<PAGE>
- --------------------------------------------------------------------------------
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: 0-21425
HEALTHCARE FINANCIAL PARTNERS, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 52-1844418
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Wisconsin Circle, Suite 400
Chevy Chase, Maryland 20815
(Address of principal executive offices) (Zip code)
(301) 961-1640
(Registrant's telephone number, including area code)
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 file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
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) 13,404,902 as of June 30, 1998
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<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets at June 30, 1998
and December 31, 1997 (Unaudited).......................................................... 1
Condensed Consolidated Statements of Operations for the three and six
months ended June 30, 1998 and June 30, 1997 (Unaudited)................................... 2
Condensed Consolidated Statements of Equity for the
year and six months ended December 31, 1997 and June 30, 1998 (Unaudited).................. 3
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and June 30, 1997 (Unaudited).......................................... 4
Notes to Condensed Consolidated Financial Statements (Unaudited)........................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................ 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 15
Item 2. Changes in Securities......................................................................... 15
Item 3. Defaults Upon Senior Securities............................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders........................................... 15
Item 5. Other Information............................................................................. 15
Item 6. Exhibits and Reports on Form 8-K.............................................................. 15
SIGNATURES............................................................................................. 16
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1998 1997
-------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 44,133,722 $ 18,668,703
Finance receivables 352,538,221 250,688,138
Less:
Allowance for losses on receivables 4,860,687 2,654,114
Unearned fees 4,300,500 3,161,237
------------ ------------
Net finance receivables 343,377,034 244,872,787
Deferred income taxes 1,822,517 1,041,520
Property and equipment, net 1,347,299 416,284
Goodwill 1,652,334 1,740,097
Investment in affiliates 11,366,219 767,244
Investments in securities 10,387,046 1,442,814
Prepaid expenses and other assets 3,194,454 3,405,497
------------ ------------
Total assets $417,280,625 $272,354,946
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ 10,261,850 $ 40,157,180
Commercial paper facility 117,102,446 101,179,354
Warehouse facility 38,767,080 27,932,520
Client holdbacks 4,014,303 6,173,260
Accounts payable to clients 331,917 834,367
Income taxes payable 1,628,862 5,138,144
Due to affiliates 191,061 -
Accounts payable and accrued expenses 4,318,623 2,217,947
Notes payable 3,661,666 115,286
Accrued interest 749,035 776,700
------------ ------------
Total liabilities 181,026,843 184,524,758
Stockholders' equity
Preferred stock, par value $.01 per share; 10,000,000 shares
authorized; none outstanding
Common stock, par value $.01 per share; 60,000,000 shares
authorized; 13,404,902 and 9,670,291 shares issued and
outstanding, respectively 134,050 96,703
Paid-in-capital 219,539,152 79,784,045
Retained earnings 16,663,471 7,949,440
Accumulated other comprehensive income (82,891)
------------ ------------
Total stockholders' equity 236,253,782 87,830,188
------------ ------------
Total liabilities and stockholders' equity $417,280,625 $272,354,946
============ ============
</TABLE>
See accompanying notes.
1
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Fee and interest income:
Fee and interest income from finance $15,049,041 $5,460,542 $27,353,821 $ 9,948,875
receivables
Other interest income 261,197 76,095 448,373 118,435
----------- ---------- ----------- -----------
Total fee and interest income 15,310,238 5,536,637 27,802,194 10,067,310
Interest expense 2,870,086 1,968,569 6,670,340 3,101,725
----------- ---------- ----------- -----------
Net fee and interest income 12,440,152 3,568,068 21,131,854 6,965,585
Provision for losses on receivables 1,555,558 250,000 2,206,572 400,000
----------- ---------- ----------- -----------
Net fee and interest income after provision
for losses on receivables 10,884,594 3,318,068 18,925,282 6,565,585
Asset management income 313,268 313,268
----------- ---------- ----------- -----------
Operating income 11,197,862 3,318,068 19,238,550 6,565,585
Operating expenses:
Compensation and benefits 1,252,069 920,223 2,368,403 1,691,761
Commissions - 42,162 48,206 72,583
Professional fees 387,156 112,545 565,237 285,962
Occupancy 168,060 55,526 291,729 103,035
Other 1,359,006 292,445 2,506,373 1,136,043
----------- ---------- ----------- -----------
Total operating expenses 3,166,291 1,422,901 5,779,948 3,289,384
Other income 433,752 304,628 1,068,054 691,687
----------- ---------- ----------- -----------
Income before income taxes 8,465,323 2,199,795 14,526,656 3,967,888
Income taxes 3,371,854 749,956 5,812,625 1,397,045
----------- ---------- ----------- -----------
Net income $ 5,093,469 $1,449,839 $ 8,714,031 $ 2,570,843
=========== ========== =========== ===========
Basic earnings per share $ .38 $ .21 $ .74 $ .40
=========== ========== =========== ===========
Weighted average shares outstanding 13,371,236 6,745,760 11,844,225 6,481,842
=========== ========== =========== ===========
Diluted earnings per share $ .37 $ .21 $ .71 $ .39
=========== ========== =========== ===========
Diluted weighted average shares outstanding 13,821,309 6,853,538 12,260,774 6,588,726
=========== ========== =========== ===========
</TABLE>
See accompanying notes.
2
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Retained Other
Common Paid-in Earnings Comprehensive Total
Stock Capital (Deficit) Income Equity
----- ------- --------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 62,150 $ 26,704,234 $ (45,408) $ 26,720,976
Net and Comprehensive Income 7,994,848 7,994,848
Issuance of 3,450,000 shares of $.01
par value common stock 34,500 53,005,310 53,039,810
Common stock issuable under
directors' option plan 15,989 15,989
Common stock issued under
employee option plans 53 58,512 58,565
-------- ------------ ------------ ------------ ------------
Balance at December 31, 1997 96,703 79,784,045 7,949,440 87,830,188
------------
Comprehensive income:
Net income 8,714,031 8,714,031
Unrealized loss on investment
securities available-for-sale, $(82,891) (82,891)
net of tax ------------
Comprehensive Income 8,631,140
------------
Issuance of 3,657,500 shares of $.01
par value common stock 36,575 137,895,839 137,932,414
Common stock issuable under
directors' option plan 7,980 7,980
Common stock issued under employee
option plans 772 1,851,288 1,852,060
-------- ------------ ------------ ------------- ------------
Balance at June 30, 1998 $134,050 $219,539,152 $16,663,471 $(82,891) $236,253,782
======== ============ ============ ============= ============
</TABLE>
See accompanying notes.
3
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months Ended June 30,
-----------------------------
1998 1997
------------- ------------
<S> <C> <C>
Operating activities
Net income $ 8,714,031 $ 2,570,843
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation 102,170 52,777
Amortization of goodwill 87,763 -
Stock compensation plans 18,049 7,994
Provision for losses on receivables 2,206,572 400,000
Deferred income taxes (780,997) 473,410
Loss on investments 34,318
Changes in assets and liabilities:
Decrease in accounts receivable from related parties 191,061 5,576
(Increase) decrease in prepaid expenses and other 211,043 (1,925,942)
Increase (decrease) in income taxes payable (2,450,012) 1,105,287
(Decrease) in accrued interest (27,665) (130,812)
Increase (decrease) in accounts payable and accrued expenses 1,264,470 (116,686)
------------- ------------
Net cash provided by operating activities 9,570,803 2,442,447
Investing activities
Increase in finance receivables, net (104,869,776) (49,158,748)
Investment in affiliates (10,598,975)
Purchase of property and equipment, net (926,579) (125,582)
Investment in securities (3,260,276)
Purchase of limited partnership interest, net of cash acquired - (15,200,257)
------------- ------------
Net cash used in investing activities (119,655,606) (64,484,587)
Financing activities
Net payments under line of credit (29,895,330) (3,829,737)
Net borrowings under commercial paper facility 15,923,092 12,388,617
Net borrowings under warehouse facility 10,834,560
Issuance of common stock, net of expenses 138,747,725 53,039,810
Principal payments in notes payable (60,225) 14,653
Distributions to limited partners, net (317,993)
------------- ------------
Net cash provided by financing activities 135,549,822 61,295,350
------------- ------------
Net increase (decrease) in cash and cash equivalents 25,465,019 (746,790)
Cash and cash equivalents at beginning of period 18,668,703 11,734,705
------------- ------------
Cash and cash equivalents at end of period $ 44,133,722 $ 10,987,915
============= ============
Supplemental disclosure of cash flow information
Cash payments for interest $ 6,698,005 $ 3,232,537
============= ============
Cash payments for income taxes $ 9,406,343 $ 670,523
============= ============
</TABLE>
See accompanying notes.
4
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The condensed consolidated financial statements of HealthCare Financial
Partners, Inc. (the "Company") for 1997 include the accounts of the Company and
the accounts of its wholly-owned subsidiaries, HCFP Funding, Inc., HCFP Funding
II, Inc., HCFP Funding III, Inc., Wisconsin Circle Funding Corporation,
Wisconsin Circle II Funding Corporation, and HealthCare Analysis Corporation.
For 1998, they also include HCFP of California, Inc. and a newly formed wholly-
owned subsidiary, HCFP REIT Management, Inc. Significant intercompany accounts
and transactions have been eliminated in consolidation. The Company's principal
activity is providing financing to healthcare providers and to businesses in
sub-markets of the healthcare industry throughout the United States.
On February 9, 1998, the Company announced the formation of HealthCare
Financial Partners REIT, Inc., an entity that will elect to be taxed as a real
estate investment trust (the "HCFP REIT"). Effective March 1998, the Company
formed HCFP REIT Management, Inc., a wholly owned subsidiary. This subsidiary
was formed to manage the HCFP REIT, and will be compensated on a fee basis for
management services. The Company's management believes that the HCFP REIT
represents an effective means for the Company to enhance its client
relationships by referring such clients' long-term real estate financing needs
to the HCFP REIT.
The HCFP REIT initially funded its operations with a private placement of
common stock (the "REIT Offering") which closed on May 6, 1998. The net
proceeds were $136.2 million. The Company owns approximately 9.2% of HCFP REIT.
The Company's management anticipates that the HCFP REIT will invest in financing
products not offered by the Company, which include permanent (long-term)
mortgage loans, other real estate secured debt, purchase-leaseback transactions
and other income-producing real estate-related assets in the healthcare
industry.
On March 17, 1998, the Company closed an equity offering in which it sold
3,657,500 shares of common stock and raised $137.9 million (after underwriters'
discount and offering expenses).
Effective May 1, 1998, the Company purchased a 49% interest in a healthcare
consulting firm (ZA Consulting, LLC), an investment accounted for under the
equity method. Income for the two months ended June 30, 1998, included in other
income on the condensed consolidated statement of operations, was $250,950.
5
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates. Operating results for the three months ended
June 30, 1998 are not necessarily indicative of the results for the year ending
December 31, 1998. The notes to the consolidated financial statements contained
in the Company's Annual Report on Form 10-K for the year ended December 31, 1997
should be read in conjunction with these condensed consolidated financial
statements.
2. Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents includes cash and other liquid financial
instruments with an original maturity of three months or less.
Earnings per share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
replacing the presentation required under Accounting Principles Board Opinion
No. 15, "Earnings Per Share." Under SFAS 128, basic earnings per share is based
on the weighted average number of common shares outstanding excluding any
dilutive effects of options, warrants and other dilutive securities, while
diluted earnings per share reflects the assumed conversion of all dilutive
securities. For the periods presented herein, all dilutive shares were
attributable to outstanding options. All prior period earnings per share have
been restated to conform with SFAS 128.
3. Recent Accounting Pronouncements
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of SFAS 130 had no impact on
the Company's net income or shareholders' equity. SFAS 130 requires unrealized
gains or loses on the Company's investment securities available-for-sale, which
prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of SFAS 130.
During the first six months of 1998 and 1997, total comprehensive income
amounted to $8,631,140 and $2,570,843, respectively.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
HealthCare Financial Partners, Inc. (the "Company") is a specialty finance
company offering asset-based financing to healthcare providers, with a primary
focus on clients operating in sub-markets of the healthcare industry, including
long-term care, home healthcare and physician practices. The Company targets
small and middle market healthcare service providers with financing needs that
range from $250,000 to $15,000,000 in healthcare sub-markets where growth,
consolidation or restructuring appear likely in the near to medium term. The
Company had 194 clients as of June 30, 1998, of which 60 were affiliates of one
or more clients. The average amount outstanding per client or affiliated client
group at June 30, 1998 was approximately $2.2 million. For the three and six
month periods ended June 30, 1998, the Company's net income was $5.1 million and
$8.7 million, respectively, and for the three and six month periods ended June
30, 1997, the Company's net income was $1.5 million and $2.6 million,
respectively.
The Company currently provides financing to its clients through (i) revolving
lines of credit secured by, and advances against, accounts receivable (the
"Accounts Receivable Program"), and (ii) term loans (accompanied, in certain
cases, by warrants) secured by first or second liens on real estate, accounts
receivable or other assets (the "STL Program"). Loans under the STL Program
generally have terms of three years or less and are often made in conjunction
with financing provided under the Accounts Receivable Program. To date, the
Company has not incurred any credit losses in either program, although it
periodically makes provisions for possible future losses in the ordinary course
of its business.
The Company has implemented a plan designed to ensure that all software used
by the Company in connection with its services will manage and manipulate data
involving the transition of dates from 1999 to 2000 without functional or data
abnormality and without inaccurate results related to such data. The Company
does not anticipate that execution of this plan will have a material effect on
its operating results. However, the Company is aware that some of its clients
and payors may not have implemented such programs. The failure by clients and
payors to implement necessary software changes may disrupt clients' computerized
billing and collection systems and adversely affect clients' cash flow and
collectibility of pledged accounts receivable. The Company is unable to predict
the effects that any such failure may have on the financial condition and
results of the operations of the Company. The Company is in the process of
developing a contingency plan for any disruption in the computerized billing and
collection systems of the Company's borrowers and their respective third-party
payors, and the Company expects to have such a contingency plan in place by mid-
1999.
The Company is a Delaware corporation which was organized in April 1993 and
commenced its business in September 1993. Until September 13, 1996 the
Company's name was HealthPartners Financial Corporation. On that date its
corporate name was changed to HealthCare Financial Partners, Inc.
Financial Information
The following discussion should be read in conjunction with the condensed
consolidated financial statements, including the notes thereto, of HealthCare
Financial Partners, Inc.
7
<PAGE>
Results of Operations
Three Month Period ended June 30, 1998 Compared to the Three Month Period Ended
June 30, 1997
Total fee and interest income increased from $5.5 million for the three month
period ended June 30, 1997 to $15.3 million for the three month period ended
June 30, 1998, an increase of 176.5%. The increase principally resulted from an
increase of $214.9 million in average finance receivables outstanding due to the
Company's growth in the Accounts Receivable and STL Programs during the period.
Interest earned from the Accounts Receivable and STL Programs increased from
$3.0 million for the three month period ended June 30, 1997 to $9.8 million for
the three month period ended June 30, 1998, which accounted for $6.8 million of
the $9.8 million growth in total fee and interest income between the periods.
The Company increased its client base from 159 clients at June 30, 1997 to 194
clients at June 30, 1998. Additionally, existing clients increased their
average borrowings from the Company in the three month period ended June 30,
1998 as compared to the prior year. The yields on finance receivables were 17.7%
and 17.9% for the three month periods ended June 30, 1998 and 1997,
respectively. Therefore, the increase in fee and interest income was
principally due to growth in the volume of finance receivables.
The yields on the Accounts Receivable Program for the three month periods
ended June 30, 1998 and 1997 were 18.2% and 17.5%, respectively. The yields on
the STL Program for the same periods were 16.3% and 23.1%, respectively. The
decrease of 680 basis points for the STL Program noted for the periods being
compared stems from the composition of the STL Program during these periods; at
June 30, 1997, there were 25 clients in the program, and the majority had loans
with terms of less than six months, resulting in a higher proportion of the
yield being generated from commitment fee amortization. At June 30, 1998, there
were 46 clients in the STL Program with the average loan term being two years,
and commitment fees were being amortized over this longer average loan term.
The Company generally expects the yields under the Accounts Receivable Program
to be greater than STL Program yields.
Interest expense increased from $2.0 million for the three month period ended
June 30, 1997 to $2.9 million for the three month period ended June 30, 1998,
and the Company's average cost of borrowed funds decreased from 9.8% for the
three month period ended June 30, 1997 to 8.5% for the three month period ended
June 30, 1998, as a result of utilizing a lower-cost commercial paper facility
for a greater proportion of the borrowings for the 1998 period. (See "Liquidity
and Capital Resources".) The increase in interest expense was the result of
higher average borrowings required to support the Company's growth. Because of
the Company's overall growth in finance receivables, net fee and interest income
from finance receivables increased 248.8.%, from $3.5 million for the three
month period ended June 30, 1997 to $12.2 million for the three month period
ended June 30, 1998. In general, the lower average cost of borrowed funds
experienced in the second quarter of 1998 resulted in an increase in the
annualized net interest margin from 11.4% for the three month period ended June
30, 1997 to 14.3% for the three month period ended June 30, 1998.
The Company's provision for losses on receivables increased from $250,000 for
the three month period ended June 30, 1997 to $1.6 million for the three month
period ended June 30, 1998. This increase was attributable to the growth of the
Company's finance receivables and the size of the Company's average client
balance, which are among the factors considered by the Company in assessing the
adequacy of its allowance for losses on receivables. In addition, this increase
included $1.0 million in specific reserves. The Company experienced no credit
losses in either period.
8
<PAGE>
Following the REIT Offering, the Company commenced management activities of
the REIT, earning $313,268 in management fee income and incurring $385,531 in
related expenses. These expenses, included in the Company's operating expenses,
include amounts incurred by the Company prior to the commencement of the REIT's
operations, such as salaries and related expenses incurred by the Company in
preparation for the REIT Offering.
Operating expenses increased from $1.4 million for the three month period
ended June 30, 1997 to $3.2 million for the three month period ended June 30,
1998, a 122.5% increase. This increase was the result of a 36.1% increase in
compensation benefits, a 202.7% increase in occupancy and a 244.0% increase in
professional fees to support the Company's growth and expansion. The Company
also experienced an increase of 364.7% in other operating costs, all as a result
of the expansion of the Company's operations.
Other income increased from $304,628 for the three month period ended June
30, 1997 to $433,752 for the three month period ended June 30, 1998. The
increase in other income was largely attributable to income of $250,950 from an
equity investment made in May 1998 in ZA Consulting, LLC, a healthcare
consulting firm.
In 1997, documentation and closing fees (internal legal fees) were also
included in other income. Beginning in 1998, documentation and closing fees are
offset against internal legal expenses, and the net amount is amortized over the
terms of the associated finance receivable loans as an element of yield on the
loans.
Net income increased from $1.5 million for the three month period ended June
30, 1997 to $5.1 million for the three month period ended June 30, 1998 a 251.3%
increase, primarily as a result of the overall growth in the Company's finance
receivables as described above.
Six Month Period Ended June 30, 1998 Compared to the Six Month Period Ended June
30, 1997
Total fee and interest income increased from $10.1 million for the six month
period ended June 30, 1997 to $27.8 million for the six month period ended June
30, 1998, an increase of 176.2%. The increase principally resulted from an
increase of $197.7 million in average finance receivables outstanding due to the
Company's growth in the Accounts Receivable and STL Programs during the period.
Interest earned from the Accounts Receivable and STL Programs increased from
$4.9 million for the six month period ended June 30, 1997 to $18.0 million for
the six month period ended June 30, 1998, which accounted for $13.1 million of
the $17.7 million growth in total fee and interest income between the periods.
The Company increased its client base from 159 clients at June 30, 1997 to 194
clients at June 30, 1998. Additionally, existing clients increased their
average borrowings from the Company in six month period ended June 30, 1998 as
compared to the prior year. The yields on finance receivables were 17.4% and
17.6% for the six month periods ended June 30, 1998 and 1997, respectively.
Therefore, the increase in fee and interest income was due to growth in the
volume of finance receivables rather than increase in yield.
The yields on the Accounts Receivable Program for the six month periods ended
June 30, 1998 and 1997 were 17.6% and 16.9%, respectively. The yields on the
STL Program for the same periods were 16.9% and 23.1%, respectively. The
decrease of 620 basis points for the STL Program noted for the periods being
compared stems from the composition of the STL Program during these periods; at
June 30, 1997, there were 25 clients in the program, and the majority had loans
with terms of less than six months, resulting in a higher proportion of the
yield being generated from commitment fee amortization. At June 30, 1998, there
were 46 clients in the STL Program with the average loan term being two years,
and commitment fees were being amortized over this longer average loan term.
The Company generally expects the yields under the Accounts Receivable Program
to be greater than STL Program yields.
9
<PAGE>
Interest expense increased from $3.1 million for the six month period ended
June 30, 1997 to $6.7 million for the six month period ended June 30, 1998, and
the Company's average cost of borrowed funds was 8.3% for both periods. The
interest cost reduction resulting from the utilization of a lower-cost
commercial paper facility for a greater proportion of the borrowings for the
Accounts Receivable Program loans for the 1998 period was offset by the
increased utilization of the higher priced warehouse facility for the growing
STL Program loans. (See "Liquidity and Capital Resources".) The increase in
interest expense was also the result of higher average borrowings required to
support the Company's growth. Because of the Company's overall growth in finance
receivables, net fee and interest income from finance receivables increased
202.1%, from $6.8 million for the six month period ended June 30, 1997 to $20.7
million for the six month period ended June 30, 1998. The decreased yield on
finance receivables was offset by proportionately less borrowings and less
interest expense due to increased equity raised by the Company in March 1998 and
resulted in an increase in the annualized net interest margin from 12.1% for the
six month period ended June 30, 1997 to 13.2% for the six month period ended
June 30, 1998.
The Company's provision for losses on receivables increased from $400,000 for
the six month period ended June 30, 1997 to $2.2 million for the six month
period ended June 30, 1998. This increase was attributable to the growth of the
Company's finance receivables and the size of the Company's average client
balance, which are among the factors considered by the Company in assessing the
adequacy of its allowance for losses on receivables. In addition, this increase
included $1.1 million in specific reserves. The Company experienced no credit
losses in either period.
Following the REIT Offering, the Company commenced management activities of
the REIT, earning $313,268 in management fee income and incurring $415,410 in
related expenses. These expenses, which are included in the overall operating
expenses of the Company, include amounts incurred by the Company prior to the
commencement of the REIT's operations, such as salaries and related expenses
incurred by the Company in preparation for the REIT Offering.
Operating expenses increased from $3.3 million for the six month period ended
June 30, 1997 to $5.8 million for the six month period ended June 30, 1998, a
75.7% increase. This increase was the result of a 40% increase in compensation
and benefits due to hiring additional personnel to support the Company's growth,
as well as to provide personnel for the management of the REIT. The increase in
personnel resulted in the need to lease additional office space. As a result,
occupancy costs increased by 183.1%. The Company also experienced an increase
of 120.6% in other operating costs, all as a result of the expansion of the
Company's operations.
Other income increased from $691,687 for the six month period ended June 30,
1997 to $1.1 million for the six month period ended June 30, 1998. The increase
in other income was partly attributable to partnership income of $506,181 in
1998. This partnership income resulted form the foreclosure on, and subsequent
sale of, a mortgage held by HCFP Funding III, L.P. ("Funding III, L.P.").
Funding III, L.P. is a limited partnership in which HCFP Funding III, Inc., a
wholly-owned subsidiary of the Company (Funding III), is the General Partner.
Funding III, L.P. participated in a Department of Housing & Urban Development
auction of a distressed mortgage loan portfolio, from which it purchased four
loans. Funding III holds a 1% general and a 49% limited partnership interest in
Funding III, L.P., and receives 60% of the income from the partnership's
activities, which is included in other income. Additionally, other income
includes $250,950 from an equity investment made in May 1998 in ZA Consulting,
LLC, a healthcare consulting firm.
10
<PAGE>
In 1997, documentation and closing fees (internal legal fees) were also
included in other income. Beginning in 1998, documentation and closing fees are
offset against internal legal expenses, and the net amount is amortized over the
terms of the associated finance receivable loans as an element of yield on the
loans.
Net income increased from $2.6 million for the six month period ended June
30, 1997 to $8.7 million for the six month period ended June 30, 1998 a 239.0%
increase, primarily as a result of the overall growth in the Company's finance
receivables as described above.
Excess Collateral
The Company's primary protection against credit losses on its Accounts
Receivable Program is excess collateral consisting of client accounts receivable
due from third-party payors which collateralize revolving lines of credit
secured by, and advances against, accounts receivable. The Company obtains a
first priority security interest in all of the clients' accounts receivable,
including receivables not financed by the Company. As a result, amounts loaned
or advanced to clients with respect to specific accounts receivable are cross-
collateralized by the Company's security interest in other accounts receivable
of the clients.
With respect to revolving lines of credit secured by accounts receivable, the
Company will extend credit only up to a maximum percentage, ranging from 65% to
85%, of the estimated net collectible value of the accounts receivable due from
third-party payors. The Company obtains a first priority security interest in
all of the clients' accounts receivable, and may apply payments received with
respect to the full amount of the clients' accounts receivable to offset any
amounts due from the clients. The estimated net collectible value of the
clients' accounts receivable thus exceeds at any time balances under lines of
credit secured by such accounts receivable.
With respect to advances against accounts receivable, the Company purchases
the clients' accounts receivable at a discount from the estimated net
collectible value of the accounts receivable. The Company will advance only 65%
to 85% of the purchase price (which is equal to aggregate net collectible value
minus a purchase discount) of any batch of accounts receivable purchased. The
excess of the purchase price for a batch of receivables over the amount advanced
with respect to such batch (a "client holdback") is treated as a reserve and
provides additional security to the Company, insofar as holdback amounts may be
applied to offset amounts due with respect to the related batch of client
receivables, or any other batch of client receivables. As is the case with the
revolving lines of credit, the Company obtains a first priority security
interest in all of the clients' accounts receivable.
In addition, under both programs the Company frequently obtains a security
interest in other assets of a client and may have recourse against personal
assets of the principals or parent company of a client.
Under the STL Program, the Company's term loans to clients are secured by a
first or second lien on various types of collateral, such as real estate,
accounts receivable, equipment, inventory and stock, depending on the
circumstances of each loan and the availability of collateral.
11
<PAGE>
Turnover
The Company's results of operations are affected by its collections of client
accounts receivable. The Company's turnover of its finance receivables in its
Accounts Receivable Program, calculated by dividing total collections of client
accounts receivable for each of the following quarters by the average month end
balance of finance receivables during such quarter, was 2.6x for both quarters
ended March 31, 1998 and 1997; 2.2x for the quarter ended June 30, 1998; and
2.8x for the quarter ended June 30, 1997. Turnover for the six months ended June
30, 1998 was 2.4x and for the six months ended June 30, 1997 was 2.7x.
Liquidity and Capital Resources
Cash flows resulting from operating activities provided sources of cash
amounting to $9.6 million for the six month period ended June 30, 1998. This
compares to operating cash flows of $2.4 million for the six month period ended
June 30, 1997. The most significant source of cash from operating activities is
derived from the Company's generation of net fee and interest income from its
finance receivables, and the more significant uses of cash from internal
operating activities include cash payments for compensation and employee
benefits, rent expense, and other administrative expenses. As the Company's
number of clients and resulting business opportunities have grown, the Company
has primarily used cash in the acquisition of finance receivables under its
Accounts Receivable and STL Programs.
The Company's financing activities have provided the necessary source of
funds for the acquisition of receivables. Financing has been obtained from both
debt and equity sources. The debt financing has been generated from draws on the
a $40 million revolving line of credit (the "Bank Facility"), with Fleet Capital
Corporation ("Fleet"), the sale of commercial paper through an investment grade
asset-backed commercial paper facility (the "CP Facility") with ING Baring (US)
Capital Markets ("ING") which enables the Company to borrow up to $200 million,
and a $100 million revolving warehouse line of credit (the "Warehouse Facility")
with Credit Suisse First Boston Mortgage Capital, LLC ("CSFB"). The source of
equity financing during the first six months of 1998 was the sale of 3,657,500
shares of common stock to the public, which raised $137.9 million. During 1997
the Company sold 3,450,000 shares of common stock to the public and raised $53.0
million.
The Bank Facility is a revolving line of credit. The interest rates payable
by the Company under the Bank Facility adjust, based on the prime rate of Fleet
National Bank ("Fleet's prime rate"); however, the Company has the option to
borrow any portion of the Bank Facility in an integral multiple of $500,000
based on the one-month, two-month, three-month or six-month LIBOR plus 2.75%. As
of June 30, 1998 and December 31, 1997, $10.3 and $40.2 million, respectively,
were outstanding under the Bank Facility. The Bank Facility contains financial
and operating covenants, including the requirement that the Company maintain an
adjusted tangible net worth of not less than $5.0 million and a ratio of total
debt to equity of not more than 3.0 to 1.0. In addition, under the Bank Facility
the Company is not allowed to have at any time a cumulative negative cash flow
(as defined by the Bank Facility agreement) in excess of $1.0 million.
The inter-creditor arrangements entered into in connection with the CP Facility
excludes borrowings under the CP Facility from debt for purposes of calculating
the debt-to-equity ratio. At June 30, 1998, the Company was in compliance with
all of its covenants under the Bank Facility. The expiration date for the Bank
Facility is March 29, 2002, subject to automatic renewal for one-year periods
thereafter unless terminated by either party which requires six months prior
written notice.
In December 1996, the Company entered into an agreement with ING for $100
million commitment under the CP Facility. On December 30, 1997, that commitment
was increased to $200 million. As of June 30, 1998, $117.1 million of commercial
paper was outstanding under the CP Facility. As of December 31, 1997, $101.2
million of commercial paper was outstanding under the CP Facility. The CP
Facility requires the Company to
12
<PAGE>
transfer advances and related receivables under its Accounts Receivable Program
which meet certain criteria to a bankruptcy remote, special purpose subsidiary
of the Company. The special purpose subsidiary pledges the finance receivables
transferred by the Company to Holland Limited Securitization Inc., a commercial
paper conduit which is an affiliate of ING (the "Conduit"). The Conduit lends
against such pledged assets through the issuance of commercial paper. The CP
Facility generally requires the maintenance of a minimum overcollateralization
percentage of 125%. Under the CP Facility, ING can refuse to make any advances
in the event the Company fails to maintain a tangible net worth of at least $50
million. At June 30, 1998, the Company was in compliance with all of its
covenants under the CP Facility. The maturity date for the CP Facility is
December 5, 2001. However, the CP Facility may be terminated by the Company at
any time after December 5, 1999, without penalty.
On June 27, 1997, the Company entered into an agreement with CSFB under the
Warehouse Facility. Under the terms of the Warehouse Facility, the Company is
able to securitize certain loans under the Company's STL Program. The Company
had a total borrowing capacity under the agreement of $50 million as of December
31, 1997. In February 1998, the commitment was raised to $100 million. As of
June 30, 1998 and December 31, 1997, the Company had $38.8 million and $27.9
million, respectively, outstanding under the Warehouse Facility. The Warehouse
Facility requires that the amount outstanding under the financing agreement may
not exceed 88% of the principal amount of the STL Program loans securitized.
Interest will accrue under the financing agreement at a rate of LIBOR plus 3.75%
on the first $50 million and Libor plus 3.0% on the second $50 million. The
Warehouse Facility requires that the loans advanced by the Company do not exceed
95% of the appraised value of the real estate or a multiple of the underwritten
cash flow of the borrower, that the weighted average yield of advances under the
Warehouse Facility must exceed the prime rate of interest plus 3%, that the
maximum weighted average loan to value of advances under the Warehouse Facility
must be no greater than 85%, and that no loan in the portfolio has a life
greater than five years. Additionally, the Warehouse Facility requires that, to
the extent that the Company makes advances in amounts greater than $7.5 million
to any borrower, that excess is advanced by the Company through other sources.
The commitment to make advances under the Warehouse Facility terminates on June
27, 1999. Subsequent to that date, no new loans may be securitized under the
existing agreement, however previous loans securitized will remain outstanding
until they have been fully repaid. Additionally, under the terms of the
agreement, the Company has the right to repurchase any assets securitized at a
price equal to the fair market value of such assets. At June 30, 1998, the
Company was in compliance with all of the covenants of the agreement.
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to grow and the future of its operations
will be affected by the availability and the terms of financing. The Company
expects to fund its future financing activities principally from (i) the CP
Facility, which expires on December 5, 2001, (ii) the Bank Facility, which
expires on March 29, 2002, subject to automatic renewals for one-year periods
thereafter unless terminated by either party and (iii) the Warehouse Facility,
which expires on June 27, 1999. While the Company expects to be able to obtain
new financing facilities or renew these existing financing facilities and to
have continued access to other sources of credit after expiration of these
facilities, there is no assurance that such financing will be available, or, if
available, that it will be on terms favorable to the Company.
Interest Rate Sensitivity
Interest rate sensitivity refers to the change in interest spread between the
yield on the Company's portfolio and the cost of funds necessary to finance the
portfolio (i.e., the Bank Facility, the CP Facility and the Warehouse Facility)
resulting from changes in interest rates. To the extent that interest income and
interest expense do not respond equally to changes in interest rates, or that
all rates do not change uniformly, earnings are affected. The interest rates
charged on revolving lines of credit secured by accounts receivable
13
<PAGE>
adjust based upon changes in the prime rate. The fees charged on advances
against accounts receivable are fixed at the time of any advance against a batch
of receivables, although such fees may increase depending upon the timing of
collections of receivables within the batch. The interest rates on the Company's
term loans generally adjust based on the prime rate. The interest rates payable
by the Company under the Bank Facility adjust, based on Fleet's prime rate;
however, the Company has the option to borrow any portion of the Bank Facility
in an integral multiple of $500,000 based on the one-month, two-month, three-
month or six-month LIBOR plus 2.75%. The interest rate on the CP Facility
adjusts based upon changes in commercial paper rates. Because the Company
finances most of the Accounts Receivable Program's activity through the CP
Facility, there exists some interest rate risk since the interest rate on
advances to the Company's clients under the Accounts Receivable Program will
adjust based on the prime rate, and the interest rate on most of the Company's
liabilities under the CP Facility will adjust based on commercial paper rates.
Such limited interest rate sensitivity on the Accounts Receivable Program
portfolio is not expected to have a material effect on the Company's net
interest income if interest rates change. Additionally, because advances against
accounts receivable are generally fixed and financed with the CP Facility, which
has rates that adjust with changes in commercial paper rates, there exists
interest rate sensitivity with respect to advances against accounts receivable,
and if interest rates increase significantly, such an increase could have an
adverse effect on the Company's net interest income. However, this interest rate
sensitivity is mitigated by the fact that (i) advances against accounts
receivable comprise only 5.4% of the finance receivables in the Accounts
Receivable Program as of June 30, 1998, and (ii) the Company does not make long-
term commitments with respect to advances against accounts receivable and
therefore, retains substantial flexibility to negotiate fees based on changes in
interest rates.
Inflation
Inflation has not had a significant effect on the Company's operating results to
date.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are involved in various pending or
threatened legal proceedings arising from the conduct of their business. In some
instances, these proceedings include claims for punitive damages and similar
types of relief in unspecified or substantial amounts, in addition to amounts
for alleged contractual liability or requests for equitable relief. While it is
not possible to determine the ultimate disposition of each of these proceedings
at this time, the Company believes that the ultimate disposition of such
proceedings, individually and in the aggregate, will not have a material adverse
effect on the financial position or results of operations of the Company and its
subsidiaries.
Item 2. Changes in Securities -- Not Applicable
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
A stockholder who wishes to submit a proposal for action at the
Company's annual meeting of stockholders to be held in 1999 but is not seeking
to have the proposal considered for inclusion in the Company's proxy materials
relating to the 1999 Annual Meeting must provide a written copy of the proposal
to the management of the Company at the Company's principal executive office by
March 19, 1999 and must otherwise comply with the rules of the Securities and
Exchange Commission relating to stockholder proposals. If the stockholder does
not comply with this procedure, proxies will be permitted to use their
discretionary voting authority when the proposal is raised at the 1999 Annual
Meeting without any discussion of the matter.
Item 6. Exhibits and Reports on Form 8-K
Supplementary Exhibits
----------------------
99. Supplementary Data:
Additional financial and statistical information
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HEALTHCARE FINANCIAL PARTNERS, INC.
DATE: /s/ Edward P. Nordberg, Jr.
---------------- --------------------------------------
By: Edward P. Nordberg, Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
16
<PAGE>
Supplementary Data
As of and for the Three and Six Months Ended June 30, 1998
1) CONDENSED BALANCE SHEETS (UNAUDITED):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997 (1)
--------------------- ---------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 44,133,722 $ 18,668,703
Finance receivables 352,538,221 250,688,138
Less:
Allowance for losses on receivables 4,860,687 2,654,114
Unearned fees 4,300,500 3,161,237
--------------------- ---------------------
Net finance receivables 343,377,034 244,872,787
Deferred income taxes 1,822,517 1,041,520
Property and equipment, net 1,347,299 416,284
Goodwill 1,652,334 1,740,097
Investments in affiliates 11,366,219 767,244
Investment securities 10,387,046 1,442,814
Prepaid expenses and other assets 3,194,454 3,405,497
--------------------- ---------------------
Total assets $ 417,280,625 $ 272,354,946
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ 10,261,850 $ 40,157,180
Commercial paper facility 117,102,446 101,179,354
Warehouse facility 38,767,080 27,932,520
Client holdbacks 4,014,303 6,173,260
Accounts payable to clients 331,917 834,367
Income taxes payable 1,628,862 5,138,144
Due to affiliates 191,061
Accounts payable and accrued expenses 4,318,623 2,217,947
Notes payable 3,661,666 115,286
Accrued interest 749,035 776,700
--------------------- ---------------------
Total liabilities 181,026,843 184,524,758
Stockholders' equity
Preferred stock, par value $.01 per share;
10,000,000 shares authorized; none outstanding
Common stock, par value $.01 per share;
60,000,000 shares authorized;
13,404,902 and 9,670,291 shares
issued and outstanding respectively 134,050 96,703
Paid-in-capital 219,539,152 79,784,045
Retained equity 16,580,580 7,949,440
--------------------- ---------------------
Total stockholders' equity 236,253,782 87,830,188
--------------------- ---------------------
Total liabilities and equity $ 417,280,625 $ 272,354,946
===================== =====================
</TABLE>
(1) The balance sheet as of December 31,1997 has been derived from audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
<PAGE>
2) KEY BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As of June 30, As of Dec. 31, As of June 30,
1998 1997 1997
------------------------------------------------------------------------
<S> <C> <C> <C>
Finance Receivables:
Accounts Receivable Program $ 252,198,168 72% $ 185,727,628 74% $ 118,959,910 78%
STL Program 100,340,053 28% $ 64,960,510 26% 33,419,937 22%
------------------------------------------------------------------------
Total $ 352,538,221 100% $ 250,688,138 100% $ 152,379,847 100%
========================================================================
Allowance for losses on receivables $ 4,860,687 $ 2,654,114 $ 1,738,992
================ ================ ================
Total Assets $ 417,280,625 $ 272,354,946 $ 165,160,613
================ ================ ================
Debt
Line of Credit $ 10,261,850 6% $ 40,157,180 24% $ 18,000,000 27%
Commercial Paper Facility 117,102,446 71% 101,179,354 60% 49,597,715 73%
Warehouse Facility 38,767,080 23% 27,932,520 16% - 0%
------------------------------------------------------------------------
Total $ 166,131,376 100% $ 169,269,054 100% $ 67,597,715 100%
========================================================================
Total Liabilities $ 181,026,843 $ 184,524,758 $ 82,820,990
================ ================ ================
Client Holdbacks $ 4,014,303 $ 6,173,260 $ 9,979,524
================ ================ ================
Total Debt $ 166,131,376 41% $ 169,269,054 66% $ 67,597,715 45%
Total Stockholders' Equity 236,253,782 59% 87,830,188 34% 82,339,623 55%
------------------------------------------------------------------------
Capitalization $ 402,385,158 100% $ 257,099,242 100% $ 149,937,338 100%
========================================================================
Book Value Per Share $ 17.62 $ 9.08 $ 8.52
================ ================ ================
</TABLE>
Note: See attached Balance Sheets for additional information
3) CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended June 30, Ended June 30,
------------------------------- ----------------------------------
1998 1997 1998 1997
---------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Fee and interest income
Fee and interest income from finance receivables........... $ 15,049,041 $ 5,460,542 $ 27,353,821 $ 9,948,875
Other interest income...................................... 261,197 76,095 448,373 118,435
---------------- --------------- ---------------- ---------------
Total fee and interest income..................... 15,310,238 5,536,637 27,802,194 10,067,310
Interest expense............................................. 2,870,086 1,968,569 6,670,340 3,101,725
---------------- --------------- ---------------- ---------------
Net fee and interest income....................... 12,440,152 3,568,068 21,131,854 6,965,585
Provision for losses on receivables.......................... 1,555,558 250,000 2,206,572 400,000
---------------- --------------- ---------------- ---------------
Net fee and interest income after provision
for losses on receivables..................... 10,884,594 3,318,068 18,925,282 6,565,585
Asset management income...................................... 313,268 313,268
---------------- --------------- --------------- ----------------
Operating income................................... 11,197,862 3,318,068 19,238,550 6,565,585
Operating expenses........................................... 3,166,291 1,422,901 5,779,948 3,289,384
Other income................................................. 433,752 304,628 1,068,054 691,687
---------------- --------------- --------------- ---------------
Income before income taxes................................... 8,465,323 2,199,795 14,526,656 3,967,888
Income taxes................................................. 3,371,854 749,956 5,812,625 1,397,045
---------------- --------------- ---------------- ---------------
Net income................................................... $ 5,093,469 $ 1,449,839 $ 8,714,031 $ 2,570,843
================ =============== ================ ===============
Basic earnings per share..................................... $ 0.38 $ 0.21 $ 0.74 $ 0.40
Weighted average shares outstanding.......................... 13,371,236 6,745,760 11,844,225 6,481,842
Diluted earnings per share................................... $ 0.37 $ 0.21 $ 0.71 $ 0.39
Diluted weighted average shares outstanding.................. 13,821,309 6,853,538 12,260,774 6,588,726
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
4) COMMON SHARES INFORMATION: As of and for the As of and for the As of and for the
Quarter Ended Year Ended Quarter Ended
June 30, Dec. 31, June 30,
1998 1997 1997
--------------------- --------------------- ----------------------
<S> <C> <C> <C>
Total Shares Outstanding 13,404,902 9,670,291 9,664,991
Weighted Average Shares
Outstanding 13,371,236 8,087,857 6,745,760
Diluted Weighted Average Shares
Outstanding 13,821,309 8,310,111 6,853,538
</TABLE>
<TABLE>
<CAPTION>
5) SELECTED FINANCIAL DATA:
As of or for the Quarter ended As of or for the six months ended
June 30, June 30,
1998 1997 1998 1997
------------------------------ --------------------------------
<S> <C> <C> <C> <C>
Number of clients being financed (1) 194 159 194 159
Number of loans to clients 224 170 224 170
Yield Statistics:
- --------------------------
Yield on finance receivables 17.68% 17.88% 17.39% 17.56%
Yield on Accounts Receivable Program receivables 18.17% 17.45% 17.57% 16.86%
Yield on STL Program receivables 16.32% 23.12% 16.94% 23.14%
Finance Spread and Margin:
- ----------------------------------------
Average yield on finance receivables 17.68% 17.88% 17.39% 17.56%
Average cost of debt 8.52% 9.77% 8.32% 8.29%
--------------- ------------ ----------------- ------------
Net fee and interest spread 9.16% 8.11% 9.07% 9.27%
Net fee and interest margin 14.31% 11.43% 13.15% 12.08%
Year-to-Year Growth Statistics:
- ----------------------------------------
Finance Receivables 131.35% 130.82% 131.35% 130.82%
Fee and interest income 176.53% 92.03% 176.16% 94.94%
Net income (1996 data pro forma) 251.31% 93.71% 238.96% 119.70%
Diluted earnings per share (1996 data pro forma) 74.20% 68.04% 82.15% 98.01%
Other Operating Statistics:
- ----------------------------------------
Return on average working assets 5.98% 4.62% 5.54% 4.40%
Finance receivable turnover ratio (# times) 2.3 2.8 2.4 2.7
Allowance for losses as a percentage of
finance receivables 1.38% 1.14% 1.38% 1.14%
Total operating expenses as a percentage
of average earning assets 3.72% 4.53% 3.67% 5.63%
Efficiency ratio (2) 20.27% 25.70% 20.56% 32.67%
Leverage ratio (debt/equity) 0.70 0.82 0.70 0.82
Equity/Assets 56.62% 49.85% 56.62% 49.85%
</TABLE>
(1) Includes 60 and 69 clients who were affiliates of one or more clients in
1998 and 1997, respectively.
(2) Period to date operating expenses/total fee and interest income plus asset
management income.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 44,133,722 44,133,722
<SECURITIES> 21,753,265 21,733,265
<RECEIVABLES> 348,237,721 348,237,721
<ALLOWANCES> 4,860,687 4,860,687
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 1,647,469 1,647,469
<DEPRECIATION> 300,170 300,170
<TOTAL-ASSETS> 417,280,625 417,280,625
<CURRENT-LIABILITIES> 181,026,843 181,026,843
<BONDS> 0 0
0 0
0 0
<COMMON> 134,050 134,050
<OTHER-SE> 236,119,732 236,119,732
<TOTAL-LIABILITY-AND-EQUITY> 417,280,625 417,280,625
<SALES> 15,310,238 27,802,194
<TOTAL-REVENUES> 16,057,258 29,183,516
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 3,166,291 5,779,948
<LOSS-PROVISION> 1,555,558 2,206,572
<INTEREST-EXPENSE> 2,870,086 6,670,340
<INCOME-PRETAX> 8,465,323 14,526,656
<INCOME-TAX> 3,371,854 5,812,625
<INCOME-CONTINUING> 5,093,469 8,714,031
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,093,469 8,714,031
<EPS-PRIMARY> .38 .74
<EPS-DILUTED> .37 .71
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 10,987,915 10,987,915
<SECURITIES> 0 0
<RECEIVABLES> 150,535,072 150,535,072
<ALLOWANCES> 1,738,992 1,738,992
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 439,751 439,751
<DEPRECIATION> 143,549 143,549
<TOTAL-ASSETS> 165,160,613 165,160,613
<CURRENT-LIABILITIES> 82,820,990 82,820,990
<BONDS> 0 0
0 0
0 0
<COMMON> 96,650 96,650
<OTHER-SE> 82,242,973 82,242,973
<TOTAL-LIABILITY-AND-EQUITY> 165,160,613 165,160,613
<SALES> 5,536,637 10,067,310
<TOTAL-REVENUES> 5,841,265 10,758,997
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,422,901 3,289,384
<LOSS-PROVISION> 250,000 400,000
<INTEREST-EXPENSE> 1,968,569 3,101,725
<INCOME-PRETAX> 2,199,795 3,967,888
<INCOME-TAX> 749,956 1,397,045
<INCOME-CONTINUING> 1,449,839 2,570,843
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,449,839 2,570,843
<EPS-PRIMARY> .21 .40
<EPS-DILUTED><F1> .21 .39
<FN>
<F1>DILUTED EPS CHANGED DUE TO NEW CALCULATION OF WEIGHTED AVERAGE SHARES
OUTSTANDING UNDER FASB 128
</FN>
</TABLE>
