<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999.
OR
[ ] Transition pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
COMMISSION FILE NUMBER 0-23381
BINGHAM FINANCIAL SERVICES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Michigan 38-3313951
(State of Incorporation) (I.R.S. Employer Identification No.)
260 East Brown Street
Suite 200
Birmingham, Michigan 48009
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (248) 644-5470
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
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:
1,576,818 shares of Common Stock, no par value as of April 30, 1999
Page 1 of 20
<PAGE> 2
BINGHAM FINANCIAL SERVICES CORPORATION
INDEX
---------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1999 and
September 30, 1998 3
Consolidated Statements of Operations for the Three Months and Six
Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Six Months Ended
March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16-17
PART II
Item 1 Legal Proceedings 18
Item 6 (a) Exhibits Required by Item 601 of Regulation S-K 18
Signatures 19
Exhibit Index 20
</TABLE>
2
<PAGE> 3
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND SEPTEMBER 30, 1998
----------
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
ASSETS 1999 1998
------------------------------------
(In thousands, except share data)
------------------------------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ - $ 1,979
Restricted cash 4,016 2,253
Loans receivable, net 136,002 86,075
Property and equipment, net 863 655
Other assets 3,862 3,897
------------- -------------
Total assets $ 144,743 $ 94,859
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Advances by mortgagors $ 4,008 $ 2,238
Accounts payable and accrued expenses 139 636
Advances under repurchase agreements 94,668 56,892
Subordinated debt, net of debt discount
of $472 and $510, respectively 3,528 3,490
Notes payable 27,404 17,848
------------- -------------
Total liabilities 129,747 81,104
------------- -------------
Minority interest 252 298
------------- -------------
Stockholders' equity:
Preferred stock, no par value, 10,000,000 shares
authorized; no shares issued and outstanding -- --
Common stock, no par value, 10,000,000 shares
authorized; 1,576,818 shares issued and
outstanding 13,608 13,608
Paid-in capital 576 533
Retained earnings (deficit) 560 (684)
------------- -------------
Total stockholders' equity 14,744 13,457
------------- -------------
Total liabilities and stockholders'
equity $ 144,743 $ 94,859
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1999 AND 1998
----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
----------------------------------------------------------------------
(In thousands, except share data)
REVENUES: ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 2,617 $ 423 $ 4,735 $ 739
Mortgage origination and servicing fees 201 168 553 167
Unrealized gain on loans held for sale, net 1,150 -- 2,400 --
Gain on sale of loans 274 -- 563 --
Other income 46 40 92 41
-------------- ------------- -------------- -------------
Total revenues 4,288 631 8,343 947
-------------- ------------- -------------- -------------
COSTS AND EXPENSES:
Interest expense 1,841 135 3,541 286
Provision for credit losses 63 30 160 51
General and administrative 899 240 1,459 328
Other operating expenses 737 46 1,361 68
-------------- ------------- -------------- ------------
Total costs and expenses 3,540 451 6,521 733
-------------- ------------- -------------- ------------
Income before income taxes 748 180 1,822 214
Provision for income taxes 268 60 577 72
-------------- ------------- -------------- ------------
Net income $ 480 $ 120 $ 1,245 $ 142
============== ============= ============== ============
Weighted average common shares outstanding:
Basic 1,576,818 1,379,545 1,576,818 969,500
============== ============= ============== ============
Diluted 1,862,578 1,548,595 1,821,361 1,092,108
============== ============= ============== ============
Earnings per share:
Basic $ 0.30 $ 0.09 $ 0.79 $ 0.15
============== ============= ============== ============
Diluted $ 0.26 $ 0.08 $ 0.68 $ 0.13
============== ============= ============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
----------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
1999 1998
----------------------------------------
(In thousands)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,245 $ 142
Adjustments to reconcile net income to net
cash used for operating activities:
Unrealized gain on loans held for sale, net (2,400) --
Provision for credit losses 160 52
Depreciation and amortization 461 90
Originations of loans held for sale (58,656) (10,661)
Principal collections on loans held for sale 1,411 703
Proceeds from sale of loans held for sale 11,211 --
Gain on sale of loans (563) --
Increase in other assets (3,583) (2,911)
Increase in other liabilities 2,683 1,404
---------------- ----------------
Net cash used for operating activities (48,031) (11,181)
---------------- ----------------
Cash flows from investing activities:
Capital expenditures (254) --
---------------- ----------------
Net cash used in investing activities (254) --
---------------- ----------------
Cash flows from financing activities:
Issuance of common stock -- 13,618
Proceeds from issuance of subordinated debt,
and related warrants -- 4,000
Advances under repurchase agreements 46,092 --
Repayment of advances under repurchase agreements (8,316) --
Proceeds from notes payable 43,683 3,541
Repayment of notes payable (35,153) (9,748)
---------------- ----------------
Net cash provided by financing activities 46,306 11,411
---------------- ----------------
Net change in cash and cash equivalents (1,979) 231
Cash and cash equivalents, beginning of period 1,979 --
---------------- ----------------
Cash and cash equivalents, end of period $ -- $ 231
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. BASIS OF PRESENTATION:
The unaudited consolidated financial statements reflect all adjustments,
consisting only of normal recurring items, which are necessary to present
fairly Bingham Financial Services Corporation's ("the Company") financial
condition and results of operations on a basis consistent with that of the
Company's prior audited consolidated financial statements. Pursuant to rules
and regulations of the Securities and Exchange Commission applicable to
quarterly reports on Form 10-Q, certain information and disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles ("GAAP") have been condensed or omitted. These
unaudited consolidated financial statements should be read in conjunctions
with the audited Consolidated Financial Statements and notes thereto included
in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998. Results for interim periods are not necessarily
indicative of the results that may be expected for a full year.
2. EARNINGS PER SHARE:
Basic earnings per share is calculated by dividing net income by the average
number of shares outstanding during the applicable period.
The Company has issued warrants, stock options and restricted stock awards
which are considered to be potentially dilutive to common stock. Diluted
earnings per share is calculated by dividing net income by the average number
of shares outstanding during the applicable period adjusted for these
potentially dilutive warrants, options and stock awards.
The following table sets forth the computation of per share earnings and
illustrates the dilutive effect of warrants, options and stock awards
outstanding:
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------------------------------------------
1999 1998
-----------------------------------------------------------------
(In thousands, except earnings per share)
Earnings Earnings
Shares per share Shares per share
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic EPS 1,577 $ 0.30 1,380 $ 0.09
Net dilutive effect of:
Options and awards 44 (0.01) 21 -
Warrants 243 (0.03) 148 (0.01)
-----------------------------------------------------------------
Diluted EPS 1,864 $ 0.26 1,549 $ 0.08
=================================================================
</TABLE>
6
<PAGE> 7
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
<TABLE>
<CAPTION>
Six months ended March 31,
------------------------------------------------------------------
1999 1998
------------------------------------------------------------------
(In thousands, except earnings per share)
Earnings Earnings
Shares per share Shares per share
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic 1,577 $ 0.79 970 $ 0.15
Net dilutive effect of:
Options and awards 34 (0.02) 15 -
Warrants 210 (0.09) 107 (0.02)
------------------------------------------------------------------
Diluted EPS 1,821 $ 0.68 1,092 $ 0.13
==================================================================
</TABLE>
3. ALLOWANCE FOR LOAN LOSSES:
The allowance for possible losses on loans is maintained at a level believed
adequate by management to absorb potential losses from impaired loans as well
as the remainder of the loan portfolio. The allowance for loan losses is
based upon periodic analysis of the portfolio, economic conditions and
trends, historical credit loss experience, borrowers' ability to repay and
collateral values.
Changes in allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
Three months ended March 31, Six months ended March 31,
1999 1998 1999 1998
---------------------------- --------------------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 248 $ 79 $ 185 $ 58
Provision for loan losses 63 30 160 51
Net losses (27) - (61) -
------------------------- -----------------------
Balance at end of period $ 284 $ 109 $ 284 $ 109
========================= =======================
</TABLE>
4. DEBT:
At the time of its initial public offering in November 1997 the Company
entered into a subordinated debt facility with Sun Communities ("Sun"). The
facility consisted of a $4.0 million term loan and a five-year revolving line
of credit for up to $6.0 million. In accordance with the subordinated debt
loan agreement the Company has issued detachable warrants to Sun covering
400,000 shares of common stock at a price of $10 per warrant share. The
detachable warrants have a term of seven years and may be exercised at any
time after the fourth anniversary of issuance. In March 1998 Sun provided a
line of credit of up to $12.0 million payable upon demand and in March 1999
they provided an additional line of credit of up to $10.0 million also
payable upon demand.
7
<PAGE> 8
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
In March 1998 the Company's commercial mortgage subsidiary entered into a
one-year master repurchase agreement with a lender to finance up to $150
million of fixed rate commercial loans collateralized by real estate. In
September 1998 that agreement was amended and restated to include
manufactured home and floor plan loans. The borrowing limit was also
increased to $250 million. The loans are financed at 85- 92% of the then
current face value, depending on the asset class and certain concentration
constraints. The repurchase transactions are for 30 days and may be rolled
over for up to nine months. In March 1999 the Company amended the master
repurchase agreement reducing the borrowing limit to $100 million. This will
allow the Company to reduce its overall committed facility costs and
accommodates the Company's strategy of reducing the holding time of the loan
portfolio. The borrowing limit can be increased with the consent of both
parties should the need arise.
At March 31, 1999 and September 30, 1998 debt outstanding was as follows:
<TABLE>
<CAPTION>
March 31 September 30
------------------------------------
1999 1998
----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Loans sold under agreements to repurchase........... $ 94,668 $ 56,900
Revolving line of credit............................ 27,404 17,800
Term loan, net of discount.......................... 3,528 3,500
-------- --------
$125,600 $ 78,200
======== ========
</TABLE>
5. ACQUISITIONS:
In March 1998 the Company acquired 100% of the outstanding stock of
Bloomfield Acceptance Company, L.L.C. ("Bloomfield") and Bloomfield Servicing
Company, L.L.C. ("Bloomfield Servicing") for 281,818 shares of the Company's
common stock valued at approximately $2.1 million. Bloomfield is engaged in
the business of the origination of mortgages and real estate lending. Loans
originated by Bloomfield primarily consist of fixed rate loans secured by
mortgages on commercial property. Bloomfield Servicing was formed to service
the loans originated by Bloomfield and other investors.
In addition to the shares of common stock issued to the former owners of
Bloomfield and Bloomfield Servicing, additional consideration of up to
$500,000, in the form of the Company's common stock, will be paid to the
owners subject to the performance of the merged entities over the two year
period following the date of merger.
Each of the acquisitions was accounted for as a purchase and the aggregate
purchase price was $2.1 million. The purchase price was allocated to the
assets acquired and liabilities assumed based on the related fair values at
the date of acquisition. The excess of the aggregate purchase price over the
fair values of the assets acquired and liabilities assumed has been allocated
to goodwill and is being amortized on a straight-line method over 25 years.
8
<PAGE> 9
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
The following table summarizes pro forma unaudited results of operations as
if each of the acquisitions completed had occurred at the beginning of fiscal
1998.
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, 1998 March 31,1998
------------------------------------------
(In thousands, except earnings per share)
<S> <C> <C>
Revenues $ 949 $ 2,815
Income (loss) before income taxes (66) 384
Net income (loss) (43) 253
Basic and diluted earnings (loss) per share $ (0.03) $ 0.32
</TABLE>
6. FINANCIAL INSTRUMENTS:
The Company hedges a portion of its commercial mortgage loan portfolio as part
of its interest rate risk management strategy and as a condition of the related
repurchase agreement, which finances the portfolio. The Company hedges the
interest rate risk on its portfolio by entering into forward sales of U.S.
Treasury Securities. The Company classifies these forward sales as hedges on
specific loan receivables. Any gross unrealized gains or losses on these forward
sales are an adjustment to the basis of the mortgage loan portfolio and are used
in the lower of cost or market valuation to establish a valuation allowance.
The following table identifies the gross unrealized gains/losses of the
forward sales as of March 31, 1999 and September 30, 1998:
<TABLE>
<CAPTION>
March 31, 1999 September 30, 1998
Gross Unrealized Gross Unrealized
Security Description Gains Losses
--------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
U.S. Treasury 6.125% - 8/07 $ 47 $ (2,019)
U.S. Treasury 6.375% - 8/27 85 (294)
U.S. Treasury 5.500% - 2/08 388 (1,649)
U.S. Treasury 5.625% - 5/08 65 (321)
U.S. Treasury 4.75% - 11/08 25 -
=======================================
$ 610 $ (4,283)
=======================================
</TABLE>
9
<PAGE> 10
BINGHAM FINANCIAL SERVICES CORPORATION
----------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information on material
factors affecting the Company's results of operations and significant
balance sheet changes. This discussion should be read in conjunction with
the consolidated financial statements and notes included herein and the 1998
Form 10-K of Bingham Financial. Results of operations for the three-month
and six-month periods presented are not necessarily indicative of results,
which may be expected for the entire year.
RESULTS OF OPERATIONS
The Company reported net income of $480,000 for the quarter ended March 31,
1999 compared to net income of $120,000 in the quarter ended March 31, 1998.
The increase in net income is due primarily to a significant increase in
interest income of $2.2 million, gain on sale of loans of $274,000 and a
recovery of $1.2 million related to the valuation of the loan portfolio.
These increases in income were partially offset by increases in interest
expense of $1.7 million and operating expenses of $1.3 million.
Net income for the six months ended March 31, 1999 was $1.2 million versus
net income of $142,000 for the six months ended March 31, 1998. The primary
reasons for the increased income were the increase in interest income of
$4.0 million, a recovery of $2.4 million related to the valuation of the
loan portfolio and an increase in gain on loan sales of $563,000. Offsetting
the increases in income were increases in interest expense of $3.3 million
and operating expenses of $2.4 million.
Interest income earned on the manufactured home and commercial mortgage loan
portfolios increased to $2.6 million for the quarter ended March 31, 1999
from $423,000 for the comparable quarter in 1998. The increase was due to
increased origination volume in the manufactured home loan portfolio and the
addition of a commercial mortgage loan portfolio through the acquisition of
Bloomfield Acceptance Company in March 1998. Bloomfield Acceptance is an
originator of primarily fixed rate loans collateralized by mortgages on
commercial real estate.
Similarly, interest income for the six months ended March 31, 1999 increased
to $4.7 million as compared to $739,000 for the six months ended March 31,
1998. The same factors that accounted for the increase in the second quarter
were also present in the year-to-date increases. The commercial mortgage
loan portfolio was also earning interest for the entire six-month period in
1999 whereas there were no commercial mortgage loans in the Company's
portfolio at March 31, 1998.
Interest expense increased to $1.8 million in the second quarter of fiscal
1999 as compared to $135,000 in the second quarter of fiscal 1998. The large
increase is due to the substantial increase in borrowings to fund
originations of manufactured home loans and commercial mortgage loans held
for sale net of a decrease in the Company's average borrowing rate. As with
the interest income increase the borrowings to fund the commercial mortgage
loan portfolio were present for the entire three month period in 1999 versus
no borrowings on that portfolio in 1998.
Interest expense for the six-month period ended March 31, 1999 increased to
$3.5 million from $286,000 for the comparable six months in the previous
year. As with the quarterly period an increase in total borrowings net of a
decrease in the average borrowing rate accounted for the differences in the
comparable periods.
Net interest margin which is net interest income divided by the average
outstanding balance of
10
<PAGE> 11
BINGHAM FINANCIAL SERVICES CORPORATION
----------
interest earning assets has decreased to 2.55% and 2.21% for the quarter and six
months ended March 31, 1999 as compared to 7.03% and 6.45% for the comparable
quarter and six months ended March 31, 1998. This is primarily due to the
addition of the commercial mortgage loans which represent approximately 77% of
the loan portfolio and have a lower weighted average interest rate.
The following table sets forth the extent to which the Company's net interest
income has been affected by changes in average interest rates and average
balances of interest-earning assets and interest bearing liabilities.
<TABLE>
<CAPTION>
Three months ended March 31, 1999 and 1998
----------------------------------------------------------------------------------------
Average Balance Average Rate Interest Increase Variance due to:
-------------------------------------------------------
1999 1998 1999 1998 1999 1998 (Decrease) Volume Rate
----------------------------------------------------------------------------------------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $122,872 $ 16,329 8.52% 10.36% $ 2,617 $ 423 $ 2,194 $ 2,759 $ (565)
Cash and equivalents 4,367 - 3.32% - 36 - 36 36 -
--------------------------------------------------------------------------------------
127,239 16,329 8.34% 10.36% 2,653 423 2,230 2,795 (565)
--------------------------------------------------------------------------------------
Interest-bearing Liabilities
Term loan 4,000 4,000 11.68% 11.68% 117 117 - - -
Revolving line of credit 21,014 1,333 6.54% 8.36% 344 19 325 420 (95)
Loans sold under repurchase 92,878 - 5.95% - 1,381 - 1,381 1,381 -
--------------------------------------------------------------------------------------
117,892 5,333 6.25% 10.20% 1,842 136 1,706 1,801 (95)
--------------------------------------------------------------------------------------
Interest rate spread 2.09% .16%
Excess average earning assets $ 9,347 $ 10,996 8.34% 10.36%
====================================
Net interest margin 2.55% 7.03% $ 811 $ 287 $ 524 $ 994 $ (470)
==================================================================
</TABLE>
<TABLE>
<CAPTION>
Six months ended March 31, 1999 and 1998
----------------------------------------------------------------------------------------
Average Balance Average Rate Interest Increase Variance due to:
-------------------------------------------------------
1999 1998 1999 1998 1999 1998 (Decrease) Volume Rate
----------------------------------------------------------------------------------------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $110,211 $ 14,012 8.59% 10.55% $ 4,735 $ 739 $ 3,996 $ 5,075 $(1,079)
Cash and equivalents 4,349 - 3.42% - 73 - 73 73 -
----------------------------------------------------------------------------------------
114,560 14,012 8.39% 10.55% 4,808 739 4,069 5,148 (1,079)
----------------------------------------------------------------------------------------
Interest-bearing Liabilities
Term loan 4,000 3,000 11.68% 11.04% 234 166 68 55 13
Revolving line of credit 20,638 3,313 7.32% 8.11% 756 121 635 1,553 (918)
Loans sold under repurchase 80,838 - 6.31% - 2,551 - 2,551 2,551 -
----------------------------------------------------------------------------------------
105,476 6,313 6.71% 9.09% 3,541 287 3,254 4,159 (905)
----------------------------------------------------------------------------------------
Interest rate spread 1.68% 1.46%
Excess average earning assets $ 9,084 $ 7,699 8.39% 10.55%
====================================
Net interest margin 2.21% 6.45% $ 1,267 $ 452 $ 815 $ 989 $ (174)
=====================================================================
</TABLE>
11
<PAGE> 12
BINGHAM FINANCIAL SERVICES CORPORATION
----------
Mortgage origination and servicing fees are related to the commercial
mortgage loans placed with outside investors and with the servicing retained
by Bloomfield servicing. Placement fees for the quarter ended March 31, 1999
totaled approximately $128,000 on commercial mortgage loans placed with
investors of $12.1 million compared to placement fees of $138,000 on loans
placed with investors of $19.7 million for the quarter ended March 31, 1998.
For the six months ended loan placement fees were $407,000 on loans placed
with investors of $36.6 million. Loans placed with investors and the
corresponding loan placement fees for the six month period ended March 31,
1998 are the same as the quarter ended March 31, 1998 as Bloomfield
Acceptance was acquired in March 1998.
Servicing fees collected by Bloomfield Servicing on the current retained
servicing portfolio were $73,000 for the quarter versus $29,000 for the
comparable quarter in 1998. For the six months ended March 31, 1999
servicing fees collected were $146,000 as compared to $29,000 for the same
six-month period in the previous year. Servicing fees for the six month
period ended March 31, 1998 are the same as the quarter ended March 31, 1998
as Bloomfield Servicing was acquired in March 1998.
A recovery of $1.15 million related to the valuation of the loan portfolio
and related hedge positions was recognized for the quarter ended March 31,
1999 and $2.4 million for the six month period. The hedge positions are used
by management in an attempt to mitigate the risk of loss arising from
adverse changes in market prices and interest rates associated with the
fixed rate loans in the commercial mortgage loan portfolio. There are no
comparable gains or losses on valuations of the loan portfolio and hedge
positions for the quarter ended March 31, 1998.
Gain on sale of loans represents the difference between the proceeds from
sale and the allocated carrying cost of the loans sold. The gain is also net
of required reserves for the potential refund of any premium paid for loans
that prepay in the first twelve months after the date of the sale. The
Company sold approximately $5.4 million in manufactured home loans in one
bulk sale and recorded a gain on sale of loans of $274,000 for the three
months ended March 31, 1999. There were no loan sales in the comparable
quarter of the previous year.
For the six months ended March 31, 1999 the Company has sold approximately
$10.4 million of manufactured home loans and recognized gains on loan sales
of $563,000. There were no loan sales in the comparable six-month period of
1998.
A provision for credit losses is charged to income in amounts sufficient to
maintain an allowance level estimated to cover losses from liquidating
manufactured home loans. The allowance level is determined based on a formal
review of the size and quality of the manufactured home loan portfolio in
conjunction with the current market and prevailing economic conditions.
The Company recorded a provision for credit losses of $63,000 and $30,000
for the three-month periods ended March 31, 1999 and 1998 respectively. The
increase was due to the increase in the size of the manufactured home loan
portfolio. For the six-month periods ended March 31, 1999 and 1998 provision
for credit losses was $160,000 and $51,000 respectively.
General and administrative expenses and other operating expenses have
increased in recent periods as a result of the expansion of the manufactured
home lending operations and the acquisition of the Bloomfield Acceptance
Company and Bloomfield Servicing Company. The largest increase has been in
personnel costs that were $971,000 and $214,000 for three months ended March
31, 1999 and 1998 respectively. For the six months ended March 31, 1999 and
1998 personnel costs have been $1.5 million and $227,000 respectively.
12
<PAGE> 13
BINGHAM FINANCIAL SERVICES CORPORATION
----------
LIQUIDITY AND CAPITAL RESOURCES
Liquidity represents the ability to meet financial obligations when due. The
Company expects to meet its short-term liquidity requirements through
working capital provided by operating activities. The Company expects to
meet its long term liquidity requirements through a combination of
additional equity offerings, draws on its revolving lines of credit,
advances under its master repurchase agreement, whole loan sales and
possible future periodic securitizations of its loan portfolio.
Total borrowings increased $47.4 million during the period to $125.6 million
at March 31, 1999. The increased borrowings were primarily for the funding
of new loan originations. The increased borrowings are net of approximately
$11.0 million in proceeds from loan sales used to repay revolving lines of
credit.
Loans Receivable
Net loans receivable increased $49.9 million to $136.0 million at March 31,
1999. Commercial mortgage loans originated and held for sale were $40.9
million and manufactured home loan originations were $19.5 million for the
period. New loan originations were partially offset by sales of $10.4
million of manufactured home loans.
The following table sets forth the average loan balance, weighted average
loan yield and weighted average initial term of the loan portfolio:
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------------
Manufactured Commercial
Home Loans
-----------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Principal balance loans receivable, net $ 31,181 $ 104,820
Number of loans........................ 1,106 27
Average loan balance................... $ 28 $ 3,882
Weighted average loan yield............ 10.9% 7.7%
Weighted average initial term.......... 22 years 10.6 years
</TABLE>
Delinquency statistics at March 31,1999 for the manufactured home loan
portfolio are as follows:
<TABLE>
<CAPTION>
Number of Greater
Loans 31-60 61-90 Than 90 Total
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Manufactured home loans 1,106 2.0% 0.3% 4.2% 6.5%
Manufactured home loans
sold with full recourse 782 1.3% 0.0% 0.4% 1.7%
----------------------------------------------------------------------
1,888 1.7% 0.2% 2.6% 4.5%
======================================================================
Gross Principal Greater
Balance 31-60 61-90 than 90 Total
--------------------------------------------------------------------------------------------------
(Dollars in thousands)
Manufactured home loans $ 31,215 2.0% 0.1% 4.1% 6.2%
Manufactured home loans
sold with full recourse 19,893 1.6% 0.0% 0.2% 1.8%
----------------------------------------------------------------------
$ 51,108 1.8% 0.1% 0.2% 2.1%
======================================================================
</TABLE>
There were no delinquent commercial mortgage loans at March 31, 1999.
13
<PAGE> 14
BINGHAM FINANCIAL SERVICES CORPORATION
----------
Year 2000 Readiness
Some computers, software, and other equipment include a programming code in
which calendar year data is abbreviated to only two digits. As a result of
this design decision, some of these systems could fail to operate or fail to
produce correct results if "00" is interpreted to mean 1900, rather than
2000. In 1998 the Company initiated a corporate wide program designed to
ensure that all critical computer programs function properly in the year
2000. The Company is also analyzing and working with vendors and other
external businesses to identify and avoid any year 2000 problems related to
the software or services they provide.
The first phase of the Company's year 2000 project is complete. It involved
an assessment of the internal and external critical systems and hardware
that could be affected by the year 2000 problem and the current compliant
status of the system or hardware.
In phase II of the project the MIS staff developed solutions or implemented
vendor provided solutions to remedy all year 2000 non-compliant issues
including non-information technology systems. All internal critical systems
that required a year 2000 update provided by a vendor have been corrected.
To date there have been no systems that required complete replacement. All
non-compliant hardware has been replaced. Any new systems or hardware to be
acquired are verified to be year 2000 compliant. Phase II also includes
testing of updated systems and hardware for compliance. This portion of the
project is on going and was originally scheduled to be completed by the
second quarter of 1999. Some testing needs to be completed on the Company's
servicing and origination systems. At this time the Company has received
very specific statements of compliance on both systems.
The Company continues to obtain statements of compliance from its external
vendors and business relationships to verify that they are year 2000
compliant. This part of phase II was also expected to be completed by the
second quarter of 1999. While the Company has received statements of
compliance from the majority of its outside vendors it has not received all
statements requested. Bingham will continue to obtain the necessary
statements of compliance from vendors and outside business relationships
that it has defined as critical.
Year 2000 compliance costs to date have totaled approximately $25,000. The
majority of the cost is estimated MIS personnel expense required for
identifying, testing and where necessary updating critical systems. The cost
also includes the replacement of some non-compliant hardware. The Company
currently estimates the total costs of the year 2000 project will not be
material to its financial position or results of operations.
The impact of year 2000 issues depends not only on the corrective actions
the Company takes, but also on the way these issues are handled by
businesses, governmental agencies and other third parties that provide data,
services and utilities to us. While the Company is in the process of testing
and correcting identified year 2000 problems, these procedures are limited
to matters over which we are reasonably able to exercise control. The
Company's ability to achieve year 2000 readiness and the level of
incremental costs associated with it could be adversely impacted by, among
other things, the availability and cost of programming and testing
resources, vendor's ability to modify proprietary software and unanticipated
problems identified in the on going compliance review.
14
<PAGE> 15
BINGHAM FINANCIAL SERVICES CORPORATION
----------
Forward-looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q,
including statements relating to the Company's strategic objectives and
future performance, which are not historical fact, may be deemed to be
forward-looking statements under the federal securities laws. There are many
important factors that could cause the Company's actual results to differ
materially from those indicated. Such factors include, but are not limited
to general economic conditions; interest rate risk; demand for the Company's
services; the impact of certain covenants in loan agreements of the Company;
the degree to which the Company is leveraged; the continued availability of
the Company's credit facilities; the risk of margin calls on the Company's
credit facilities and hedge positions; the performance of the Company's
subsidiaries; the Company's year 2000 issues; and other risks identified in
the Company's Securities and Exchange Commission filings. In addition, it
should be noted that past financial and operational performance of the
Company is not necessarily indicative of future financial and operational
performance.
15
<PAGE> 16
BINGHAM FINANCIAL SERVICES CORPORATION
----------
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table shows the Company's expected maturity dates of its
assets and liabilities. For each maturity category in the table the
difference between interest-earning assets and interest-bearing liabilities
reflects an imbalance between repricing opportunities for the two sides of
the balance sheet. The consequences of a positive cumulative gap at the end
of one year suggests that, if interest rates were to rise, liability costs
would increase more quickly than asset yields, placing negative pressure on
earnings.
<TABLE>
<CAPTION>
Maturity
--------------------------------------------------------
0 to 3 4 to 12 1 to 5 Over 5
Months Months Years Years Total
-----------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Cash and equivalents..................... $ - $ - $ - $ - $ -
Restricted cash.......................... 1,004 3,012 - - 4,016
Loans receivable......................... 1,048 4,664 23,203 107,050 135,965
Other assets............................. 934 1,660 587 1,580 4,761
=========================================================
TOTAL ASSETS $2,986 $ 9,336 $ 23,790 $108,630 $144,742
=========================================================
Advances by mortgagors................... $1,002 $ 3,005 $ - $ - $ 4,007
Accounts payable and accrued expenses.... 245 105 54 (265) 139
Advances under repurchase agreement...... 241 94,427 94,668
Subordinated debt........................ (19) (57) 3,604 - 3,528
Notes Payable............................ - - 6,000 21,404 27,404
Other liabilities........................ - - - 252 252
---------------------------------------------------------
TOTAL LIABILITIES 1,469 97,480 9,658 21,391 129,998
---------------------------------------------------------
Common stock............................. - - - 13,608 13,608
Paid-in-capital.......................... - - - 576 576
Retained earnings........................ - - - 560 560
==========================================================
TOTAL LIABILITIES AND EQUITY $1,469 $ 97,480 $ 9,658 $ 36,135 $144,742
==========================================================
Reprice difference....................... $1,517 $(88,144) $ 14,132 $ 72,495
Cumulative gap........................... $1,517 $(86,627) $ (72,495) $ -
Percent of total assets.................. 1.05% (59.85%) (50.09%) -
</TABLE>
Management believes the negative effect of a rise in interest rates is
reduced by the anticipated short duration of the Company's loan receivables.
Management intends that the loan receivables will be securitized or sold as
part of a whole loan sale prior to the end of 1999. Proceeds from the
securitization or whole loan sales would be used to pay down the
corresponding debt. If the company were unable to securitize or sell the
loans it would be necessary to renegotiate the master repurchase agreement
to extend the maturity date of the advances under repurchase. The
instruments held by the Company are held for purposes other than trading.
The Company also manages interest rate risk through the use of forward sales
of U.S. Treasury securities to hedge the fixed rate loans in the commercial
loan portfolio. In a forward sale the Company has agreed to sell a Treasury
security at a future date with a predetermined price. If interest
16
<PAGE> 17
BINGHAM FINANCIAL SERVICES CORPORATION
----------
rates on Treasury Securities drop, the price to the Company to purchase the
security in order to meet its settlement obligation will have risen, and
thus the Company will have suffered an unrealized loss on the hedge
transaction. Conversely, if interest rates rise, the price to the Company to
purchase Treasury Securities will have fallen and there will be an
unrealized gain. The unrealized gain or loss on the hedge transaction should
be offset by the decrease or increase in value of the underlying hedged
loans since they are fixed rate loans that have an annual interest rate
equal to a spread over U.S. Treasuries. The Company uses these instruments
in an attempt to reduce risk by essentially creating offsetting market
exposures.
The following table shows the Company's financial instruments and derivative
instruments that are sensitive to changes in interest rates, categorized by
expected maturity and the instruments' fair values at March 31, 1999.
<TABLE>
<CAPTION>
Contractual Maturity
----------------------------------------------------------------------------------------
Total
1999 2000 2001 2002 2003 Thereafter Fair Value
----------------------------------------------------------------------------------------
Interest sensitive assets:
<S> <C> <C> <C> <C> <C> <C> <C>
Loans receivable $ 1,339 $ 4,651 $ 16,477 $ 1,182 $ 1,301 $ 111,534 $ 136,484
Average interest rate 8.33% 8.50% 8.70% 8.33% 8.33% 8.33% 8.33%
Interest bearing deposits 4,016 - - - - - 4,016
Average interest rates 3.42% - - - - - 3.42%
Forward sales of U.S. Treasury
securities - - - - - 58,857 58,857
Average interest rate - - - - - 5.38 5.38%
========================================================================================
Total interest sensitive assets $ 5.355 $ 4,651 $ 16,477 $ 1,182 $ 1,301 $ 170,391 $ 199,357
========================================================================================
Interest sensitive liabilities:
Borrowings:
Advances under repurchase agreements $ 79,875 $ 14,793 $ - $ - $ - $ - $ 94,668
Average interest rate 6.31% 6.31% - - - - 6.31%
Subordinated debt, net of discount - - - - - 3,528 3,528
Average interest rate - - - - - 11.68 11.68%
Note payable - - - - 6,000 21,404 27,404
Average interest rate - - - - 9.25% 6.46% 7.10%
========================================================================================
Total interest sensitive liabilities $ 79,875 $ 14,793 $ - $ - $ 6,000 $ 24,932 $ 125,600
========================================================================================
</TABLE>
17
<PAGE> 18
BINGHAM FINANCIAL SERVICES CORPORATION
----------
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various claims and legal proceedings
arising out of the normal course of business, none of which in
the opinion of management are expected to have a material effect
on the Company's financial position.
ITEM 6.(A) - EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial Data Schedule
ITEM 6.(B) - REPORTS ON FORM 8-K
None.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 11, 1999
BINGHAM FINANCIAL SERVICES CORPORATION
BY: /s/ Jeffrey P. Jorissen
---------------------------------------------
Jeffrey P. Jorissen
President and Chief Financial Officer
19
<PAGE> 20
EXHIBIT INDEX
PAGE
FILED NUMBER
EXHIBIT NO. DESCRIPTION HEREWITH HEREIN
- ----------- ----------- -------- ------
27 Financial Data Schedule X X
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 136,002
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 144,743
<CURRENT-LIABILITIES> 129,999
<BONDS> 0
0
0
<COMMON> 13,600
<OTHER-SE> 1,136
<TOTAL-LIABILITY-AND-EQUITY> 144,743
<SALES> 0
<TOTAL-REVENUES> 4,288
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,636
<LOSS-PROVISION> 63
<INTEREST-EXPENSE> 1,841
<INCOME-PRETAX> 748
<INCOME-TAX> 268
<INCOME-CONTINUING> 480
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 480
<EPS-PRIMARY> .30
<EPS-DILUTED> .26
</TABLE>
