<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 September 30, 2000.
OR
|_| Transition report 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 Offices) (Zip Code)
Registrant's telephone number, including area code: (248) 644-8838
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:
2,639,681 shares of Common Stock, no par value as of October 31, 2000
<PAGE> 2
BINGHAM FINANCIAL SERVICES CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGES
PART I
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets (unaudited) as of September 30, 2000 and
December 31, 1999 3
Consolidated Statements of Operations (unaudited) for the Three
Months and Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (unaudited) for the Nine Months
Ended September 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18-19
PART II
Item 1 Legal Proceedings 20
Item 6 (a) Exhibits Required by Item 601 of Regulation S-K 20
Item 6 (b) Reports on form 8K 20
Signatures 21
Exhibit Index 22
</TABLE>
2
<PAGE> 3
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
----------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
(UNAUDITED) (UNAUDITED)
---------------------- ------------------------
(In thousands, except share data)
<S> <C> <C>
Cash and equivalents $ 880 $ -
Restricted cash 5,098 4,275
Loans receivable 79,624 141,453
Servicing rights 8,786 9,736
Servicing advances 7,485 -
Property and equipment, net 2,806 3,029
Other assets 28,504 10,006
---------------------- ------------------------
Total assets $ 133,183 $ 168,499
====================== ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Advances by mortgagors $ 4,565 $ 4,228
Accounts payable and accrued expenses 5,901 11,434
Recourse loan liability 8,105 376
Deferred revenue 506 1,398
Advances under repurchase agreements 52,636 80,469
Subordinated debt, net of debt discount
of $356 and $414, respectively 3,644 3,586
Note payable 39,355 40,747
--------------------- -----------------------
Total liabilities 114,712 142,238
--------------------- -----------------------
Minority Interest - 122
--------------------- -----------------------
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;
2,639,681 and 2,539,716 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 27,485 26,799
Paid-in capital 706 641
Accumulated other comprehensive loss (186) (106)
Unearned stock compensation (1,179) (1,102)
Accumulated deficit (8,355) (93)
--------------------- -----------------------
Total stockholders' equity 18,471 26,139
--------------------- -----------------------
Total liabilities and stockholders' equity $ 133,183 $ 168,499
===================== =======================
</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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
----------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
REVENUES 2000 1999 2000 1999
--------------------------- --------------------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Interest income on loans $ 3,296 $ 2,221 $ 12,064 $ 7,359
Mortgage origination and servicing fees 2,911 628 7,590 1,717
Gain on sale of loans 1,413 310 1,598 2,860
Other income 107 182 792 286
--------------------------- --------------------------
Total revenues 7,727 3,341 22,044 12,222
--------------------------- --------------------------
COSTS AND EXPENSES
Interest expense 3,267 1,362 11,037 5,156
Provision for credit losses 2,755 421 5,404 556
General and administrative 5,609 2,496 14,903 4,654
Restructuring costs -- -- 796 --
Other operating expenses 415 131 2,422 1,713
--------------------------- --------------------------
Total costs and expenses 12,046 4,410 34,562 12,079
--------------------------- --------------------------
Income (loss) before income tax expense (4,319) (1,069) (12,518) 143
Federal income tax expense (benefit) (1,460) (296) (4,256) 132
--------------------------- --------------------------
Net income (loss) $ (2,859) $ (773) $ (8,262) $ 11
=========================== ===========================
Weighted average common shares outstanding
Basic 2,639,681 2,516,863 2,620,819 1,966,288
=========================== ===========================
Diluted 2,639,681 2,516,863 2,620,819 2,166,453
=========================== ===========================
Earnings (loss) per share
Basic $ (1.08) $ (0.31) $ (3.15) $ 0.01
=========================== ===========================
Diluted $ (1.08) $ (0.31) $ (3.15) $ 0.00
=========================== ===========================
</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 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
----------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net cash provided (used) by operating activities $ 30,881 $ (2,328)
--------- ---------
Cash flows from investing activities:
Purchase of Hartger & Willard -- (1,900)
Purchase of investment securities -- (1,529)
Proceeds from sale of investment securities -- 369
Capital expenditures (794) (319)
--------- ---------
Net cash used in investing activities (794) (3,379)
--------- ---------
Cash flows from financing activities:
Issuance of common stock -- 11,968
Advances under repurchase agreements 123,777 62,595
Repayment of advances under repurchase agreements (151,592) (85,810)
Advances on note payable 230,084 93,449
Repayment of note payable (231,476) (76,794)
--------- ---------
Net cash (used) provided by financing activities (29,207) 5,408
--------- ---------
Net change in cash and cash equivalents 880 (299)
Cash and cash equivalents, beginning of period -- 1,029
----------------------
Cash and cash equivalents, end of period $ 880 $ 730
======================
</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 ("Bingham" or "the Company")
financial condition and results of operations on a basis consistent with
that of the Company's prior audited consolidated financial statements. On
February 4, 2000 the Board of Directors of Bingham approved the change in
its fiscal year end from September 30 to December 31. As a result, Bingham's
December 31, 1999 consolidated balance sheet is presented as its previous
year end for comparative purposes. 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 conjunction 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,
1999. 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 (loss) per share is computed by dividing net income (loss)
available to common shareholders by the weighted average common shares
outstanding. At September 30, 2000 there were potential dilutive shares of
common stock from outstanding stock options and warrants. Had these stock
options and warrants been exercised they would have had an anti-dilutive
effect on the net loss per share calculation. The effect of the
anti-dilutive shares is not included in the earnings per share calculation
for the period ended September 30, 2000.
The following table presents a reconciliation of the numerator (income
applicable to common shareholders) and denominator (weighted average common
shares outstanding) for the basic and diluted income (loss) per share
calculation:
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------------------------------
2000 1999
------------------------------------------------------------
(In thousands, except earnings per share)
Earnings (loss) Earnings (loss)
Shares per share Shares per share
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic earnings (loss) per share 2,640 $(1.08) 2,517 $(0.31)
Net dilutive effect of:
Options -- -- -- --
Warrants -- -- -- --
----- ----- ----- -----
Diluted earnings (loss) per share 2,640 $(1.08) 2,517 $(0.31)
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------------------
2000 1999
------------------------------------------------------------
(In thousands, except earnings per share)
Earnings (loss) Earnings (loss)
Shares per share Shares per share
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic earnings (loss) per share 2,621 $(3.15) 1,966 $0.01
Net dilutive effect of:
Options -- -- 25 --
Warrants -- -- 176 (0.01)
----- ------ ----- -----
Diluted earnings (loss) per share 2,621 $(3.15) 2,167 $0.00
===== ====== ===== =====
</TABLE>
6
<PAGE> 7
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
3. OTHER COMPREHENSIVE INCOME:
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," establishes standards for reporting comprehensive
income. Other comprehensive income refers to revenues, expenses, gains and
losses that under GAAP have previously been reported as separate components
of equity in the Company's consolidated financial statements.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------------------
2000 1999 2000 1999
------------------------------- ----------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Net income (loss) $(2,859) $ (773) $(8,262) $ 11
Other comprehensive income net of tax:
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) during period 22 (304) (80) (304)
------------------------------- ----------------------------------
Comprehensive income (loss) $(2,837) $(1,077) $(8,342) $(293)
=============================== ==================================
</TABLE>
4. 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 the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------------------------------------
2000 1999 2000 1999
------------------------------- ----------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 870 $ 270 $ 274 $ 248
Provision for loan losses 2,755 421 5,404 556
Net losses (2,277) (433) (4,330) (546)
------------------------------- ----------------------------------
Balance at end of period $ 1,348 $ 258 $ 1,348 $ 258
=============================== ==================================
</TABLE>
The Company periodically sells portions of its manufactured home loan
portfolio with recourse whereby it is required to repurchase loans that meet
certain delinquency or default criteria. The Company maintains a separate
liability to absorb potential losses on these loans. During the three months
ended September 30, 2000, Bingham sold approximately $114.4 million of its
manufactured home loan portfolio servicing released and with limited
recourse. As a result of this sale, Bingham increased its recourse loan
liability by approximately $7.7 million. There were no charges against the
recourse liability in the three months or nine months ended September 30,
2000. The balance of that liability was approximately $8.1 million at
September 30, 2000.
5. DEBT:
At the time of its November 1997 initial public offering Bingham entered
into a subordinated debt facility with Sun Communities, Inc. ("Sun"), which
is subordinated to all senior debt of Bingham. In accordance with the
subordinated loan agreement, Bingham issued detachable warrants to Sun
covering 400,000 shares of common stock at an exercise price of $10.00 per
warrant share. The detachable warrants have a term of seven years and may be
exercised at any time after the fourth anniversary of the issuance.
7
<PAGE> 8
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
Bingham also has two demand lines of credit with Sun, each of which provides for
an annual interest rate equal to the one month LIBOR rate plus a spread. At
September 30, 2000, the available borrowings under its demand lines of credit
were $60 million and the amount borrowed was approximately $33.1 million.
In March 2000, Dynex Financial, Inc. ("Dynex Financial") and Bloomfield
Acceptance Company, L.L.C. ("Bloomfield Acceptance"), two of Bingham's
subsidiaries, entered into an amended and restated repurchase arrangement with
Lehman Commercial Paper, Inc. Under this agreement, Dynex Financial and
Bloomfield Acceptance may transfer loans from time to time to Lehman against the
transfer of funds from Lehman. At September 30, 2000, the maximum financing
limits on the facility were $50.0 million for commercial mortgage and bridge
loans and $200.0 million for manufactured home and floor plan loans, and the
aggregate amount advanced by Lehman was $52.6 million. The annual interest rate
on the facility is a variable rate of interest equal to LIBOR plus a spread,
dependent on the advance rate and the asset class.
In March 2000, Bingham and Dynex Financial entered into a revolving credit
facility with Michigan National Bank. Under this facility, Bingham and Dynex may
borrow up to $11.0 million. Interest at a rate of LIBOR plus 200 basis points
per year is payable on the outstanding balance. The outstanding principal
balance on this credit facility as of September 30, 2000 was approximately $6.3
million.
In April 2000, Bloomfield Acceptance and Bloomfield Servicing Company, L.L.C.
("Bloomfield Servicing") entered into a warehousing credit agreement with
Residential Funding Corporation. Under the credit agreement, Bloomfield
Acceptance and Bloomfield Servicing may borrow up to $50.0 million to fund the
acquisition and origination of FNMA loans, FHLMC loans, bridge mortgage loans
and similar mortgage loans. Interest at an annual rate of up to LIBOR plus 250
basis points is payable on the outstanding balance of advances used to make
bridge mortgage loans. Interest at an annual rate of LIBOR plus 125 basis points
is payable on the outstanding balance of advances used to make all other loans
under this agreement. At September 30, 2000, Bloomfield Acceptance and
Bloomfield Servicing had no advances outstanding under this agreement.
At September 30, 2000 and December 31, 1999 total debt outstanding was as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
----------------- ----------------
2000 1999
----------------- ----------------
(In thousands)
<S> <C> <C>
Loans sold under repurchase $ 52,636 $80,469
Demand line of credit 33,091 40,747
Servicing advance line of credit 6,264 --
Term loan, net of discount 3,644 3,586
-------- --------
$ 95,635 $124,802
======== ========
</TABLE>
6. FINANCIAL INSTRUMENTS:
The Company hedges a portion of its 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 attempts to hedge the interest rate
risk on its portfolio by entering into Treasury rate locks and forward interest
rate swaps. The Company classifies these transactions as hedges on specific
classes of loan receivables. Any gross unrealized gains or losses on these hedge
positions 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.
8
<PAGE> 9
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
The following tables identify the gross unrealized gains/losses of the interest
rate swaps as of September 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
September 30, 2000
---------------------------
Notional Gross Unrealized
Type Amount Reference Rate Gain (Loss)
---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest Rate Swap $ 1,918 10 Year Swap $ (54)
Interest Rate Swap 1,010 10 Year Swap (16)
Interest Rate Swap 30,722 10 Year Swap (776)
--------- --------
Total $ 33,650 $ (846)
========= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------
Notional Gross Unrealized
Type Amount Reference Rate Gain (Loss)
---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest Rate Swap $ 2,232 10 Year Swap $ 9
Interest Rate Swap 1,941 10 Year Swap 6
Interest Rate Swap 3,564 10 Year Swap 16
Interest Rate Swap 1,918 10 Year Swap (14)
Interest Rate Swap 1,108 10 Year Swap 2
Interest Rate Swap 12,984 10 Year Swap 557
Interest Rate Swap 2,540 10 Year Swap 33
--------- ------
Total $ 26,287 $ 609
========= ======
</TABLE>
7. ACQUISITIONS:
In December 1999, the Company completed the acquisition of Dynex Financial from
Dynex Holding, Inc., a subsidiary of Dynex Capital, Inc. ("DCI"). The Company
acquired certain manufactured home loans from Dynex Financial, all of the issued
and outstanding stock of Dynex Financial and all of the rights to DCI's
manufactured home lending business for approximately $4.0 million in cash funded
by borrowings on the Company's demand lines of credit. Dynex Financial
specializes in lending to buyers of manufactured homes and has regional and
district offices in four states. In addition Dynex Financial provides servicing
for manufactured home and land/home loans.
The Dynex Financial acquisition was accounted for using the purchase method. The
consideration and acquisition costs for the DFI acquisition were allocated to
the acquired assets and assumed liabilities, resulting in excess of the fair
value of the acquired net assets over the purchase price of approximately $3.2
million, which was recognized as a reduction in the amount allocated to
purchased loan servicing rights. During the quarter ended March 31, 2000,
Bingham revised its initial estimates of the fair value of the assets acquired,
specifically the manufactured home loan portfolio associated with the
transaction, effectively reducing the excess of fair value of acquired net
assets by $2.0 million. Accordingly, the Company recognized the revised estimate
by retroactively adjusting the purchase price allocation increase to the amount
previously allocated to purchased loan servicing rights.
In connection with the Dynex Financial acquisition, Bingham recognized accrued
liabilities of $5.0 million related to its plans to close certain of Dynex
Financial's regional and district offices and terminate or relocate certain of
its employees. As of the quarter ended March 31, 2000, Bingham had revised its
estimate of the costs to implement its plan and as a result has made an
adjustment to the purchase price allocation. The change in estimate has resulted
in an increase of $2.5 million in the excess of fair value over
9
<PAGE> 10
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
the assets acquired. Bingham has recognized this increase as an adjustment to
the amount previously allocated to purchased loan servicing rights. Bingham
continues to finalize its assessment of the offices and employees that will be
affected and any adjustments resulting from the completion of the assessment and
the resulting actions will result in an additional adjustment to the purchase
price allocation.
For the quarter ended September 30, 2000, there were approximately $501,000 of
costs paid related to the accrued acquisition liabilities, $184,000 for
severance payments and personnel costs and $317,000 in costs connected with
closed locations incurred subsequent to the cessation of operations. For the
nine months ended September 30, 2000, there were approximately $2.2 million of
costs paid related to these liabilities, $1.3 million for severance payments and
personnel costs and $917,000 in costs connected with closed locations incurred
subsequent to the cessation of operations.
The following table summarizes pro forma unaudited results of operations for the
Dynex Financial acquisition as if it had occurred at the beginning of each
period presented:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
--------------------------------------------------------
(In thousands, except earnings per share)
<S> <C> <C>
Revenues $ 8,251 $ 27,210
Income (loss) before income taxes (2,477) 13
Net Income (loss) (1,702) (75)
Basic earnings (loss) per share $ (0.68) $ (0.04)
Diluted earnings (loss) per share (0.68) (0.03)
</TABLE>
8. MHFC, INC. RESTRUCTURING AND SALE:
Effective January 15, 2000, the Company committed to an exit plan for MHFC,
Inc.'s ("MHFC") manufacturing home loan origination operations as part of the
Company's plan to conduct all of its manufactured home loan origination
operations through Dynex Financial. The exit plan involved termination of
MHFC employees, sale of substantially all MHFC's portfolio loans to Dynex
Financial and sale of MHFC. The Company accrued a restructuring charge of
$796,000, including $396,000 for severance payments and other shut down costs
and a $400,000 loss on the sale of MHFC. As of September 30, 2000,
substantially all of the exit costs accrued, including $186,000 for
involuntary termination benefits, have been incurred and paid. In March 2000,
Dynex Financial purchased $66.9 million of loans from MHFC and Bingham sold
all of the stock of MHFC to Gwenuc, LLC, a limited liability company owned by
Gary A. Shiffman, Chairman of Bingham. Gwenuc paid Bingham $400,000 in cash
and assumed $2.7 million of debt to Dynex Financial.
9. PROPOSED MERGER WITH FRANKLIN BANK, N.A.:
In March 2000, Bingham announced that it had executed a merger agreement with
Franklin Bank, N.A.. In connection with the proposed merger Bingham incurred
approximately $2.1 million of acquisition costs. In June 2000 Franklin Bank
terminated the merger agreement. Bingham continues to pursue the merger with
Franklin and, accordingly, has not charged to expense the acquisition costs
at September 30, 2000. At the time Bingham no longer pursues the proposed
merger it will take a charge to earnings equal to the amount of the
acquisition related costs.
10
<PAGE> 11
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 Company's Form 10K for
the fiscal year ended September 30, 1999. Results of operations for the
three-month and nine-month periods presented are not necessarily indicative of
results which may be expected for the entire year.
RESULTS OF OPERATIONS
Results for the quarter and nine months ended September 30, 2000 include the
following:
- Manufactured home originations for the quarter ended September 30, 2000 were
$49.6 million versus $27.0 million in the comparable quarter of 1999, an
increase of 83.7%. Manufactured home originations also increased 79.0% over
the previous quarter ended June 30, 2000. For the nine months ended
September 30, 2000 manufactured home originations increased 104.2% to $116.2
million from $56.9 million for the nine months ended September 30, 1999.
- Commercial loan originations for the third quarter increased 91.8% to $151.9
million compared to $79.2 million in the quarter ended September 30, 1999
and increased 6.8% over the previous quarter ended June 30, 2000. For the
nine months ended September 30, 2000 commercial originations were $332.5
million versus $217.6 million in the comparable period in 1999, an increase
of 52.8%.
- In the current quarter Bingham recorded a gain of $1.3 million on the sale
of approximately $114.4 million of fixed rate manufactured home loans and a
gain of $157,000 on the securitization and sale of approximately $19.1
million of commercial mortgage loans.
- The September 30, 2000 quarter results of operations include additions to
the allowance for loan losses of approximately $2.8 million. The increased
addition to the reserve resulted primarily from losses on non-performing
loans and charge-offs of $2.1 million on loans originated by MHFC, Inc.,
Bingham's previous manufactured home loan origination subsidiary, which was
sold in March, 2000.
Bingham reported a net loss of $2.9 million and $8.3 million, respectively, for
the quarter and nine months ended September 30, 2000, compared to a net loss of
$773,000 and net income of $11,000, respectively, for the quarter and nine
months ended September 30, 1999. The loss for the current quarter was due
primarily to the addition of approximately $2.8 million to its loan loss
reserve, an approximately 236 basis point increase in its average borrowing rate
and a significant increase in personnel and general and administrative costs as
a result of the continued integration of Dynex Financial, which Bingham acquired
in December 1999.
Interest income on loans increased to $3.3 million for the quarter ended
September 30, 2000, or approximately 50% over interest income of $2.2 million in
the comparable period in 1999. The increase is primarily due to an increase in
the average outstanding loan receivable balance of $129.6 million for the
quarter ended September 30, 2000 versus $93.4 million for the quarter ended
September 30, 1999, an increase of 38.8%. The increase in interest income was
also the result of an increase in the average yield on the loan receivable
portfolio to 10.2% for the period in 2000 versus 9.5% in 1999 due to a larger
percentage of the loan portfolio being made up of higher yielding manufactured
home loans.
For the nine months ended September 30, 2000 interest income on loans increased
63.5% to $12.1 million, compared to $7.4 million in the comparable period in
1999. The increase is primarily due to a 38.8% increase in the average
outstanding loan receivable balance, which was $161.6 million for the nine
months ended September 30, 2000 versus $116.4 million for the same period in
1999. The larger percentage of higher yielding manufactured home loans in the
portfolio for the nine months ended September 30, 2000 versus the same period in
1999 resulted in the average yield on the loan receivables increasing to 10.1%
for the period in 2000 versus 8.4% in 1999.
11
<PAGE> 12
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
Interest expense for the three months ended September 30, 2000 was $3.3
million compared to $1.4 million for the comparable period ended September
30, 1999, an increase of 135.7%. The increase is primarily a result of the
increase in the average outstanding balance of debt used to finance the loan
receivables and fund operations. Average outstanding debt increased to
$134.1 million for the period ended September 30, 2000 versus $73.8 million
in the comparable period in 1999, an increase of 81.7%. The average
borrowing rate also increased to 9.7% for the current quarter compared to
7.4% for the comparable period in 1999. The large increase is primarily the
result of an increase in the average LIBOR rate of approximately 125 basis
points for the three months ended September 30, 2000 as compared to the
three months ended September 30, 1999 and an increase in the fees associated
with the borrowing facilities. Bingham's current financing sources are
primarily variable rate facilities that use the 30 day LIBOR rate as an
index.
For the nine months ended September 30, 2000 interest expense was $11.0
million compared to $5.2 million for the comparable period ended September
30, 1999, an increase of 111.5%. The average outstanding interest bearing
liabilities increased 54.1% to $158.0 million for the nine month period
ended September 30, 2000 versus $102.5 million in the comparable period in
1999. The average borrowing rate also increased to 9.3% for the nine months
ended September 30, 2000 compared to 6.7% for the comparable period in 1999.
The increase is primarily the result of an increase in the average LIBOR
rate and an increase in the fees associated with the borrowing facilities.
The following tables set 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 SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------------------------
AVERAGE BALANCE AVERAGE RATE INTEREST INCREASE VARIANCE DUE TO:
-------------------- ----------------- -------------------- --------------------
2000 1999 2000 1999 2000 1999 (DECREASE) VOLUME RATE
-------- -------- ------- ------- -------- -------- --------- -------- --------
Interest-earning assets: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $129,655 $ 93,385 10.17% 9.52% $ 3,296 $ 2,221 $ 1,075 $ 922 $ 153
Cash and equivalents 7,337 4,609 4.44 2.24 81 26 55 30 25
--------------------------------------------------------------------------------------------------
$136,992 $ 97,994 9.86% 9.17% $ 3,377 $ 2,247 $ 1,130 $ 952 $ 178
-------------------- ----------------- --------------------- --------- -------- --------
Interest-bearing
liabilities:
Term loan $ 4,000 $ 4,000 11.68% 11.68% $ 117 $ 117 $ -- $ -- $ --
Revolving line of credit 41,309 19,832 8.97 8.27 960 410 550 515 35
Loans sold under repurchase 88,836 49,988 9.90 6.68 2,190 835 1,355 952 403
--------------------------------------------------------------------------------------------------
$134,145 $ 73,820 9.74% 7.38% $ 3,267 $ 1,362 $ 1,905 $ 1,467 $ 438
--------------------------------------------------------------------------------------------------
Interest rate spread 0.12% 1.79%
Excess average earning assets $ 2,847 $ 24,174 9.86% 9.17%
======================================
Net interest margin 0.32% 3.61% $ 110 $ 885 $ (775) $ (515) $ (260)
==========================================================================
</TABLE>
12
<PAGE> 13
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
-------------------------------------------------------------------------------------------------------
AVERAGE BALANCE AVERAGE RATE INTEREST INCREASE VARIANCE DUE TO:
----------------------- ------------------------ ------------------------ -------------------
2000 1999 2000 1999 2000 1999 (DECREASE) VOLUME RATE
----------- ----------- ------------ ----------- ------------ -----------------------------------------
Interest-earning assets: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $161,554 $116,404 10.12% 8.43% $ 12,064 $ 7,359 $ 4,705 $ 4,214 $ 491
Cash and equivalents 6,827 4,605 4.83 6.41 247 74 173 191 (18)
-------------------------------------------------------------------------------------------------------
$168,381 $121,009 9.75% 8.19% $ 12,311 $ 7,433 $ 4,878 $ 4,405 $ 473
-------------------------------------------------------------------------------------------------------
Interest-bearing
liabilities:
Term loan $ 4,000 $ 4,000 11.68% 11.68% $ 350 $ 350 $ -- $ -- $ --
Revolving line of credit 45,741 20,390 8.80 7.72 2,935 1,180 1,755 1,700 55
Loans sold under repurchase 108,281 78,112 9.61 6.19 7,752 3,626 4,126 3,458 668
-------------------------------------------------------------------------------------------------------
$158,022 $102,502 9.31% 6.71% $ 11,037 $ 5,156 $ 5,881 $ 5,158 $ 723
-------------------------------------------------------------------------------------------------------
Interest rate spread 0.44% 1.48%
Excess average earning assets $ 10,359 $ 18,507 9.75% 8.19%
=======================================================
Net interest margin 0.76% 1.88% $ 1,274 $ 2,277 $ (1,003) $ (753) $ (250)
===============================================================================
</TABLE>
Mortgage origination fees represent fees earned on commercial mortgage loans
originated and placed with outside investors. For the quarter ended September
30, 2000, Bingham originated $95.3 million in commercial mortgage loans that
were placed with outside investors and recorded origination fees of $811,000
compared to $33.6 million in loans originated and placed and $444,000 of
placement and origination fees for the comparable three month period in 1999.
For the nine months ended September 30, 2000, Bingham originated and placed
$238.5 million of commercial mortgage loans and recorded fees of $1.7 million
versus $139.2 million of originations and $1.3 million in fees for the nine
months ended September 30, 1999.
Servicing fees collected for the three months and nine months ended September
30, 2000 were $2.1 million and $5.9 million, respectively, as compared to
$184,000 and $417,000, respectively, for the three months and nine months ended
September 30, 1999. The large increase was the direct result of an increase in
the average principal balance of approximately $1.0 billion of manufactured home
loans serviced for others and an increase in the average principal balance of
approximately $450 million of commercial mortgage loans serviced for outside
investors. The increases were primarily the result of the acquisition in
December 1999 of Dynex Financial, which had a servicing portfolio balance of
$980.0 million, and the acquisition in June 1999 of Hartger & Willard Mortgage
Associates, Inc., an originator and servicer of commercial mortgage loans, which
had a servicing portfolio of $440.0 million. The Company also sold approximately
$100 million of its manufactured home loan portfolio in December 1999 and a
total of approximately $56.1 million of its commercial mortgage loan portfolio
in the nine months ended September 30, 2000 while retaining the servicing
rights.
Gain on sale of loans represents the difference between the proceeds from the
sale of loans and the allocated carrying cost of the loans sold or placed with
outside investors. The gain is also net of required reserves for the potential
loss due to repossession and ultimate charge-off of loans sold with recourse
that are required to be repurchased. For the quarter ended September 30, 2000
Bingham sold or placed with outside investors approximately $78.1 million of
commercial mortgage loans and recorded a gain on loans sold of $157,000. There
were no sales of commercial mortgage loans for the comparable quarter in 1999.
Bingham recorded a gain of $1.3 million on the sale of approximately $114.4
million of manufactured home loans for the current quarter compared to a gain of
$310,000 as an adjustment on the sale of approximately $15.4 million of
manufactured home loans for the comparable quarter ended September 30, 1999.
For the nine months ended September 30, 2000, Bingham sold or placed
approximately $125.5 million of commercial mortgage loans resulting in gains on
loan sales of $342,000 versus sales or placement of $80.0 million of commercial
mortgage loans and gains on loans sales of $1.9 million for the nine months
ended September 30, 1999. The gain on sale of commercial mortgage loans for the
nine month period ending September 30, 1999 included the recovery of
approximately $1.15 million related to the valuation of the
13
<PAGE> 14
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
loan portfolio and related hedge positions. The approximately $114.4 million of
manufactured home loans sold in the third quarter of 2000 were the only
manufactured home loans sold in the current year. For the nine months ended
September 30, 1999 sales of approximately $15.4 million of manufactured home
loans resulted in a gain on sale of $1.0 million.
Bingham has established liabilities for limited recourse provided on
manufactured home loans that have been sold. The investors have no recourse to
Bingham's other assets for failure of debtors to pay when due. Bingham could be
required to repurchase the loan at the current outstanding principal balance
plus any accrued interest. At September 30, 2000, Bingham had recorded
liabilities of approximately $8.1 million related to manufactured home loans
sold with recourse.
Provision for credit losses is recorded in amounts sufficient to maintain an
allowance at a level considered adequate to cover losses from liquidating
manufactured home loans. Provision for credit losses increased to $2.8 million
and $5.4 million, respectively, for the quarter and nine months ended September
30, 2000, compared to $421,000 and $556,000, respectively, for the same periods
in 1999. The large increases are primarily attributable to charge-offs on the
portfolio of loans originated by MHFC. Charge-offs on loans originated by MHFC
totaled $2.1 million and $3.4 million for the quarter and nine months ended
September 30, 2000, respectively. The provision increases are also affected by
the increase in repossessed and non-performing manufactured home loans, which
were $4.4 million at September 30, 2000 versus $3.0 million at September 30,
1999.
As part of the Company's plan to conduct all of its manufactured home loan
origination operations through Dynex Financial, in March 2000, DFI purchased
$66.9 million of loans from MHFC and Bingham sold MHFC to Gwenuc, LLC a limited
liability company owned by Gary A. Shiffman, Chairman of Bingham. Gwenuc paid
Bingham $400,000 in cash and assumed $2.7 million of debt to Dynex Financial.
The Company now conducts all of its manufactured home loan origination
activities through Dynex Financial.
As a result of the plan to sell MHFC, for the nine months ended September 30,
2000 the Company incurred approximately $396,000 in non-recurring costs to shut
down the operations of MHFC. These costs include approximately $322,000 in
salaries and severance pay to terminated employees and $74,000 of general and
administrative costs. The Company also recognized a $400,000 loss on the
ultimate disposition of MHFC' s net assets.
General and administrative and other operating expenses totaled approximately
$6.0 million for the current quarter. This was an increase of approximately 131%
or $3.4 million over general and administrative expenses of $2.6 million in the
comparable quarter in 1999. The largest part of the increase is directly
attributable to personnel costs related to the acquisition of Dynex Financial in
December 1999. The acquisition increased the number of the Company's full-time
employees to 201 and resulted in personnel costs of $4.0 million for the current
quarter as compared to $1.3 million for the quarter ended September 30, 1999, an
increase in personnel costs of 208%. The acquisition also increased the number
of leased office locations for the origination and servicing of manufactured
home loans to six at September 30, 2000 as compared to two at September 30,
1999.
For the nine months ended September 30, 2000 general and administrative and
other operating expenses totaled approximately $17.3 million versus $6.4 million
for the comparable period ended September 30, 1999, an increase of 170%. The
largest part of the increase is directly attributable to the acquisition of
Dynex Financial. Personnel costs for the nine months ended September 30, 2000
were $11.9 million as compared to $3.3 million for the nine months ended
September 30, 1999, an increase of 261%.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity represents the ability to meet financial obligations when due. Bingham
expects to meet its short-term liquidity requirements through working capital
provided by operating activities. Bingham 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, loan participations and possible future periodic
securitizations of its loan portfolio.
14
<PAGE> 15
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
During the nine month period ended September 30, 2000 total borrowings decreased
to $95.7 million from $124.8 million at December 31, 1999. The decrease in total
borrowings resulted primarily from the sale of approximately $114.4 million of
Bingham's manufactured home loan portfolio and approximately $54.7 million of
Bingham's commercial mortgage loan portfolio, the proceeds of which were used to
pay down Bingham's existing lines of credit.
During the nine month period ended September 30, 2000 Bingham increased its
available borrowings under its repurchase facility to a total of $250.0 million.
$200.0 million is allocated for the financing of manufactured home loans and
$50.0 million is allocated for the origination of commercial mortgage loans.
Bingham has also entered into a demand line of credit agreement for the purpose
of funding required principal, interest, taxes and insurance advances on
approximately $994.1 million of manufactured home loans that are serviced for
outside investors. The advances on the facility are required to be paid down by
the fifteenth day of the month following the advance. This facility has an
available borrowing limit of $11 million and an annual interest rate equal to
LIBOR plus a spread.
In the current fiscal year, Bingham has experienced a substantial increase in
capital expenditures associated with the acquisition and integration of Dynex
Financial and the pursuit of a merger with Franklin Bank. The Dynex Financial
acquisition was completed with the objective of increasing and improving
Bingham's ability to originate manufactured home loans. This increased activity
requires a larger capital base for successful long-term operations. The pursuit
of the Franklin Bank merger has as one objective the ability to utilize Franklin
Bank's capital base to support Bingham's increased lending activities.
Bingham's future liquidity and capital requirements depend on numerous factors,
including its ability to sell or securitize loans and the necessity to
repurchase loans under its master repurchase agreement.
The majority of Bingham's loan portfolio is currently financed by advances under
its master repurchase agreement. Under that agreement, commercial mortgage loans
may stay on the facility for up to nine months and manufactured home loans may
stay on the facility for up to ten months. Loans that remain financed on the
facility longer than these time frames are required to be repurchased. Unless
otherwise removed from the repurchase facility, $13.5 million in commercial
mortgage loans and $38.2 million in manufactured home loans will be required to
be repurchased in the next twelve months. Bingham periodically removes the loans
from the repurchase facility with proceeds from either whole loan sales or
securitizations. If Bingham is unable to execute these whole loan sales or
securitizations in the short term, it will be necessary to renegotiate the terms
of the existing repurchase facility, finance the loans on its other lines of
credit up to their available limits or find additional financing sources.
Bingham currently anticipates that its existing lines of credit and available
funds will be sufficient to meet its anticipated needs for working capital and
capital expenditures through the end of 2000, even if it is required to
repurchase loans under the repurchase facility and if it is not able to
renegotiate the terms of that facility. Even if Bingham is able to meet its
short-term capital needs from the sources described above, it may not be able to
meet its long-term capital needs thereafter unless Bingham is able to access
additional capital through a merger or joint venture with another entity that
will supply capital or through the sale of debt and equity securities to
investors.
Additional financing and additional equity or debt capital may not be available
to Bingham on favorable terms, or at all, and Bingham may not be able to
renegotiate its master repurchase agreement. If adequate funds are not available
on acceptable terms, under the repurchase agreement or otherwise, Bingham may
not be able to continue or expand its business operations, which would seriously
harm its business, results of operations and financial condition.
LOANS RECEIVABLE
Net loans receivable decreased $61.8 million from $141.5 million at December 31,
1999 to $79.6 million at September 30, 2000. For the nine months ended September
30, 2000 commercial mortgage loans originated and held for sale were $50.9
million and manufactured home loan originations were $111.6 million. New loan
originations were offset by the securitization and sale of approximately $56.1
million in commercial mortgage loans, loan participations of $10.4 million and
the sale of approximately $114.4 million of manufactured home loans.
15
<PAGE> 16
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
The following table sets forth the average loan balance, weighted average loan
yield and weighted average initial term of the manufactured home and commercial
loan portfolio:
<TABLE>
<CAPTION>
September 30, 2000
-----------------------------------------------------------------------------------------------------------
Manufactured Home Commercial
-----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Principal balance loans receivable, net $ 60,662 $ 18,962
Number of loans.................. 1,520 5
Average loan balance............. $ 40 $ 3,792
Weighted average loan yield...... 11.7% 9.8%
Weighted average remaining term 27.1 years 7.4 years
</TABLE>
Delinquency statistics at September 30, 2000 for the manufactured home loan
portfolio are as follows:
<TABLE>
<CAPTION>
Days delinquent
----------------------------------------------------------
Number of Greater than
Loans 31-60 61-90 90 Total
-------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Manufactured home loans 1,520 2.2% 0.7% 4.5% 7.4%
Manufactured home loans
sold with recourse 3,703 3.3% 1.2% 0.9% 5.4%
----------------------------------------------------------------------------
Total 5,223 3.0% 1.1% 2.0% 6.1%
============================================================================
</TABLE>
<TABLE>
<CAPTION>
Days delinquent
---------------------------------------------------------
Gross Principal Greater than
Balance 31-60 61-90 90 Total
------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Manufactured home loans $ 61,415 2.0% 0.6% 4.3% 6.9%
Manufactured home loans
sold with recourse $ 143,771 3.0% 1.0% 0.8% 4.8%
---------------------------------------------------------------------------
Total $ 205,186 2.7% 0.9% 1.8% 5.4%
===========================================================================
</TABLE>
There were no delinquent commercial mortgage loans at September 30, 2000.
YEAR 2000 READINESS
No disruptions in Bingham's systems, service to customers or operations were
experienced as a result of the year 2000 issue, referring to the date rollover
from December 31, 1999 to January 1, 2000. The year 2000 issue is a result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the computer programs used by Bingham that have
time-sensitive software could have recognized a date using "00" as the year 1900
rather than the year 2000. This could have resulted in system failure or
miscalculations, had management not made the year 2000 preparations disclosed
previously in its filings with the Securities and Exchange Commission. Bingham
expensed all costs associated with its preparations for the year 2000. The total
cost of the year 2000 project since it was begun in 1998 was approximately
$45,000.
16
<PAGE> 17
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; and other risks
identified in the Company's Securities and Exchange Commission filings. In
addition, past financial and operational performance of the Company is not
necessarily indicative of future financial and operational performance.
17
<PAGE> 18
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table shows the expected maturity dates of the Company's 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 negative 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
----------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and equivalents $ 880 $ -- $ -- $ -- $ 880
Restricted cash 2,011 3,087 -- -- 5,098
Loans receivable 3,794 8,587 42,738 24,505 79,624
Servicing rights 314 941 5,021 2,510 8,786
Servicing advances 6,088 1,397 -- -- 7,485
Property and equipment, net 234 702 1,870 -- 2,806
Other assets 7,501 7,990 8,709 4,304 28,504
----------------------------------------------------------------
TOTAL ASSETS $ 20,822 $ 22,704 $ 58,338 $ 31,319 $ 133,183
================================================================
LIABILITIES:
Advances by mortgagors $ 1,522 $ 3,043 $ -- $ -- $ 4,565
Accounts payable and accrued expenses 2,919 2,784 198 -- 5,901
Recourse loan liability 289 868 4,632 2,316 8,105
Deferred revenue 19 55 275 157 506
Advances under repurchase agreements 2,009 5,713 28,609 16,305 52,636
Subordinated debt (18) (53) 3,715 -- 3,644
Notes payable 12,850 3,001 14,938 8,566 39,355
----------------------------------------------------------------
TOTAL LIABILITIES 19,590 15,411 52,367 27,344 114,712
----------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock -- -- -- 27,485 27,485
Paid-in-capital -- -- -- 706 706
Accumulated other comprehensive loss -- -- (186) -- (186)
Unearned stock compensation (59) (176) (746) (198) (1,179)
Retained deficit -- -- -- (8,355) (8,355)
----------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,531 $ 15,235 $ 51,435 $ 46,982 $ 133,183
================================================================
Reprice difference $ 1,291 $ 7,469 $ 6,903 $ (15,663)
Cumulative gap $ 1,291 $ 8,760 $ 15,663 $ --
Percent of total assets 0.97% 6.58% 11.76% --
</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 2000. 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.
18
<PAGE> 19
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
The Company also currently manages interest rate risk through the use of forward
interest rate swaps to hedge a portion of the fixed rate loans in both the
commercial loan and manufactured home loan portfolios. Bingham uses these
instruments in an attempt to reduce risk by essentially creating offsetting
market exposures.
A forward interest rate swap is an obligation to enter into a swap or cash
settlement on a future date for the difference between the market rate on that
date and an agreed upon swap rate. This transaction is similar to a Treasury
rate lock in that it allows Bingham to lock in a rate starting in the future.
The difference is that Bingham will be locking in a future swap rate, not a
forward treasury yield. A forward interest rate swap allows the positive or
negative effect of a change in the value of the underlying loans to be offset by
the positive or negative payment on the settlement of the hedging transaction.
If interest rates rise the value of the loan portfolio will have decreased but
the decrease will be offset by an increase in the value of the hedge equal to
approximately the present value of decrease in value of the hedged loan
portfolio. If interest rates were declining the reverse would hold true; the
value of the loan portfolio will increase and be offset by a decrease in the
value of the swap approximately equal to the present value of the hedged loan
portfolio increase.
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 September 30, 2000.
<TABLE>
<CAPTION>
Contractual Maturity
--------------------------------------------------------------------------------
(Dollars in thousands)
Total
2000 2001 2002 2003 2004 Thereafter Fair Value
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Loans receivable $ 8,506 $ 7,675 $ 6,685 $ 7,543 $ 7,658 $ 42,601 $ 80,648
Average interest rate 10.16% 10.19% 10.25% 10.25% 10.06% 10.26% 10.16%
Interest bearing deposits 5,121 -- -- -- -- -- 5,121
Average interest rates 4.44% -- -- -- -- -- 4.44%
Interest Rate Swaps -- -- -- -- -- 33,650 33,650
Average interest rate -- -- -- -- -- 7.26% 7.26%
--------------------------------------------------------------------------------
Total interest sensitive assets $ 13,627 $ 7,675 $ 6,685 $ 7,543 $ 7,658 $ 76,251 $119,439
================================================================================
Interest sensitive liabilities:
Borrowings:
Advances under repurchase agreements $ 39,490 $ 13,164 $ -- $ -- $ -- $ -- $ 52,654
Average interest rate 9.90% 9.90% -- -- -- -- 9.90%
Subordinated debt -- -- -- -- -- 3,644 3,644
Average interest rate -- -- -- -- -- 11.68% 11.68%
Note payable 7,770 3,409 2,969 3,350 3,401 18,456 39,355
Average interest rate 8.97% 8.97% 8.97% 8.97% 8.97% 8.97% 8.97%
--------------------------------------------------------------------------------
Total interest sensitive liabilities $ 47,260 $ 16,573 $ 2,969 $ 3,350 $ 3,401 $ 22,100 $ 95,653
================================================================================
</TABLE>
19
<PAGE> 20
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
20
<PAGE> 21
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: November 13, 2000
BINGHAM FINANCIAL SERVICES CORPORATION
By: /s/ Ronald A. Klein
---------------------------------------------
Ronald A. Klein, Chief Executive Officer
21
<PAGE> 22
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
