reported Investment income
from affiliates. As of March 31, 2002, the loss reserve totaled $119,458 on
2.14% of CAFC's loan portfolio. This amount appears adequate to offset the
portfolio's inherent losses.
21
PART I
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
Forwarding-Looking Statements
Certain statements contained herein are not, and certain statements
contained in future filings by the Trust with the SEC, in the Trust's press
releases or in the Trust's public and stockholder communications may not be
based on historical facts and are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements may be identified by reference to a future period or periods, or by
the use of forward-looking terms such as "may", "will", "expect", "anticipate",
or similar terms. Actual results could materially differ from those in the
forward-looking statements due to a variety of factors.
Market Risk
Market risk is the exposure to loss resulting from changes in interest
rates, credit spreads, foreign exchange rates, commodity prices, and equity
prices. The primary market risks to which the Trust is exposed are interest rate
risk and credit risk.
Interest Risk. Interest rate risk is highly sensitive to many factors,
including governmental, monetary and tax policies, domestic and international
economic and political considerations and other factors beyond the control of
the Trust. Changes in the general level of the U.S. Treasury yield curve can
have significant effects on the market value of the Trust's portfolio. The
majority of the Trust's assets are fixed-rate loans with a spread to U.S.
Treasuries. The Trust's loans are valued on the March 31, 2002 balance sheet of
the lower of cost or market.
As U.S. Treasury securities are priced to a lower yield and/or the spread
to U.S. Treasuries used to price the Trust's assets are decreased, the market
value of the Trust's portfolio may increase. Conversely, as U.S. Treasury
securities are priced to a higher yield and/or the spread to U.S. Treasuries
used to price the Trust's assets is increased , the market value of the Trust's
portfolio may decline. Changes in the level of the U.S. Treasury yield curve can
also affect, among other things, the prepayment assumptions used to value
certain of the Trust's loans. In addition, changes in the general level of the
LIBOR money market rates can affect the Trust's net interest income. The
majority of the Trust's liabilities are floating rate based on a spread over the
average one month LIBOR. A portion of the Trust's liabilities are also based on
a spread over the daily Prime Rate. As the level of LIBOR and/or the Prime Rate
increases or decreases, the Trust's interest expense will move in the same
direction.
On account of the relatively short adjusted weighted average maturity of
the Trust's portfolio (23 months), a variety of financial instruments available
to limit the effects of interest rate fluctuations on its operations have not
been utilized. The use of these types of derivatives (such as interest rate
swaps, caps, floors and other interest rate exchange contracts) to hedge
interest-earnings assets and/or interest-bearing liabilities carry risks,
including the risk that the net losses on a hedge position may exceed the amount
invested in such instruments.
Credit Risk. Credit risk is the exposure to loss from loan defaults and
foreclosures. Default and foreclosure rates are subject to a wide variety of
factors, including, but not limited to, property values, supply/demand factors,
construction trends, consumer behavior, regional economics, interest rates, the
strength of the American economy and other factors beyond the control of the
Trust.
22
All loans are subject to a certain probability of default and
foreclosure. An increase in default rates will reduce the book value of the
Trust's assets and the Trust's earnings and cash flow available to fund
operations and pay dividends.
The Trust manages credit risk through the underwriting process, limiting
loans at the time of funding to 75% of the collateral's appraised value,
establishing loss assumptions and carefully monitoring loan performance.
Nevertheless, the Trust assumes that a certain portion of its loans will default
and adjusts the allowance for loan losses based on that assumption. For purposes
of illustration, a doubling of the assumed losses in the Trust's portfolio would
reduce first quarter 2002 GAAP income available to common shareholders by
$203,000 or 93%.
Asset and Liability Management
Asset and liability management is concerned with the timing and magnitude
of the maturity of assets and liabilities. In general, management's strategy is
to approximately match the term of the Trust's liabilities to the portfolio's
adjusted weighted average maturity (23 months).
The majority of the Trust's assets pay a fixed coupon and the income from
such assets are relatively unaffected by interest rate changes. The Trust's
borrowings are currently under a variable rate line of credit that resets
monthly. Given this relationship between assets and liabilities, the Trust's
interest rate sensitivity gap is highly negative. This implies that a period of
falling short term interest rates will tend to increase the Trust's net interest
income, while a period of rising short term rates will tend to reduce the
Trust's net interest income.
One Year - Historical
Interest Rate Adjustment in Basis Points
Borrowings <200> <100> 100 200
Net Income 14% 7% <6%> <12%>
23
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The trust is not involved in any legal proceedings at this time.
ITEM 2 CHANGES IN SECURITIES
During the first quarterly period ending March 31, 2002, the Trust
purchased 900 common shares. Additionally, options for 7,224
common shares were exercised and satisfied with treasury stock.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 OTHER INFORMATION
Press Release, Exhibit "A" attached hereto and incorporated
herein, regarding the third consecutive increased quarterly
dividend and record operating results for year 2001.
Press Release, Exhibit "B" attached hereto and incorporated
herein, announcing the record date for and date of the 2001 Annual
Meeting.
ITEM 6 REPORTS ON FORM 8-K
Not applicable.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL ALLIANCE INCOME TRUST LTD.,
A Real Estate Investment Trust
Dated: May 14, 2002 By: /s/ Thomas B. Swartz
--------------------
Thomas B. Swartz,
Chairman and Chief Executive Officer
Dated: May 14, 2002 By: /s/ Richard J. Wrensen
----------------------
Richard J. Wrensen,
Executive Vice President and
Chief Financial Officer
25
EXHIBIT "A"
Press Release
CAPITAL ALLIANCE INCOME TRUST ANNOUNCES
THIRD CONSECUTIVE INCREASED QUARTERLY DIVIDEND
AND RECORD OPERATING RESULTS FOR YEAR 2001
SAN FRANCISCO - (BUSINESS WIRE) - March 28, 2002 - Capital Alliance Income Trust
Ltd. ("CAIT") (AMEX: CAA-news) announced that its Board has declared CAIT's
third consecutive increased Common Share dividend at the increased rate of $.40
per Common share - a 33 % increase over the prior quarter's dividend and a 56.8
% increase during the last four quarters. Based on the current common stock
price of $14.00 per share, the annualized dividend yield is 11.4%.
The dividend is payable on April 16, 2002 to shareholders of record on April 8,
2002.
Dennis R. Konczal, CAIT's President and Chief Operating Officer, also announced
concurrently, earnings of $300,723 for the fourth quarter 2001 (as compared to
$155,809 for the fourth quarter of 2000) and $1,142,406 for the year 2001 (a
127.6% increase over earnings of $515,023 for the year 2000). Mr. Konczal noted
that CAIT's improved earnings reflect the continuing strength of its portfolio
lending operations and mortgage banking activities within California and other
western states. Despite softening in some parts of California's economy, CAIT's
results are indicative of its success in its portfolio lending "niche" (only on
property where the loan to value can be less than 75%) and California's economic
diversity. He also noted, that even though interest rates are anticipated to
rise throughout 2002, CAIT's profitability is expected to be maintained as a
result of loan portfolio growth and increased loan origination activity.
Richard J. Wrensen, CAIT's Executive Vice-President and Chief Financial Officer,
stated "Capital Alliance had a very strong year in 2001. The stock posted a
total return of approximately 70%, provided two quarterly dividend increases and
achieved a higher ROE while continuing to build substantial loan loss reserves
to offset any future declines in California residential property values. Our
goal for 2002 is to improve on these accomplishments and thereby deliver on our
commitment to build shareholder value." CAIT's 2001 fourth quarter achieved
basic and fully diluted earnings per share of $0.48 and $0.42 vs. split adjusted
fourth quarter 2000 basic and fully diluted earnings per share of $0.02 and
$0.02. The twelve month results for the fiscal year ended December 31, 2001
produced basic and fully diluted earnings per share of $1.19 and $1.06 vs. split
adjusted 2000 basic and fully diluted earnings per share of $0.00 and $0.00.
CAIT is a specialty residential lender which originates and invests in
conforming and high-yielding, non- conforming residential mortgage loans on
one-to-four unit residential properties located primarily in California and
other western states. It also originates loans for sale to investors, including
Freddie Mac, on a whole-loan basis for cash through its mortgage banking
subsidiary, Capital Alliance Funding Corporation.
This document contains "forward-looking statements" (within the meaning of the
Private Securities Litigation Reform Act of 1995) that inherently involve risks
and uncertainties. CAIT's actual results and liquidity can differ materially
from those anticipated in these forward-looking statements because of changes in
the level and composition of CAIT's investments and unforeseen factors. As
discussed in CAIT's filings with the Securities and Exchange Commission, these
factors may include, but are not limited to, changes in general economic
conditions, the availability of suitable investments, fluctuations in and market
expectations for fluctuations in interest rates and levels of mortgage
prepayments, deterioration in credit quality and ratings, the effectiveness of
risk management strategies, the impact of leverage, the liquidity of secondary
markets and credit markets, increases in costs and other general competitive
factors.
Contact: Capital Alliance Income Trust Ltd., San Francisco
Richard J. Wrensen, 415/288-9575
www.calliance.com
26
EXHIBIT "B"
Press Release
CAPITAL ALLIANCE INCOME TRUST LTD.
ANNOUNCES RECORD DATE FOR AND DATE OF ANNUAL MEETING
SAN FRANCISCO - (BUSINESS WIRE) - March 28, 2002 - Capital Alliance Income Trust
Ltd. ("CAIT") (AMEX: CAA-news), a specialty residential finance company,
announced the following dates relating to its Annual Shareholders' Meeting:
Annual Meeting Date: June 14, 2002
Annual Meeting Record Date: April 22, 2002
The Annual Meeting will be held in the Trust's offices at 50 California St.,
Suite 2020, San Francisco, CA 94111 at 10:00 a.m.
CAIT is a specialty residential lender which originates and invests in
conforming and high- yielding, non-conforming residential mortgage loans on
one-to-four unit residential properties located primarily in California and
other western states. It also originates loans for sale to investors on a
whole-loan basis for cash through its mortgage banking subsidiary Capital
Alliance Funding Corporation.
Contact: Capital Alliance Income Trust Ltd.
Thomas B. Swartz, 415/288-9575
www.calliance.com
27