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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended: June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _________________ to _________________
Commission File Number: 1-13485
AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
(Exact name of Registrant as specified in its Charter)
Maryland 33-0741174
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
445 Marine View Avenue, Suite 230
Del Mar, California 92014
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (619) 350-5000
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all documents and
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 files such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock ($.01 par value) 8,114,000 as of August 1, 1998
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INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 1998 and December 31, 1997 1
Consolidated Statements of Operations for the three months ended June 30, 1998
and 1997, for the six months ended June 30, 1998, and for the period
from February 11, 1997 (commencement of operations) through June 30, 1997 2
Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and
for the period from February 11, 1997 (commencement of operations)
through June 30, 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
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AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
June 30, 1998 December 31, 1997
Cash and cash equivalents $ 5,925 $ 5,893
Retained interest in securitization 6,659 --
Mortgage securities available-for-sale, net 303,006 387,099
Mortgage loans held-for-investment, net, pledged 643,065 162,762
Interest rate cap agreements 1,362 411
Accrued interest receivable 12,392 5,169
Due from affiliate 464 269
Investment in American Residential Holdings 475 --
Other assets 269 231
-----------------------------
$ 973,617 $ 561,834
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Short-term debt $ 404,366 $ 451,288
Long-term debt, net 456,536 --
Accrued interest payable 3,430 1,839
Due to affiliate 954 --
Accrued expenses and other liabilities 366 632
Management fees payable -- 208
Accrued dividends -- 1,298
Deferred income 475 --
-----------------------------
Total liabilities 866,127 455,265
Stockholders' Equity:
Preferred stock, par value $.01 per share; 1,000 shares
authorized; no shares issued and outstanding -- --
Common stock, par value $.01 per share; 25,000,000 shares
authorized; 8,114,000 shares issued and outstanding 81 81
Additional paid-in-capital 109,763 109,786
Accumulated other comprehensive loss (4,630) (3,300)
Cumulative dividends declared (4,673) (2,401)
Retained earnings 6,949 2,403
-----------------------------
Total stockholders' equity 107,490 106,569
-----------------------------
$ 973,617 $ 561,834
=============================
See accompanying notes to consolidated financial statements.
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AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the period from
For the February 11, 1997
For the Three Months Ended Six Months (commencement of
June 30, Ended operations) through
1998 1997 June 30, 1998 June 30, 1997
---- ---- ------------- -------------
Interest income:
Mortgage assets $18,942 $ 3,801 $33,324 $ 4,017
Cash and investments 69 41 140 151
-------------------------------------------------------------
Total interest income 19,011 3,842 33,464 4,168
Interest expense 16,554 3,275 27,604 3,444
-------------------------------------------------------------
Net interest income 2,457 567 5,860 724
Provision for loan losses 282 -- 418 --
-------------------------------------------------------------
Net interest income after provision for loan losses 2,175 567 5,442 724
Other operating income:
Fee income 102 -- 102 --
Equity in income of Holdings 885 -- 885 --
Prepayment penalty 161 -- 183 --
-------------------------------------------------------------
Total other operating income 1,148 -- 1,170 --
-------------------------------------------------------------
Net operating income 3,323 567 6,612 724
Other expenses:
Management fee 700 66 1,169 69
Loan expense 275 -- 282 --
General and administrative expenses 79 63 615 71
-------------------------------------------------------------
Total other expenses 1,054 129 2,066 140
-------------------------------------------------------------
Net income $ 2,269 $ 438 $ 4,546 $ 584
=============================================================
Net income per share of Common Stock -- Basic $ 0.28 $ 0.27 $ 0.56 $ 0.36
Net income per share of Common Stock -- Diluted $ 0.28 $ 0.26 $ 0.56 $ 0.35
Dividends per share of Common Stock for related period $ 0.28 $ 0.27 $ 0.56 $ 0.36
See accompanying notes to consolidated financial statements.
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AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the period
For the February 11, 1997
Six Months (commencement of
Ended operations) through
June 30, 1998 June 30, 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,546 $ 584
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of mortgage assets premiums 5,315 528
Amortization of interest rate cap agreements 91 40
Amortization of closing costs 1 --
Provision for loan loss 418 --
Increase in accrued interest receivable (7,223) (2,259)
Increase in other assets (39) (10)
Increase in due from affiliate (195) --
Increase in accrued interest payable 1,591 1,088
Decrease in accrued expenses and management fees payable (474) 288
Increase in due to affiliate 954 --
-----------------------------------
Net cash provided by operating activities 4,985 259
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of mortgage securities available-for-sale -- (239,555)
Purchases of mortgage loans held for investment (606,749) --
Principal payments on mortgage securities available-for-sale 79,608 10,407
Principal payments on mortgage loans held for investment 20,342 --
Sale of mortgage loans held for investment 103,526 --
Investment in Holdings (475) --
Purchase of retained interest in securitization (6,659) --
Deferred income from Class "X" certificate 475 --
Purchase of interest rate cap agreements (1,042) (542)
-----------------------------------
Net cash used in investing activities (410,974) (229,690)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase/(decrease) in net borrowings from reverse
repurchase agreements (46,922) 209,539
Other (23) --
Net proceeds from stock issuance -- 20,165
Dividends paid (3,570) (146)
Issuance of CMO/FASIT bonds 456,536 --
-----------------------------------
Net cash provided by financing activities 406,021 229,558
Net increase in cash and cash equivalents 32 127
Cash and cash equivalents at beginning of period 5,893 --
-----------------------------------
Cash and cash equivalents at end of period $ 5,925 $ 127
===================================
Supplemental information - interest paid $ 20,697 $ 1,828
===================================
Non-cash transactions:
Increase in accumulated other comprehensive loss $ 1,330 $ --
===================================
Equity in income of Holdings $ 885 $ --
===================================
See accompanying notes to consolidated financial statements.
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AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF FINANCIAL PRESENTATION AND ORGANIZATION
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of American
Residential Investment Trust, Inc. ("AmRES") and American Residential Eagle,
Inc. ("Eagle"), its wholly owned subsidiary (collectively "AmREIT").
Substantially all of the assets of Eagle are pledged or subordinated to support
long-term debt in the form of collateralized mortgage bonds ("Long-Term Debt")
and are not available for the satisfaction of general claims of AmREIT and
American Residential Holdings, Inc. ("Holdings"), (collectively the "Company").
The Company's exposure to loss on the assets pledged as collateral is limited to
its net investment, as the Long-Term Debt is non-recourse to the Company. All
significant intercompany balances and transactions with Eagle have been
eliminated in the consolidation of AmREIT.
During the first half of 1998, the Company formed Holdings, through which a
portion of the Company's Mortgage Loan acquisition and finance activities will
be conducted. AmREIT owns all of the preferred stock and has a non-voting 95%
economic interest in Holdings. Because AmREIT does not control Holdings, its
investment in Holdings is accounted for under the equity method. Under this
method, original equity investments in Holdings are recorded at cost and
adjusted by AmREIT's share of earnings or losses and decreased by dividends
received.
For financial reporting purposes, references to AmREIT mean AmRES and Eagle;
while references to the "Company" mean AmRES, Eagle, and Holdings. Certain
amounts for prior periods have been reclassified to conform with the 1998
presentation.
The accompanying consolidated financial statements have been prepared in
accordance with Generally Accepted Accounting Principles ("GAAP") and with the
instructions to Form 10-Q promulgated under the Securities and Exchange Act of
1934. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of the
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of AmREIT and its consolidated
financial condition and results of operations have been included. Operating
results for the three and six months ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998.
Organization
American Residential Investment Trust, Inc., a Maryland corporation, commenced
operations on February 11, 1997. AmRES was financed through a private equity
funding from its manager, Home Asset Management Corporation (the "Manager").
AmRES operates as a mortgage real estate investment trust ("REIT") which has
elected to be
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taxed as a real estate investment trust for Federal income tax purposes, which
generally will allow AmRES to pass through its income to its stockholders
without payment of corporate level Federal income tax, provided that the Company
distributes out 100% of its taxable income to stockholders. During 1998, the
Company formed Eagle, a special-purpose finance subsidiary. Holdings, a
non-REIT, taxable affiliate of the Company, was established during the first
half of 1998. The Company acquires residential mortgage-backed securities and
mortgage loans (collectively, "Mortgage Assets"). These Mortgage Assets are
typically secured by single-family real estate properties throughout the United
States. The Company utilizes both debt and equity to finance its acquisitions.
The Company may also use securitization techniques to enhance the value and
liquidity of the Company's Mortgage Assets and may sell Mortgage Assets from
time to time.
The Company diversified its residential mortgage loan sales activities in the
second quarter of 1998 to include the securitization of such loans through a
Real Estate Mortgage Investment Conduit ("REMIC"). The REMIC, which consisted of
pooled fixed-rate first-lien mortgages, was issued by Holdings to the public
through the registration statement of the related underwriter.
Earnings Per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128"). This
statement replaces the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effect of options. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts have been restated to conform
to the SFAS No. 128 requirements.
The following table illustrates the computation of basic and diluted earnings
per share:
For the period
For the February 11, 1997
For the Three Months Ended Six Months (commencement of
June 30, Ended operations) through
1998 1997 June 30, 1998 June 30, 1997
---- ---- ------------- -------------
(dollars in thousands, except per share data)
Numerator:
Numerator for basic income per share - net income $ 2,269 $ 438 $ 4,546 $ 584
Denominator:
Denominator for basic income per share - weighted average
number of common shares outstanding during the period 8,114,000 1,614,000 8,114,000 1,614,000
Incremental common shares attributable to exercise of
outstanding options -- 52,533 7,700 52,533
--------------------------------------------------------------
Denominator for diluted income per share 8,114,000 1,666,533 8,121,700 1,666,533
Basic income per share $ 0.28 $ 0.27 $ 0.56 $ 0.36
Diluted income per share 0.28 0.26 0.56 0.35
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Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
(Statement 130). Statement 130 establishes standards for reporting and display
of comprehensive income and its components in the consolidated financial
statements.
The FASB defines comprehensive income as "the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners."
The following table illustrates comprehensive income:
For the period from
For the February 11, 1997
For the Three Months Ended Six Months (commencement of
June 30, Ended operations) through
1998 1997 June 30, 1998 June 30, 1997
------- ------- ------------- --------------------
(dollars in thousands)
Net income $ 2,269 $ 438 $ 4,546 $ 584
Other comprehensive income/(loss) (630) 217 (1,330) --
------------------------------------------------------------------
Comprehensive income/(loss) $ 1,639 $ 655 $ 3,216 $ 584
==================================================================
Recent Accounting Developments
Disclosure about Segments of an Enterprise and Related Information
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Standards (SFAS) No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS 131 establishes standards for the way
that public enterprises report information about operating segments in annual
financial statements and requires that selected information about these
operating segments be reported in interim financial statements. This statement
supersedes SFAS 14 "Financial Reporting for Segments of a Business Enterprise."
SFAS No. 131 requires that all public enterprises report financial and
descriptive information about its reportable operating segments. Operating
segments are defined as components evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. This statement is effective for fiscal years beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years should be restated.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other
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contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
Under SFAS No. 133, an entity that elects to apply hedge accounting is required
to establish at the inception of the hedge the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk.
SFAS No. 133 amends FASB Statement No. 32, "Foreign Currency Translation," to
permit special accounting for a hedge of a foreign currency forecasted
transaction with a derivative. It supersedes FASB Statements No. 80, "Accounting
for Futures Contracts," No. 105, "Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," and No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." It amends FASB
Statement No. 107, "Disclosures about Fair Value of Financial Instruments," to
include in Statement 107 the disclosure provisions about concentrations of
credit risk from Statement 105. This Statement also nullifies or modifies the
consensuses reached in a number of issues addressed by the Emerging Issues Task
Force. This Statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.
NOTE 2. MORTGAGE SECURITIES AVAILABLE FOR SALE, NET
At June 30, 1998, the Company's Mortgage Securities consisted of the following
mortgage participation certificates issued or guaranteed by Federal government
sponsored agencies:
Federal Home Federal National
Loan Mortgage Mortgage
Corporation Association Total
--------- --------- ---------
(dollars in thousands)
Mortgage Securities available-for-sale,
principal $ 200,753 $ 95,095 $ 295,848
Unamortized premium 7,690 4,098 11,788
--------- --------- ---------
Amortized cost 208,443 99,193 307,636
Unrealized loss (3,079) (1,551) (4,630)
--------- --------- ---------
Fair value $ 205,364 $ 97,642 $ 303,006
========= ========= =========
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At June 30, 1998 all investments in Mortgage Securities consisted of interests
in adjustable rate mortgage loans on residential properties. The securitized
interest in pools of adjustable rate mortgages from the Federal Home Loan
Mortgage Corporation and the Federal National Mortgage Association are
guaranteed as to principal and interest. The original maturity is subject to
change based on the prepayments of the underlying mortgage loans.
At June 30, 1998, the weighted average net coupon on the Mortgage Securities was
7.78% per annum based on the amortized cost of the Mortgage Securities. All
Mortgage Securities have a repricing frequency of one year or less.
NOTE 3. MORTGAGE LOANS HELD FOR INVESTMENT, NET, PLEDGED
The Company purchases certain non-conforming Mortgage Loans to be held as
long-term investments. At June 30, 1998, Mortgage Loans held for investment
consists of the following (dollars, in thousands):
Mortgage Loans held for investment, principal $ 601,586
Unamortized premium 44,336
Allowance for loan losses (2,857)
---------
$ 643,065
=========
At June 30, 1998, the weighted average net coupon on the Mortgage Loans was
9.21% per annum. All Mortgage Loans have a repricing frequency of five years or
less. At June 30, 1998, 37.44% of the collateral was located in California with
no other state representing more than approximately 8%.
NOTE 4. SHORT-TERM DEBT
The Company has entered into uncommitted reverse repurchase agreements
(collectively "short-term" debt), which may be withdrawn at any time, to finance
the acquisition of a portion of its Mortgage Assets. The maximum aggregate
amount available under the uncommitted reverse repurchase agreements at June 30,
1998 is over $3.3 billion. These reverse repurchase agreements are
collateralized by a portion of the Company's Mortgage Assets.
Mortgage Securities
The maximum outstanding reverse repurchase agreements with any one lender during
the six months ended June 30, 1998 was approximately $98.5 million, or 36.4% of
the total repurchase liability in any one period. At June 30, 1998, Mortgage
Securities pledged had an estimated fair value of approximately $270.0 million.
At June 30, 1998, the Company had approximately $270.6 million of Mortgage
Securities reverse repurchase agreements outstanding with a weighted average
borrowing rate of 5.61% per annum and a weighted average remaining maturity of
20 days. The maximum month end balance and the average balance outstanding for
the six months ended June
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30, 1998 were approximately $304.4 million and $283.6 million, respectively. At
June 30, 1998, the Mortgage Securities reverse repurchase agreements had the
following characteristics:
Repurchase Underlying Interest Rate Weighted Average
Mortgage Securities Liability Collateral (per annum) Maturity Date
------------------- -------------------- ------------------ ---------------
(dollars in thousands)
--------------------------------------------------------------------------------
ABN-AMRO $ 34,307 $ 35,246 5.59% July 21, 1998
First Boston 47,832 49,612 5.64 July 21, 1998
First Union 45,172 44,184 5.58 July 15, 1998
Lehman Brothers 17,548 16,925 5.61 July 30, 1998
Morgan Stanley 19,644 20,132 5.61 July 26, 1998
Paine Webber 98,506 96,125 5.60 July 18, 1998
Prudential 7,560 7,747 5.65 July 23, 1998
------------------------------------------------------------------------------
$270,569 $269,971 5.61% July 20, 1998
==============================================================================
Mortgage Loans
Reverse repurchase agreements for Mortgage Loans are currently placed with two
investment banking firms. The maximum amount outstanding with Lehman Brothers
during the six months ended June 30, 1998 was approximately $668.7 million. At
June 30, 1998, Mortgage Loans pledged had an estimated fair value of
approximately $136.6 million.
At June 30, 1998, the Company had approximately $133.8 million of Mortgage Loans
reverse repurchase agreements outstanding with a weighted average borrowing rate
of 6.39% per annum and a weighted average remaining maturity of one day. The
maximum month end balance and the average balance outstanding for the six months
ended June 30, 1998 were approximately $668.7 million and $421.4 million,
respectively. At June 30, 1998, the Mortgage Loans reverse repurchase agreements
had the following characteristic:
Repurchase Underlying Interest Rate Weighted Average
Mortgage Loans Liability Collateral (per annum) Maturity Date
-------------- ---------------- ------------- ----------------
(dollars in thousands)
--------------------------------------------------------------------------------
Lehman Brothers $104,546 $107,379 6.40% July 1, 1998
Bear Stearns 29,251 29,251 6.38 July 1, 1998
--------------------------------------------------------------------------------
$133,797 $136,630 6.39% July 1, 1998
=================================================================================
NOTE 5. LONG-TERM DEBT, NET
During the second quarter of 1998, AmREIT, through its wholly owned subsidiary,
Eagle, issued approximately $456.5 million of collateralized mortgage bonds
(Long-Term Debt) through a Financial Asset Securitization Investment Trust
(FASIT). The bonds were assigned to a FASIT trust and trust certificates
evidencing the assets of the trust were sold to investors. The trust
certificates were issued in classes representing
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senior, mezzanine, and subordinate payment priorities. Payments received on
single-family mortgage loans ("Bond Collateral") are used to make payments on
the Long-Term Debt. The obligations under the Long Term Debt are payable solely
from the Bond Collateral and are otherwise non-recourse to AmREIT. The maturity
of each class of trust certificates is directly affected by the rate of
principal repayments on the related Bond Collateral. The Long-Term Debt is also
subject to redemption according to the specific terms of the indenture pursuant
to which the bonds were issued and the FASIT trust. As a result, the actual
maturity of the Long-Term Debt is likely to occur earlier than its stated
maturity.
The components of the Long-Term Debt at June 30, 1998 along with selected other
information are summarized below (dollars in thousands):
Long-Term Debt $ 456,822
Capitalized Costs on Long-Term Debt (286)
---------------
Total Long-Term Debt $ 456,536
===============
Range of coupons on bonds 6.49% to 13.90%
Stated maturities 2008 - 2028
NOTE 6. COLLATERAL FOR LONG-TERM DEBT
AmREIT has pledged collateral in order to secure the Long-Term Debt issued in
the form of Bond Collateral. This Bond Collateral consists primarily of
adjustable-rate, conventional, 30-year mortgage loans secured by first liens on
one- to four-family residential properties. All Bond Collateral is pledged to
secure repayment of the related Long-Term Debt obligation. All principal and
interest (less servicing and related fees) on the Bond Collateral is remitted to
a trustee and is available for payment on the Long-Term Debt obligation.
AmREIT's exposure to loss on the Bond Collateral is limited to its net
investment, as the Long-Term Debt is non-recourse to AmREIT.
The components of the Bond Collateral at June 30, 1998 are summarized as follows
(dollars in thousands):
Mortgage loans $ 463,076
Unamortized premium 37,002
Allowance for loan losses (2,807)
Accrued interest receivable 1,511
-----------
$ 498,782
===========
NOTE 7. RETAINED INTEREST IN SECURITIZATION
Retained interests in securitization consist of assets generated by the
Company's loan securitization. These assets at June 30, 1998 were as follows
(dollars in thousands):
REMIC subordinate certificates $ 6,659
======================
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The Company classifies REMIC securities as trading securities in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
and carries them as current assets at market value.
The fair value of the retained interest is determined by computing the present
value of the excess of the weighted-average coupon of the residential mortgages
sold (9.32%) over the sum of: (1) the coupon on the senior interest (5.95%), and
(2) a basic servicing fee paid to servicer of the residential mortgages (0.50%)
and other fees, and taking into account expected estimated losses to be incurred
on the portfolio of residential mortgages sold over the estimated lives of the
residential mortgages and using an estimated future average prepayment
assumption (25%) per year. The prepayment assumptions used in estimating the
cash flows is based on recent evaluations of the actual prepayments of the
related portfolio and on market prepayment rates on new portfolios of similar
residential mortgages, taking into consideration the current interest rate
environment and its expected impact on the estimated future prepayment rate. The
estimated cash flows expected to be received by the Company are discounted at an
interest rate that the Company believes is commensurate with the risk of holding
such a financial instrument. The rate used to discount the cash flows coming out
of the trust was approximately 12%. To the extent that actual future excess cash
flows are different from estimated excess cash flows, the fair value of the
Company's retained interest could decline.
Under the terms of the securitization, the retained interest is required to
build overcollateralization to specified levels using the excess cash flows
described above until set percentages of the securitized portfolio are attained.
Future cash flows to the retained interest holder are all held by the REMIC
trust until a specific percentage of either the original or current certificate
balance is attained which percentage can be raised if certain charge-offs and
delinquency ratios are exceeded. The certificate holders' recourse for credit
losses is limited to the amount of overcollateralization held in the REMIC
trust. Upon maturity of the certificates or upon exercise of an option ("clean
up call") to repurchase all the remaining residential mortgages once the balance
of the residential mortgages in the trust are reduced to 10% of the original
balance of the residential mortgages in the trust, any remaining amounts in the
trust are distributed. The current amount of any overcollateralization balance
held by the trust is recorded as part of the retained interest.
NOTE 8. STOCKHOLDERS' EQUITY
On July 14, 1998, the Company declared a dividend of $2.3 million or $0.28 per
share. This dividend was paid on July 31, 1998 to holders of record of Common
Stock as of July 24, 1998. On April 24, 1998, the Company declared a dividend of
$2.3 million or $0.28 per share. This dividend was paid on April 30, 1998 to
holders of record of Common Stock as of April 24, 1998. On December 19, 1997,
the Company declared a dividend of $1.3 million or $0.16 per share. The dividend
was paid on January 21, 1998 to holders of record of Common Stock as of December
31, 1997.
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NOTE 9. INVESTMENT IN AMERICAN RESIDENTIAL HOLDINGS, INC.
The following condensed financial information summarizes the financial position
and results of operations of American Residential Holdings, Inc. (dollars in
thousands, except per share data):
CONDENSED BALANCE SHEET
June 30, 1998
-------------
ASSETS
Cash and cash equivalents $ 1
Due from affiliate 944
Class "X" Certificate - CMO/FASIT 475
Other assets 25
-------
$ 1,445
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Other liabilities $ 898
-------
Total liabilities 898
Stockholders' Equity:
Preferred stock, par value $1,000 per share; 10,000 shares
authorized; 475 shares issued and outstanding 475
Common stock, par value $.01 per share; 100 shares
authorized; 50 shares issued and outstanding --
Additional paid-in-capital 25
Cumulative dividends declared (885)
Retained earnings 932
-------
Total stockholders' equity 547
-------
$ 1,445
=======
CONDENSED STATEMENT OF OPERATIONS
For the period
January 28, 1998
(commencement of
operations) through
June 30, 1998
---------------
Revenue - gain on sale of loans $ 1,585
Expense - income taxes 653
---------------
Net income $ 932
===============
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The statements contained in this Report that are not purely historical are
forward looking statements, including statements regarding the Company's
expectations, hopes, beliefs, intentions or strategies regarding the future.
Statements which use the words "intends", "expects", "will", "may",
"anticipates" and "seeks" are forward looking statements. These forward looking
statements, including statements regarding changes in the Company's future
income and intent to acquire fixed rate Mortgage Loans, are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward looking statement. It is important to note
that the Company's actual results could differ materially from those in such
forward looking statements. Among the factors that could cause actual results to
differ materially are the factors set forth below under the heading "Business
Risks". In particular, the Company's future income could be affected by changes
in levels of repayments, changes in interest rates, lack of available Mortgage
Assets which meet the Company's acquisition criteria, the type of Mortgage
Assets acquired by the Company and the credit characteristics of the borrowers
under Mortgage Loans acquired by the Company.
OVERVIEW
The Company's income to date consists primarily of interest income generated
from its Mortgage Assets and its cash balances (collectively, "earning assets").
The Company funds its acquisitions of earning assets with both its equity
capital and with borrowings. For that portion of the Company's earning assets
funded with equity capital ("equity-funded lending"), net interest income is
derived from the average yield on earning assets. Due to the adjustable-rate
nature of its earning assets, the Company expects that income from this source
will tend to increase and decrease as interest rates rise and fall,
respectively.
For that portion of the Company's earning assets funded with borrowings ("spread
lending"), the resulting net interest income is a function of the volume of
spread lending and the difference between the Company's average yield on earning
assets and the cost of borrowed funds and interest rate hedging agreements.
Income from spread lending may initially decrease following an increase in
interest rates and then, after a lag period, be restored to its former level as
earning assets yields adjust to market conditions. Income from spread lending
may likewise increase following a fall in interest rates, but then decrease as
earning assets yields adjust to the new market conditions after a lag period.
The Company intends to begin acquiring fixed-rate Mortgage Loans in the third
quarter. Currently, the market for fixed-rate Mortgage Loans substantially
exceeds that for adjustable-rate Mortgage Loans and the Company believes the
fixed-rate market may represent a significant source of Mortgage Loan
acquisitions in the future. The Company intends to begin with a pilot program
and may expand the volume of acquisitions over time. The Company will seek to
reduce the interest rate risk associated with the fixed-rate product through
hedging activities and the financing of such product through long-
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term securitizations. There can be no assurance, however, that the Company will
be able to hedge or finance fixed-rate Mortgage Loans on terms favorable to the
Company or at all. See "Business Risks - Sudden Interest Rate Fluctuations May
Reduce Income From Operations."
RESULTS OF OPERATIONS
For the three months ended June 30, 1998, the Company generated net income of
approximately $2.3 million and diluted net income per share of Common Stock of
$0.28. At June 30, 1998 the Company held Mortgage Securities that had a carrying
value of approximately $303.0 million, including a $4.6 million net unrealized
loss, and Mortgage Loans with a carrying value of approximately $643.1 million.
Net income for the Company increased 418% from approximately $438 thousand for
the three months ended June 30, 1997, to approximately $2.3 million for the
three months ended June 30, 1998. The growth in net income was directly
attributable to an increase in net interest income and other operating income.
Net interest income grew approximately 333% from the three months ended June 30,
1997 to the three months ended June 30, 1998, from approximately $567 thousand
to approximately $2.5 million respectively. Other operating income was zero for
the three months ended June 30, 1997 and was approximately $1.1 million for the
three months ended June 30, 1998. This increase in income was partially offset
by an increase in other expenses consisting of management fees and
administrative expenses. From the three months ended June 30, 1997 to the three
months ended June 30, 1998, other expenses increased from approximately $129
thousand to approximately $1.1 million, or approximately 717%.
The growth in net interest income from the three months ended June 30, 1997 to
the three months ended June 30, 1998 was due to an increase in the Company's
Mortgage Loans held-for-investment during the second quarter of 1998. An
increase in other operating income includes the increase in fee income,
prepayment penalty income and dividends from Holdings. Fee income increased due
to the increase in the Company's Mortgage Loans during the second quarter of
1998 and prepayment penalty income increased due to the high levels of
prepayments in the Mortgage Securities portfolio during the three months ended
June 30, 1998.
For the six months ended June 30, 1998, the Company generated net income of
approximately $4.5 million and diluted net income per share of Common Stock of
$0.56. At June 30, 1998 the Company held Mortgage Securities that had a carrying
value of approximately $303.0 million, including a $4.6 million net unrealized
loss, and Mortgage Loans with a carrying value of approximately $643.1 million
Net income for the Company increased 678% from approximately $584 thousand for
the period from February 11, 1997 (commencement of operations) through June 30,
1997, to approximately $4.5 million for the six months ended June 30, 1998. The
growth in net income was directly attributable to an increase in net interest
income and other operating income. Net interest income grew approximately 709%
from the period from February 11, 1997 (commencement of operations) through June
30, 1997 to the six months ended June 30, 1998, from approximately $724 thousand
to approximately $5.9 million respectively. Other operating income was zero for
the period from February 11, 1997 (commencement of operations) through June 30,
1997 and was approximately $1.2 million for the six months ended June 30, 1998.
This increase in income was partially offset by an increase in other expenses
consisting of management fees and administrative expenses. From the period from
February 11, 1997 (commencement of operations) through June 30, 1997 to the six
months ended June 30, 1998, other expenses increased from approximately $140
thousand to approximately $2.1 million, or approximately 138%.
The growth in net interest income from the period from February 11, 1997
(commencement of operations) through June 30, 1997 to the six months ended June
30, 1998 was due to an increase in the Company's Mortgage Loans
held-for-investment during the first six months of 1998. An increase in other
operating income includes the increase in fee income, prepayment penalty income
and dividends from Holdings. Fee income increased due to the increase in the
Company's Mortgage Loans during the first six months of 1998 and prepayment
penalty income increased due to the high levels of prepayments in the Mortgage
Securities portfolio during the six months ended June 30, 1998. While prepayment
income increases cash flow, higher than expected prepayments have a long-term
negative effect on operating income due to write-offs of capitalized mortgage
premiums which would otherwise have been amortized over a longer period of time.
Equity in Income of Holdings increased due to the sale of loans structured in a
Real Estate Mortgage Investment Conduit ("REMIC"). The Company does not
anticipate that it will receive other operating income from REMIC transactions
in the future on a regular basis, or at all. Similarly, the increase in other
expenses from the period from February 11, 1997 (commencement of operations)
through June 30, 1997 to the six months ended June 30, 1998 is primarily the
result of the Company's increased management fees which resulted from the
increase in the
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Company's Mortgage Loans and the increased professional fees and printing and
reproduction expenses from the 10-K and annual report.
The Company experienced very high levels of prepayments in the Mortgage Security
portfolio in the six months ended June 30, 1998. The annualized Mortgage
Security principal prepayment rate for the Company was approximately 46% in the
six months ending June 30, 1998 compared to the annualized mortgage principal
prepayment rate of approximately 30% for the period from February 11, 1997
(commencement of operations) through June 30, 1997. The Company anticipates that
prepayment rates may continue at very high levels for an indefinite period. The
Company's financial condition and results of operations will continue to be
materially adversely affected if prepayments continue at high levels. See
"Business Risks - High Levels of Mortgage Loan Prepayments May Reduce Operating
Income".
In the second quarter 1998, the Company purchased the preferred stock of
Holdings, representing a 95% economic interest in this taxable affiliate.
Holdings was formed to assist the Company in the creation of certain types of
mortgage equity interests and generally to provide increased flexibility to the
Company in carrying out its business strategy as a REIT-qualifying mortgage
investor. Holdings' future earnings will be recognized using the equity method
of line-item on the Company's income statement. See "Investment in Holdings" in
the Financial Condition section below and the notes to the consolidated
financial statements for additional information on Holdings.
Liquidity and Capital Resources
During the six months ended June 30, 1998, net cash provided by operating
activities was approximately $5.0 million. Net cash provided by operating
activities was negatively impacted by an increase in accrued interest
receivable. Mortgage Loans increased from $162.8 million on December 31, 1997 to
$643.1 million at June 30, 1998 and, therefore, accrued interest receivable at
June 30, 1998 has increased proportionally to loans, thereby negatively
affecting cash. Net cash for the period was positively affected by an increase
in accrued interest payables.
Net cash used in investing activities for the six months ended June 30, 1998 was
approximately $410.9 million. Net cash used for the period was negatively
affected by the purchase of Mortgage Loans in the amount of approximately $503.2
million and positively affected by principal prepayments of approximately $98.9
million.
For the six months ended June 30, 1998, net cash provided by financing
activities was approximately $406.0 million. Net cash used was positively
affected by the issuance of long-term debt in the form of CMO/FASIT bonds issued
for approximately $456.5 million. Net cash used was negatively affected by a
decrease in borrowings under reverse repurchase agreements of $46.9 million.
At June 30, 1998 the Company had uncommitted reverse repurchase agreement
facilities in place to provide over $3.3 billion to finance investments in
Mortgage Assets. In
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addition, the Company has a line of credit with one counter party to a reverse
repurchase agreement. Pursuant to the line of credit, the Company may borrow the
lesser of $25 million and the outstanding principal and interest receivable
balance with the counter party, for a period of up to 36 days at an interest
rate equal to LIBOR plus 0.6%. The line of credit has no set expiration date.
If the Company's cash resources are insufficient to satisfy the Company's
liquidity requirements, the Company may be required to sell additional equity or
debt securities. There is no assurance that such financing will be available to
the Company on favorable terms, or at all.
BUSINESS RISKS
High Levels of Mortgage Loan Prepayments May Reduce Operating Income
Prepayments of Mortgage Assets adversely affect the Company's results of
operations in several ways. A portion of the adjustable-rate Mortgage Assets
acquired by the Company bear initial "teaser" interest rates which are lower
than their "fully-indexed" rates (the applicable index plus a margin. In the
event that such an adjustable-rate Mortgage Asset is prepaid prior to or soon
after the time of adjustment to a fully-indexed rate, the Company will have held
the Mortgage Asset during its least profitable period and lost the opportunity
to receive interest at the fully-indexed rate over the expected life of the
adjustable-rate Mortgage Asset. In addition, the prepayment of any Mortgage
Asset that has been purchased with a premium by the Company would result in the
immediate write-off of any remaining capitalized premium amount and the
consequent reduction of the Company's net interest income by such amount.
Finally, in the event that the Company is unable to acquire new Mortgage Assets
to replace the prepaid Mortgage Assets, the Company's financial condition and
results of operations could be materially adversely affected.
Mortgage Asset prepayment rates generally increase when new Mortgage Loan
interest rates fall below the interest rates on the adjustable-rate Mortgage
Assets, Prepayment experience also may be affected by the geographic location of
the property securing the adjustable-rate Mortgage Loans, the assumability of an
adjustable-rate Mortgage Loan, the ability of the borrower to obtain or convert
to a fixed-rate Mortgage Loan, conditions in the housing and financial markets
and general economic conditions. The level of prepayments is also subject to the
same seasonal influences as the residential real estate industry with prepayment
rates generally being highest in the summer months and lowest in the winter
months. The Company experienced very high levels of prepayments during the six
months ended June 30, 1998 and the Company anticipates that prepayment rates
will continue at very high levels for an indefinite period.
Certain Mortgage Loans acquired by the Company may contain provisions
restricting prepayments of such Mortgage Loans and require a charge in
connection with the prepayment thereof. Such prepayment restrictions can, but do
not necessarily, provide a deterrent of prepayments. Prepayment charges may be
in an amount which is less than
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the figure which would fully compensate the Company for a lower yield upon
reinvestment of the prepayment proceeds.
Borrower Credit May Decrease Value of Mortgage Loans
A substantial portion of the Company's Mortgage Assets consist of Mortgage
Loans. Accordingly, the Company is subject to increased credit risks, including
risks of borrower defaults and bankruptcies and special hazard losses that are
not covered by standard hazard insurance (such as those occurring from
earthquakes or floods.) In the event of a default on any Mortgage Loan held by
the Company, the Company will bear the risk of loss of principal to the extent
of any deficiency between the value of the secured property, and the amount
owing on the Mortgage Loan, less any payments from an insurer or guarantor.
Defaulted Mortgage Loans will also cease to be eligible collateral for
borrowings, and will have to be financed by the Company out of other funds until
ultimately liquidated. Although the Company established an allowance for
Mortgage Loan losses in an amount that it believes is adequate to cover these
risks, in view of its limited operating history and lack of experience with the
Company's current Mortgage Loans and Mortgage Loans that may be acquired, there
can be no assurance that any allowance for Mortgage Loan losses which are
established will be sufficient to offset losses on Mortgage Loans in the future.
The Company's Mortgage Loans remain relatively young from a delinquency
perspective, and there have not yet been any losses incurred on these loans.
Because of the age of the Company's loans, current delinquency and loss
information is not yet expected to be representative of future delinquencies and
losses. At June 30, 1998, approximately 6.26% of the Company's Mortgage Loans
were delinquent 60 days or more. In addition, at June 30, 1998, 19 Mortgage
Loans were in bankruptcy with a total loan value of approximately $1.9 million.
Credit risks associated with non-conforming Mortgage Loans, especially sub-prime
Mortgage Loans, may be greater than those associated with Mortgage Loans that
conform to FNMA and FHLMC guidelines. The principal difference between
non-conforming sub-prime Mortgage Loans and conforming Mortgage Loans include
the applicable loan-to-value ratios, the credit and income histories of the
mortgagors, the documentation required for approval of the mortgagors, the types
of properties securing the Mortgage Loans, loan sizes and the mortgagors'
occupancy status with respect to the mortgaged property. As a result of these
and other factors, the interest rates charged on non-conforming Mortgage Loans
are often higher than those charged for conforming Mortgage Loans. The
combination of different underwriting criteria and higher rates of interest may
lead to higher delinquency rates and/or credit losses for non-conforming as
compared to conforming Mortgage Loans and could have an adverse effect on the
Company to the extent that the Company has invested in such Mortgage Loans or
securities secured by such Mortgage Loans.
At June 30, 1998, the Mortgage Loans held for Investment had the following
credit grade characterizations:
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Credit Grade Non-Conforming Loans
------------ --------------------
A $392,350
B 133,938
C 59,817
D 15,474
----------
$601,586
Even assuming that properties secured by the Mortgage Loans held by the Company
provide adequate security for such Mortgage Loans, substantial delays could be
encountered in connection with the foreclosure of defaulted Mortgage Loans, with
corresponding delays in the receipt of related proceeds by the Company. State
and local statutes and rules may delay or prevent the Company's foreclosure on
or sale of the mortgaged property and may prevent the Company from receiving net
proceeds sufficient to repay all amounts due on the related Mortgage Loan. In
addition, the Company's servicing agent may be entitled to receive all expenses
reasonably incurred in attempting to recover amounts due and not yet repaid on
liquidated Mortgage Loans, thereby reducing amounts available to the Company.
Some properties which will collateralize the Company's Mortgage Loans may have
unique characteristics or may be subject to seasonal factors which would
materially prolong the time period required to resell such properties.
The Company Has Significant Conflicts with, and Is Dependent on, an Affiliate of
the Executive Officers of the Company
The Company is subject to conflicts of interest with the Manager and its
executive officers. The executive officers of the Company generally will also be
executive officers, employees and stockholders of the Manager, and will
therefore be affiliated with the Manager. The Manager will manage the day-to-day
operations of the Company. Accordingly, the Company's success will depend in
significant part on the Manager. Under the Management Agreement, the Manager
will receive an annual base management fee payable monthly in arrears and the
Manager will have the opportunity to earn incentive compensation under the
Management Agreement based on the Company's annualized net income. The ability
of the Company to achieve the performance level required for the Manager to earn
the incentive compensation is dependent upon the level and volatility of
interest rates, the Company's ability to react to changes in interest rates and
to implement the operating strategies described herein, and other factors, many
of which are not within the Company's control. In evaluating Mortgage Assets for
investment and other strategies, an undue emphasis on maximizing income at the
expense of other criteria, such as preservation of capital, in order to achieve
higher incentive compensation for the Manager, could result in increased risk to
the value of the Company's Mortgage Asset portfolio.
The Management Agreement does not limit or restrict the right of the Manager or
any of its officers, directors, employees or affiliates to engage in any
business or to render services of any kind to any other person, including
purchasing, or rendering advice to
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others purchasing, Mortgage Assets which meet the Company's policies and
criteria, except that the Manager and its officers, directors, or employees will
not be permitted to provide any such services to any REIT which invests
primarily in residential Mortgage Assets, other than the Company.
Sudden Interest Rate Fluctuations May Reduce Income From Operations
Substantially all of the Company's Mortgage Assets have a repricing frequency of
two years or less, and substantially all of the Company's borrowings have
maturities of six months or less. The interest rates on the Company's borrowings
may be based on interest rate indices which are different from, and adjust more
rapidly than, the interest rate indices of its related Mortgage Assets.
Consequently, changes in interest rates may significantly influence the
Company's net interest income. While increases in interest rates will generally
increase the yields on the Company's adjustable-rate Mortgage Assets, rising
rates will also increase the cost of borrowings by the Company. To the extent
such costs rise more rapidly than the yields on such Mortgage Assets, the
Company's net interest income will be reduced or a net interest loss may result.
Adjustable-rate Mortgage Assets are typically subject to periodic and lifetime
interest rate caps which limit the amount an adjustable-rate Mortgage Asset
interest rate can change during any given period. The Company's borrowings will
not be subject to similar restrictions. Hence, in a period of increasing
interest rates, the cost of the Company's borrowings could increase without
limitation by caps while the yields on the Company's Mortgage Assets could be
limited. Further, some adjustable-rate Mortgage Assets may be subject to
periodic payment caps that result in some portion of the interest being deferred
and added to the principal outstanding. This could result in receipt by the
company of a lesser amount of cash income on its adjustable-rate Mortgage Assets
than is required to pay interest on the related borrowings, which will not have
such payment caps. These factors could lower the Company's net income or cause a
net interest loss during periods of rising interest rates, which would
negatively impact the Company's financial condition and results of operations.
The Company's results of operations may also be adversely affected to the extent
the Company acquires fixed-rate Mortgage Loans and is not able to fully hedge
the interest rate risk associated with such loans through hedging activities or
the financing of such loans through long-term securitizations.
Failure To Successfully Manage Interest Rates Risks May Adversely Affect Results
of Operations
The Company will follow a program intended to protect against interest rate
changes. However, developing an effective interest rate risk management strategy
is complex and no management strategy can completely insulate the Company from
risks associated with interest rate changes. In addition, hedging involves
transaction costs. In the event the Company hedges against interest rate risks,
the Company may substantially reduce its net income. Further, the Federal tax
laws applicable to REITs may limit the Company's
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ability to fully hedge its interest rate risks. Such Federal tax laws may
prevent the Company from effectively implementing hedging strategies that,
absent such restrictions, would best insulate the Company from the risks
associated with changing interest rates.
In the event that the Company purchases interest rate caps or other interest
rate derivatives to hedge against lifetime, periodic rate or payment caps, and
the provider of such caps on interest rate derivatives becomes financially
unsound or insolvent, the Company may be forced to unwind such caps on its
interest rate derivatives with such provider and may take a loss thereon.
Further, the Company could suffer the adverse consequences that the hedging
transaction was intended to protect against. Although the Company intends to
purchase interest rate caps and derivatives only from financially sound
institutions and to monitor the financial strength of such institutions on a
periodic basis, no assurance can be given that the Company can avoid such third
party risks.
Currently, the Company has entered into hedging transactions which seek to
protect only against the Mortgage Securities lifetime rate caps and not against
periodic rate caps or unexpected payments. In addition, the Company's lifetime
cap hedges are for a two year period which began in the second quarter of 1998.
Accordingly, the Company may not be adequately protected against risks
associated with interest rate changes and such changes could aversely affect the
Company's financial condition and results of operations.
Future Offerings of Securities May Affect Market Price of Common Stock
The Company may in the future increase its capital resources by making
additional offerings of equity and debt securities, including classes of
preferred stock, Common Stock, commercial paper, medium-term notes, CMOs and
senior or subordinated notes. All debt securities and classes of preferred stock
will be senior to the Common Stock in a liquidation of the Company. The effect
of additional equity offerings may be the dilution of the equity of stockholders
of the Company or the reduction of the price of the Company's Common Stock, or
both. The Company is unable to estimate the amount, timing, or nature of
additional offerings as they will depend upon market conditions and other
factors. There can be no assurance that the Company will be able to raise the
capital it will require through such offerings on favorable terms or at all. The
inability of the Company to obtain needed resources of capital on favorable
terms could have a materially adverse affect on the Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required
PART II. OTHER INFORMATION
Item. 1. Legal Proceedings
At June 30, 1998, there were no pending legal proceedings to which
the Company was a party or of which any of its property was subject.
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Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of the Company was
held on May 22, 1998.
(b) The following matters were voted on at the Annual
Meeting:
(1) Election of (2) Directors
Nominee Votes
------- -----
H. James Brown 7,748,209
Ray McKewon 7,748,634
The following Directors will complete their term of
office and were not due for election this calendar
` year:
David DeLeeuw
Jay Fuller
Richard Pratt
Mark Riedy
John Robbins
(2) Amendment to the Registrant's 1997 Stock
Option Plan
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
6,355,878 1,356,249 82,577
(3) Appointment of KPMG Peat Marwick LLP as the
Registrant's independent accountants for the
current fiscal year
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
7,733,822 27,527 33,355
Item 5. Other Information
Proposals of stockholders intended to be presented at the next Annual
Meeting of the Stockholders of the Company (other than proposals made
under Rule 14a-8 of the Securities Exchange Act of 1934, as amended)
must be received by the Company at its offices at 445 Marine View
Avenue, Suite 230, Del Mar California 92014, between February 21 and
March 23, 1999.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
*3.1 Articles of Amendment and Restatement of
the Registrant
*3.2 Amended and Restated Bylaws of the
Registrant
*4.1 Registration Rights Agreement dated
February 11, 1997
**4.2 Indenture dated as of June 1, 1998 between
American Residential Eagle Board Trust
1998-1, a California wholly-owned
consolidated subsidiary of AmREIT, and First
Union National Bank, as Trustee.
10.6A Amendment to 1997 Stock Incentive Plan
10.7A 1997 Stock Option Plan, as amended
27. Financial Data Schedule
* Incorporated by reference to Registration Statement on
Form S-11 (File No. 333-33679)
** Incorporated by reference to Registration Statement on
Form 8-K dated June 17, 1998, filed with the Commission
on July 2, 1998.
(b) Reports on Form 8-K
None
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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
AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
Dated: August 14, 1998 By: /s/ MARK A. CONGER
-------------------------------------
Mark A. Conger,
Executive Vice President
Chief Financial Officer
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