<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest
event reported): March 5, 1998
BINGHAM FINANCIAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 0-23381 38-3313951
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
31700 Middlebelt Road, Suite 125, Farmington Hills, MI 48334
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (248) 932-9656
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet has been
prepared based upon the historical consolidated balance sheets of Bingham
Financial Services Corporation ("Bingham"), Bloomfield Acceptance Company,
L.L.C. ("BAC") and Bloomfield Servicing Company, L.L.C. ("BSC") as of December
31, 1997 as if the acquisition had occurred as of January 2, 1997 (date of
inception for Bingham). The following unaudited pro forma condensed consolidated
statements of income for the twelve months ended December 31, 1997 also give
effect to the acquisition as if it had occurred as of January 2, 1997.
The unaudited pro forma financial information should be read in conjunction with
the accompanying Notes To Unaudited Pro Forma Condensed Consolidated Financial
Information as they are an integral part of the pro forma consolidated financial
statements. The unaudited pro forma condensed consolidated income statement is
not necessarily indicative of the actual results of operations that would have
been reported if the events described above had occurred as of January 2, 1997,
nor do such statements purport to indicate the results of future operations. In
the opinion of management, all adjustments necessary to present fairly such
unaudited pro forma condensed consolidated financial statements have been made.
<PAGE> 3
BINGHAM FINANCIAL SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
BINGHAM
FINANCIAL BLOOMFIELD BLOOMFIELD PRO FORMA
SERVICES ACCEPTANCE SERVICING PRO FORMA AS ADJUSTED FOR
CORPORATION COMPANY, LLC COMPANY LLC ADJUSTMENTS ACQUISITIONS
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivilents $ 2,003,000 $ 538,000 $ 193,000 --- $ 2,734,000
Restricted cash --- --- 2,925,000 --- 2,925,000
Installment contracts receivable 14,089,000 --- --- --- 14,089,000
Other assets 167,000 719,00 626,000 $ 84,000 (A) 1,596,000
Investment in subsidiary 2,108,000 --- --- (2,108,000) (A) ---
Goodwill --- --- --- 991,000 (A) 991,000
------------- ------------ ---------- ------------ ------------
Total assets $ 18,367,000 $ 1,257,000 $3,744,000 $ (1,033,000) $ 22,335,000
============= ============ ========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Advances by mortgagors --- --- $2,925,000 --- $ 2,925,000
Other liabilities $ 771,000 $ 306,000 133,000 $ 153,000 (C) 1,363,000
Subordinated debt, net of debt discount
of 568,100 3,432,000 --- --- --- 3,432,000
------------- ------------ ---------- ------------ ------------
Total liabilities 4,203,000 306,000 3,058,000 153,000 7,720,000
STOCKHOLDERS' EQUITY
Common stock 13,692,000 --- --- (41,000) (A) 13,651,000
Paid-in capital 587,000 --- --- --- 587,000
Owners' equity --- 555,000 437,000 (992,000) (A) ---
Retained earnings (115,000) 396,000 249,000 (153,000) (C) 377,000
------------- ------------ ---------- ------------ ------------
Total stockholders equity 14,164,000 951,000 686,000 (1,186,000) 14,615,000
------------- ------------ ---------- ------------ ------------
Total liabilities and stockholders
equity $ 18,367,000 $ 1,257,000 $3,744,000 $ (1,033,000) $ 22,335,000
============= ============ ========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE> 4
BINGHAM FINANCIAL SERVICES CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BINGHAM
FINANCIAL BLOOMFIELD BLOOMFIELD PRO FORMA
SERVICES ACCEPTANCE SERVICING PRO FORMA AS ADJUSTED FOR
CORPORATION COMPANY, LLC COMPANY LLC ADJUSTMENTS ACQUISITIONS
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Interest income - install. Contracts $ 596,000 --- --- --- $ 596,000
Mortgage origination and refinancing --- $ 2,032,000 --- --- 2,032,000
Mortgage servicing fees --- --- $ 949,000 --- 949,000
Other income --- 495,000 109,000 604,000
------------ ------------- ----------- ------------ ------------
Total revenues 596,000 2,527,000 1,058,000 4,181,000
COST AND EXPENSES
Interest expense 346,000 --- --- --- 346,000
Provision for credit losses 79,000 --- --- --- 79,000
General and administrative 204,000 2,163,000 858,000 --- 3,225,000
Other operating expenses 43,000 --- --- $ 39,000 (B) 82,000
------------ ------------- ----------- ------------ ------------
Total costs and expenses 672,000 2,163,000 858,000 39,000 3,732,000
------------ ------------- ----------- ------------ ------------
Income before taxes (76,000) 364,000 200,000 (39,000) 449,000
Provision for income taxes --- --- --- 153,000 (C) 153,000
------------ ------------- ----------- ------------ ------------
Net income $ (76,000) $ 364,000 $ 200,000 $ 114,000 $ 296,000
============ ============= =========== ============ ============
Weighted average common shares outstanding 1,577,000
============
Weighted average common shares outstanding, fully diluted 1,746,000
============
Earnings per share:
Basic $ 0.19
============
Fully diluted $ 0.17
============
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE> 5
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
In March 1998, the Company acquired 100% of the outstanding stock of Bloomfield
Acceptance Company, L.L.C. ("BAC") and Bloomfield Servicing Company, L.L.C.
("BSC") for 281,818 shares of the Company's common stock valued at approximately
$2.1 million. BAC is engaged in the business of the origination of mortgages and
real estate lending. Loans originated by the company primarily consist of fixed
rate loans secured by mortgages on commercial property. All loans originated by
the Company are immediately sold to permanent investors. BSC was formed to
service the loans originated by BAC.
In addition to the shares of common stock issued to the shareholders of BAC and
BSC additional consideration of up to $500,000, in the form of the Company's
common stock, will be paid to the shareholders subject to the performance of the
merged entities over the two year period following the date of merger.
BALANCE SHEET
The excess of the purchase price over the book value of the net assets acquired
for BAC and BSC has been allocated to the tangible and intangible assets based
on the Company's estimate of the fair market value of the net assets acquired.
The allocation of the excess purchase price paid for BAC and BSC is as follows:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Book value of net assets acquired............................. $ 1.1
Allocation of purchase price in excess of acquired assets:
Goodwill................................................. $ 1.0
------
Total Purchase Price................................. $ 2.1
======
</TABLE>
The accompanying unaudited pro forma condensed consolidated balance sheet as of
December 31, 1997 has been prepared as if the BAC and BSC acquisitions had been
consummated as of January 2, 1997(date of inception for Bingham) and includes:
(A) pro forma adjustments to:
- assign fair market value to fixed assets
- record goodwill related to the acquisitions of BAC and BSC
- present the issuance of 281,818 shares of common stock valued
at approximately $2.1 million related to the acquisitions of
BAC and BSC
- Eliminate BAC and BSC historical equity balances
STATEMENT OF INCOME
The accompanying unaudited pro forma condensed consolidated income statements
for the 12 months ended December 31, 1997 have been prepared by combining the
historical results for the Company and the Acquisitions where applicable and
include the following adjustments:
(B) amortization of Goodwill over 25 years
(C) BAC and BSC were limited liability corporations but elected to be
treated as S corporations for tax purposes and accordingly were
not subject to federal income taxes. The pro forma provision for
income taxes has been computed as if the acquisitions were
subject to federal corporate income taxes for the period
presented at the statutory tax rate of 34%.
<PAGE> 6
Bloomfield Acceptance Company, L.L.C.
Financial Statements
and
Independent Auditor's Report
Year ended December 31, 1997
<PAGE> 7
[LAIR&CO, P.C. LETTERHEAD]
Independent Auditor's Report
Members
Bloomfield Acceptance Company, L.L.C.
Birmingham, Michigan
We have audited the balance sheet of Bloomfield Acceptance Company, L.L.C.
as of December 31, 1997, and the related statements of net earnings, changes in
members' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bloomfield Acceptance
Company, L.L.C. as of December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Lair & Co., P.C.
Certified Public Accountants
Walled Lake, Michigan
January 19, 1998
<PAGE> 8
Bloomfield Acceptance Company, L.L.C.
Balance Sheet
December 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents (Note 2) $ 538,234
Prepaid expenses 16,174
Amounts due from related company (Note 3) 26,339
Marketable securities (Note 4) 271,072
Interest-only securities (Note 2) 275,800
Fixed assets - at cost, net (Notes 2 and 5) 128,100
Organizational costs, net of $3,554 amortization 1,184
----------
TOTAL ASSETS $1,256,903
==========
LIABILITIES AND MEMBERS' EQUITY
Deposits on loans in process (Note 2) $ 194,975
Payroll taxes payable 50,515
Accrued expenses 60,864
----------
TOTAL LIABILITIES 306,354
MEMBERS' EQUITY 950,549
----------
TOTAL LIABILITIES AND MEMBERS' EQUITY $1,256,903
==========
</TABLE>
See notes to financial statements.
-2-
<PAGE> 9
Bloomfield Acceptance Company, L.L.C.
Statement of Net Earnings
Year ended December 31, 1997
<TABLE>
<S> <C>
REVENUES:
Mortgage origination and refinancing fees $ 2,032,024
Interest from interest-only securities 444,547
-----------
TOTAL REVENUES 2,476,571
COSTS AND EXPENSES:
Salaries 1,286,158
Closing costs 122,751
Payroll taxes 68,296
Pension plan contributions (Note 7) 26,851
Legal and professional 105,615
Lease and equipment rental (Note 6) 76,413
Repairs and maintenance 5,530
Travel 123,509
Promotion expense 33,092
Michigan single business tax 23,388
Telephone and utilities 57,167
Advertising 42,255
Office supplies 31,469
Dues and fees 11,260
Conferences and seminars 18,928
Outside services 38,989
Postage and delivery 22,134
Depreciation and amortization 35,850
Photography 9,332
Insurance 42,607
Charitable contributions 4,600
Professional publications 5,118
Reimbursed expenses (Note 3) (278,159)
-----------
TOTAL COSTS AND EXPENSES 1,913,153
-----------
NET INCOME FROM OPERATIONS 563,418
OTHER INCOME:
Portfolio interest and dividend income 48,348
Gain on sale of equipment 1,500
-----------
49,848
-----------
NET EARNINGS (Note 2) $ 613,266
===========
</TABLE>
See notes to financial statements.
-3-
<PAGE> 10
Bloomfield Acceptance Company, L.L.C.
Statement of Members' Equity
Year ended December 31, 1997
<TABLE>
<S> <C>
BALANCE AT BEGINNING OF YEAR $ 537,654
Net income 613,266
Liquidating cash distribution to member (250,000)
Net change in unrealized gain on available for sale securities (Note 4) 49,629
---------
BALANCE AT END OF YEAR $ 950,549
=========
</TABLE>
See notes to financial statements.
-5-
<PAGE> 11
Bloomfield Acceptance Company, L.L.C.
Statement of Cash Flows
Year ended December 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Origination and refinancing fees collected $ 1,832,207
Salaries paid to employees (1,362,194)
Payroll taxes paid (70,649)
Pension costs paid (16,367)
General and administrative expenses paid (501,864)
Gain on sale of equipment (1,500)
Interest and dividends received 48,348
-----------
NET CASH USED IN OPERATING ACTIVITIES (72,019)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (16,311)
Capital expenditures (27,770)
Proceeds from sale of equipment 1,500
-----------
NET CASH USED IN INVESTING ACTIVITIES (42,581)
CASH FLOWS FROM FINANCING ACTIVITIES:
Liquidating cash distribution to member (250,000)
Payment of amount due on equipment (12,872)
-----------
NET CASH USED IN FINANCING ACTIVITIES (262,872)
-----------
NET DECREASE IN CASH (377,472)
CASH AND CASH EQUIVALENTS, at beginning of year 915,706
-----------
CASH AND CASH EQUIVALENTS, at end of year $ 538,234
===========
</TABLE>
See notes to financial statements.
-6-
<PAGE> 12
Bloomfield Acceptance Company, L.L.C.
Statement of Cash Flows (continued)
Year ended December 31, 1997
<TABLE>
<S> <C>
SUPPLEMENTARY INFORMATION:
Reconciliation of net earnings to net cash flows from operating activities:
Net earnings $ 613,266
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 35,850
Gain on sale of equipment (1,500)
Decrease in amounts due to related company 5,514
Increase in prepaid expenses (3,463)
Increase in interest-only securities (275,800)
Decrease in deposits on loans in process (368,565)
Decrease in accrued expenses (5,119)
Decrease in payroll taxes payable (72,202)
---------
TOTAL ADJUSTMENTS (685,285)
---------
NET CASH USED IN OPERATING ACTIVITIES $ (72,019)
=========
</TABLE>
See notes to financial statements.
-7-
<PAGE> 13
Bloomfield Acceptance Company, L.L.C.
Notes to Financial Statements
Year ended December 31, 1997
NOTE 1 - DESCRIPTION OF BUSINESS AND ORGANIZATION
Bloomfield Acceptance Company, L.L.C. (the "Company"), a limited liability
company, was formed under the laws of the State of Michigan on April 1, 1994.
The Company is engaged in the business of the origination of mortgages and real
estate lending. Loans originated by the Company primarily consist of fixed rate
loans secured by mortgages on commercial property. All loans originated by the
Company are immediately sold to permanent investors.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BASIS OF ACCOUNTING
The Company presents its financial statements on the accrual basis of
accounting in compliance with generally accepted accounting principles.
REVENUE RECOGNITION
The Company recognizes as revenue a nonrefundable portion of loan
application fees upon the borrower's acceptance of the loan application. If the
application is not approved, the Company retains the nonrefundable portion of
the application fee and refunds the balance. The Company recognizes the
commitment fee upon closing of the loan. The loans are sold to permanent
investors at par at closing. The Company may retain interest-only securities.
The Company may also retain servicing rights for its affiliated Company,
Bloomfield Servicing Company. Prior to closing, commitment fees are recorded as
deposits on loans in process and reported as a liability. The commitment fee is
calculated as a percentage of the loan amount. The application and processing
fees are quoted as fixed amounts on each loan. Fees from professional advisory
services are recognized at the point at which the Company's services have been
performed.
Effective January 1, 1997, the Company adopted Statement of Financial
Standards No. 125 ("SFAS 125"), Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities. SFAS 125 requires
prospective implementation as of January 1, 1997 and retroactive application is
not permitted. Among other provisions, SFAS 125 uses a "financial components"
approach relative to the recognition of financial assets and liabilities
resulting from the transfer of financial assets. Specifically, SFAS 125 requires
that gain recognition on the sale of financial assets be based on an allocated
cost basis method for the financial components sold. SFAS 125 also provides
guidance relative to the classification and ongoing measurement of the financial
components retained in connection with financial asset sales. Such components
are recorded at allocated cost.
-8-
<PAGE> 14
Bloomfield Acceptance Company, L.L.C.
Notes to Financial Statements (continued)
Interest-only securities represent the right to receive certain cash flows
which exceed the amount of cash flows associated with the Company's sale of
loans to permanent investors. Interest-only securities generally represent the
value of interest to be collected on the underlying loans over the sum to be
paid to secured classes and contractual servicing fees. These cash flows are
projected and discounted over the expected life of the financial contracts using
prepayment, default, loss, and interest rate assumptions that the Company
believes market participants would use for similar financial instruments. The
Company classifies its interest-only securities as available for sale and
carries these securities at fair value. Accordingly, unrealized gains and losses
are reported on a net basis as a separate component of members' equity.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are highly liquid investments with insignificant
interest rate risk and original maturities of three months or less. At December
31, 1997, cash equivalents consisted primarily of investments in money market
funds that invest in Treasury bills.
INCOME TAXES
The Company is treated as a partnership for federal income tax purposes.
Consequently, federal income taxes are not payable by, or provided for, the
Company. Members are taxed individually on their shares of the Company's
earnings. The Company's net income or loss is allocated among the members in
accordance with the Company's operating agreement. Therefore, no provision or
liability for federal income taxes has been provided in the financial
statements.
CONCENTRATIONS OF CREDIT RISK
The Company is engaged in the origination of mortgages relating to
commercial real estate located in various regions of the United States.
Financial instruments that potentially subject the Company to concentrations of
credit risk are primarily cash and cash equivalents and investment securities.
The Company's cash balances are maintained primarily in money market accounts
which invest primarily in US Treasuries and other government securities and are
maintained at major bank and brokerage firms. The Company primarily makes
investments in publicly traded securities.
FIXED ASSETS
Furniture, equipment, and leasehold improvements are recorded at cost.
Depreciation is computed over the estimated useful life of five years for
computer equipment, seven years for furniture, and the life of the lease, seven
years, for leasehold improvements using the straight-line method.
NOTE 3 - RELATED PARTY TRANSACTIONS
-9-
<PAGE> 15
Bloomfield Acceptance Company, L.L.C.
Notes to Financial Statements (continued)
The Company provides office space, employees, and equipment to Bloomfield
Servicing for its operations for which they were reimbursed $278,159 of which
$26,339 is included in current assets at December 31, 1997.
NOTE 4 - MARKETABLE SECURITIES
At December 31, 1997, marketable securities consisted of four publicly
traded equity securities. The Company's marketable securities are classified as
"available for sale". Accordingly, unrealized gains and losses are excluded from
earnings and reported in a separate component of members' equity. Realized gains
and losses are computed based on specific identification of the securities sold.
The following is an analysis of marketable securities available for sale at
December 31, 1997.
<TABLE>
<S> <C>
Cost basis $ 202,088
Gross unrealized gains 68,984
---------------
Fair market value $ 271,072
===============
</TABLE>
NOTE 5 - FIXED ASSETS
At December 31, 1997, equipment consisted of the following:
<TABLE>
<S> <C>
Office furniture and equipment $ 103,011
Computer equipment 82,271
Leasehold improvements 30,047
---------------
215,329
Less accumulated depreciation 87,229
---------------
$ 128,100
================
</TABLE>
Total depreciation charged to operations during the year ended December 31,
1997 was $31,380.
NOTE 6 - LEASES
The Company leases its office facility under a lease dated September 14,
1995 which expires on May 8, 2000. At December 31, 1997, future minimum lease
payments are as follows:
<TABLE>
<S> <C>
1998 $ 76,043
1999 80,690
</TABLE>
-10-
<PAGE> 16
Bloomfield Acceptance Company, L.L.C.
Notes to Financial Statements (continued)
<TABLE>
<S> <C>
2000 34,037
---------------
$ 190,770
===============
</TABLE>
Total office lease expense charged to operations during 1997 was $75,718.
NOTE 7 - EMPLOYEE PENSION PLAN
The Company terminated its simplified employee pension plan on December 31,
1996. Effective January 1, 1997, the Company adopted a SIMPLE IRA plan covering
all employees who have earned at least $5,000 during any two preceding years.
Under the plan, employees can contribute and defer taxes on compensation
contributed. The plan requires the Company to make a matching contribution equal
to each employee's elective deferral, up to 3% of the employee's compensation.
During the current year, the Company made matching contributions of $26,851 to
the plan.
NOTE 6 - SUBSEQUENT EVENT
Effective January 1, 1998, the Company elected to be taxed, for federal
income tax purposes, as a corporation rather than as a partnership (as it has
been treated through December 31, 1997).
-11-
<PAGE> 17
Bloomfield Servicing Company, L.L.C.
Financial Statements
and
Independent Auditor's Report
Year ended December 31, 1997
<PAGE> 18
[LAIR&CO., P.C. LETTERHEAD]
Independent Auditor's Report
Board of Directors
Bloomfield Servicing Company, L.L.C.
Birmingham, Michigan
We have audited the balance sheet of Bloomfield Servicing Company, L.L.C.
as of December 31, 1997, and the related statements of net earnings, members'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bloomfield Servicing
Company, L.L.C. as of December 31, 1997, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Certified Public Accountants
Walled Lake, Michigan
January 19, 1998
<PAGE> 19
Bloomfield Servicing Company, L.L.C.
Balance Sheet
December 31, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents (Note 2) $ 193,253
Restricted cash (Note 2) 2,925,205
Prepaid expenses 9,235
Marketable securities (Note 4) 186,069
Servicing rights (Note 2) 429,516
Furniture and equipment - at cost, net (Notes 2 and 5) 1,499
----------
TOTAL ASSETS $3,744,777
==========
LIABILITIES AND MEMBERS' EQUITY
Advances by mortgagors for taxes, insurance, and
mortgage payments (Note 2) $2,925,205
Amounts due to related company (Note 3) 26,339
Accrued expenses 3,818
Servicing liability (Note 2) 103,742
----------
TOTAL LIABILITIES 3,059,104
MEMBERS' EQUITY 685,673
----------
TOTAL LIABILITIES AND MEMBERS' EQUITY $3,744,777
==========
</TABLE>
See notes to financial statements.
-4-
<PAGE> 20
Bloomfield Servicing Company, L.L.C.
Statement of Net Earnings
Year ended December 31, 1997
<TABLE>
<S> <C>
REVENUES - mortgage servicing fees (Note 2) $948,509
COSTS AND EXPENSES:
General and administrative (Note 3) 287,600
Insurance 1,391
Office supplies 1,336
Dues and fees 1,300
Legal and professional 8,660
Michigan single business tax 6,227
Depreciation 1,499
--------
TOTAL COSTS AND EXPENSES 308,013
--------
NET INCOME FROM OPERATIONS 640,496
OTHER INCOME - PORTFOLIO INTEREST AND DIVIDEND INCOME 108,686
--------
NET EARNINGS (Note 2) $749,182
========
</TABLE>
See notes to financial statements.
-5-
<PAGE> 21
Bloomfield Servicing Company, L.L.C.
Statement of Members' Equity
Year ended December 31, 1997
<TABLE>
<S> <C>
BALANCE AT DECEMBER 1, 1997 $ 453,931
Cash distributions to members (300,000)
Liquidating cash distribution to member (250,000)
Net income 749,182
Net change in unrealized gain on available for sale securities (Note 4) 32,560
---------
BALANCE AT DECEMBER 31, 1997 $ 685,673
=========
</TABLE>
See notes to financial statements
-6-
<PAGE> 22
Bloomfield Servicing Company, L.L.C.
Statement of Cash Flows
Year ended December 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Servicing fees collected $ 622,735
General and administrative expenses paid (319,704)
Interest and dividends received 108,686
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 411,717
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities (17,282)
Partnership cash distributions 648
---------
NET CASH USED IN INVESTING ACTIVITIES (16,634)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to members (300,000)
Liquidating cash distribution to member (250,000)
---------
NET CASH USED IN FINANCING ACTIVITIES (550,000)
---------
NET DECREASE IN CASH (154,917)
CASH AND CASH EQUIVALENTS, at beginning of year 348,170
---------
CASH AND CASH EQUIVALENTS, at end of year $ 193,253
=========
SUPPLEMENTARY INFORMATION:
Reconciliation of net cash to net cash flows from operating activities:
Net income $ 749,182
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 1,499
Change in net servicing rights (325,774)
Decrease in accrued expenses (223)
Increase in prepaid expenses (7,453)
Decrease in amounts due to related company (5,514)
---------
TOTAL ADJUSTMENTS (337,465)
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 411,717
=========
</TABLE>
See notes to financial statements.
-7-
<PAGE> 23
Bloomfield Servicing Company, L.L.C.
Notes to Financial Statements
Year ended December 31, 1997
NOTE 1 - DESCRIPTION OF BUSINESS AND ORGANIZATION
The Company was formed under the laws of the State of Michigan on April 12,
1991 for the purpose of servicing commercial mortgage loans originated by
Bloomfield Acceptance Company, L.L.C. and its predecessor. The Company was
originally formed as a corporation and made an election under the Internal
Revenue Code to be an S corporation. Effective January 1, 1996, the Company
reorganized its operations into a newly formed limited liability company and
changed its name from Westpointe Servicing, Inc. to Bloomfield Servicing
Company, L.L.C. The Company services mortgages for various financial
institutions relating to commercial real estate, apartment complexes, and
manufactured home communities located in various regions of the United States.
The Company's revenues are determined based upon normal servicing fee rates.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BASIS OF ACCOUNTING
The Company presents its financial statements on the accrual basis of
accounting in compliance with generally accepted accounting principles.
REVENUE RECOGNITION
Effective January 1, 1997, the Company adopted Statement of Financial
Standards No. 125 ("SFAS 125"), Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities. SFAS 125 requires
prospective implementation as of January 1, 1997 and retroactive application is
not permitted. Among other provisions, SFAS 125 uses a "financial components"
approach relative to the recognition of financial assets and liabilities
resulting from the transfer of financial assets. Specifically, SFAS 125 requires
that gain recognition on the sale of financial assets be based on an allocated
cost basis method for the financial components sold. SFAS 125 also provides
guidance relative to the classification and ongoing measurement of the financial
components retained in connection with financial asset sales. Such components
are recorded at allocated cost. The Company retains servicing rights for loans
sold by its affiliated Company, Bloomfield Acceptance Company.
-8-
<PAGE> 24
Bloomfield Servicing Company, L.L.C.
Notes to Financial Statements (continued)
Servicing rights and servicing liabilities are carried at allocated cost
and amortized in proportion to and over the estimated period of net servicing
income. Servicing rights are evaluated for impairment on an ongoing basis and,
to the extent the recorded amount exceeds the fair value of those servicing
rights, a valuation allowance is established through a charge to earnings. Upon
subsequent measurement of the fair value of these servicing rights in future
periods, if the fair value equals or exceeds the carrying amount, any previously
recorded valuation allowance would be deemed unnecessary and, therefore,
represent current period earnings only to the extent of such previously recorded
allowance. No valuation allowance with respect to the servicing rights was
necessary at December 31, 1997.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. At December 31, 1997, cash equivalents consisted
primarily of investments in money market funds that invest in Treasury bills.
INCOME TAXES
The Company is treated as a partnership for federal income tax purposes.
Consequently, federal income taxes are not payable by, or provided for, the
Company. Members are taxed individually on their shares of the Company's
earnings. The Company's net income or loss is allocated among the members in
accordance with the Company's operating agreement. Therefore, no provision or
liability for federal income taxes has been provided in the financial
statements.
RESTRICTED CASH
Under the various mortgage servicing agreements, the Company maintains
separate interest bearing cash accounts at banking institutions which are
restricted for the benefit of investors. The restricted accounts are composed of
advances from mortgagors for principal, interest, property taxes, and insurance
payments.
CONCENTRATIONS OF CREDIT RISK
The Company is engaged solely in the servicing of mortgages for various
financial institution investors relating to commercial real estate, apartment
complexes, and mobile home parks located in various regions of the United
States. Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily cash and cash equivalents and
investment securities. The Company's cash balances are maintained primarily in
money market accounts which invest primarily in US Treasuries and other
government securities and are maintained at major bank and brokerage firms. The
Company primarily makes investments in publicly traded securities.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost. Depreciation is computed over
the estimated useful life of five years for computer equipment and seven years
for furniture using the straight-line method.
-9-
<PAGE> 25
Bloomfield Servicing Company, L.L.C.
Notes to Financial Statements (continued)
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company utilized the office space, employees, and equipment of
Bloomfield Acceptance Company (BAC). The Company has reimbursed BAC $277,394, of
which $26,339 is included in liabilities at December 31, 1997, during the
current year for the sharing arrangement.
NOTE 4 - MARKETABLE SECURITIES
At December 31, 1997, marketable securities consisted of four publicly
traded equity securities. The Company's marketable securities are classified as
"available for sale". Accordingly, unrealized gains and losses are excluded from
earnings and reported in a separate component of members' equity. Realized gains
and losses are computed based on specific identification of the securities sold.
The following is an analysis of marketable securities available for sale at
December 31, 1997:
<TABLE>
<S> <C>
Cost basis $ 140,529
Gross unrealized gains 45,540
--------------
Fair market value $ 186,069
==============
</TABLE>
NOTE 5 - FURNITURE AND EQUIPMENT
At December 31, 1997, equipment consisted of the following:
<TABLE>
<S> <C>
Computer equipment $ 22,020
Office furniture 2,975
---------------
24,995
Less accumulated depreciation 23,496
---------------
$ 1,499
===============
</TABLE>
Total depreciation charged to operations during the year ended December 31,
1997 was $1,499.
NOTE 6 - SUBSEQUENT EVENT
Effective January 1, 1998, the Company elected to be taxed, for federal
income tax purposes, as a corporation rather than as a partnership (as it has
been treated through December 31, 1997).
-10-
<PAGE> 26
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.
BINGHAM FINANCIAL SERVICES CORPORATION
/s/ Jeffrey P. Jorissen
---------------------------------------------
Name: Jeffrey P. Jorissen
Title: President, Chief Executive
Officer, and Chief Financial Officer
Dated: May 12, 1998