<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, 2000.
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) 644-8838
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:
2,643,074 shares of Common Stock, no par value as of April 30, 2000
Page 1 of 21
<PAGE> 2
BINGHAM FINANCIAL SERVICES CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I PAGES
- ------ -----
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 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 11-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16-18
PART II
Item 1 Legal Proceedings 19
Item 6 (a) Exhibits Required by Item 601 of Regulation S-K 19
Signatures 20
Exhibit Index 21
</TABLE>
2
<PAGE> 3
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31 2000 and December 31, 1999
----------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
----------- -----------
(In thousands, except share data)
<S> <C> <C>
Cash and equivalents $ 1,669 $ --
Restricted cash 5,432 4,275
Loans receivable 178,311 141,453
Servicing rights 8,713 9,736
Servicing advances 7,419 --
Property and equipment, net 2,965 3,029
Other assets 11,967 10,006
--------- ---------
Total assets $ 216,476 $ 168,499
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Advances by mortgagors $ 5,354 $ 4,228
Accounts payable and accrued expenses 4,398 11,810
Deferred revenue 2,698 1,398
Advances under repurchase agreements 129,269 80,469
Subordinated debt, net of debt discount
of $394 and $414, respectively 3,606 3,586
Note payable 47,376 40,747
--------- ---------
Total liabilities 192,701 142,238
--------- ---------
Minority Interest 51 122
--------- ---------
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; 2,649,859 and 2,539,716 shares
issued and outstanding at March 31, 2000 and
December 31, 1999, respectively 27,635 26,799
Paid-in capital 662 641
Accumulated other comprehensive loss (185) (106)
Unearned stock compensation (1,400) (1,102)
Retained deficit (2,990) (93)
--------- ---------
Total stockholders equity 23,724 26,139
--------- ---------
Total liabilities and stockholders' equity $ 216,476 $ 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 ENDED MARCH 31, 2000 AND 1999
----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
REVENUES 2000 1999
--------------------------------------
(In thousands except Share data)
<S> <C> <C>
Interest income on loans $ 4,118 $ 2,617
Mortgage origination and servicing fees 2,100 201
Gain on sale of loans 30 1,424
Other income 327 46
--------------------------------------
Total revenues 6,575 4,288
--------------------------------------
COSTS AND EXPENSES
Interest expense 3,538 1,841
Provision for credit losses 1,200 63
General and administrative 4,168 899
Restructuring costs 796 -
Other operating expenses 1,226 737
--------------------------------------
Total costs and expenses 10,928 3,540
--------------------------------------
Income (loss) before income tax expense (4,353) 748
Federal income tax expense (1,456) 268
---------------- ---------------
Net Income (loss) $ (2,897) $ 480
================ ===============
Weighted average common shares outstanding,
Basic 2,581,501 1,576,818
================ ===============
Diluted 2,581,501 1,862,578
================ ===============
Earnings (loss) per share
Basic $ (1.12) $ .30
================ ===============
Diluted $ (1.12) $ .26
================ ===============
</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 THREE MONTHS ENDED MARCH 31, 2000 AND 1999
----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net cash provided (used) by operating activities $ (53,626) $(19,468)
--------- --------
Cash flows from investing activities:
Capital expenditures (153) (87)
--------- --------
Net cash used in investing activities (153) (87)
--------- --------
Cash flows from financing activities:
Advances under repurchase agreements 53,174 9,697
Repayment of advances under repurchase agreements (4,374) (7,271)
Advances on note payable 61,171 27,968
Repayment of note payable (54,523) (11,868)
--------- --------
Net cash provided by financing activities 55,448 18,526
--------- --------
Net change in cash and cash equivalents 1,669 (1,029)
Cash and cash equivalents, beginning of period
-- 1,029
--------- --------
Cash and cash equivalents, end of period $ 1,669 $ --
========= ========
</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 per share are computed by dividing net income available to
common shareholders by the weighted average common shares outstanding. At
March 31, 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 March 31, 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 income (loss) per share calculation:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------
2000 1999
---------------------------------------------------------------
(In thousands, except earnings per share)
Earnings Earnings (loss)
Shares per share Shares per share
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic earnings (loss) per share 2,582 $ (1.12) 1,577 $ 0.30
Net dilutive effect of:
Options - - 21 (0.01)
Warrants - - 148 (0.03)
---------------------------------------------------------------
Diluted earnings (loss) per share 2,582 $ (1.12) 1,746 $ 0.26
===============================================================
</TABLE>
3. OTHER COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 ("SFAS 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.
6
<PAGE> 7
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
--------- --------
(In thousands)
<S> <C> <C>
Net loss ($2,897) -
Other comprehensive income net of tax:
Unrealized loss on securities:
Unrealized holding loss during period (78) -
-------- --------
Comprehensive loss $ (2,975) -
======== ========
</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 allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
---------------------
(In thousands)
<S> <C> <C>
Balance at beginning of period $ 274 $ 248
Provision for loan losses 1,200 63
Net losses (679) (27)
----------------------
Balance at end of period $ 795 $ 284
======================
</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. There were no charges
against that liability in the current quarter and the balance of that
liability was approximately $375,000 at March 31, 2000.
5. DEBT:
At the time of its initial public offering the Company entered into a
subordinated loan agreement. that currently provides for a subordinated debt
facility, which consists of a $4 million term loan, a $50 million demand line
of credit and a $10 million demand line of credit which indebtedness shall be
subordinated to all senior debt of the Company. The $4 million term loan has
an annual interest rate of 9.75% and the demand line of credit has an annual
interest rate equal to the one month "LIBOR" rate plus a spread. In
accordance with the subordinated loan agreement the Company issued detachable
warrants covering 400,000 shares of common stock at a 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
----------
In March 1998 the Company's commercial mortgage originating subsidiary
entered into a one-year master repurchase agreement with a lender to finance
fixed rate commercial loans secured by real estate. In September of 1998 that
agreement was amended to include financing of manufactured home, floor plan
and bridge loans. The terms of the repurchase agreement have been renewed
annually and at March 31, 2000 the available financing amount under the
agreement was $250 million and Dynex Financial, Inc. was added as a party
to the agreement. 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. The repurchase transactions are for 30 days. The commercial
mortgage loan transactions may be rolled over for up to nine months. The
manufactured home loan transactions may be rolled over for 90-180 days at
which point if the loans are still financed under the facility the advance
rate is reduced.
In March 2000 the Company has entered into a demand line of credit agreement
for the purpose of funding required principal, interest, taxes and insurance
advances on manufactured home loans that are serviced for outside investors.
The available borrowing limit under this facility is $10 million and the
facility has an annual interest rate equal to LIBOR plus a spread.
At March 31, 2000 and December 31, 1999 debt outstanding was as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------------------
2000 1999
--------------------------
(In thousands)
<S> <C> <C>
Loans sold under repurchase $129,269 $ 80,469
Demand line of credit 41,706 40,747
Servicing advance line of credit 6,300 --
Term loan, net of discount 3,606 3,586
-------------------------
$180,881 $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 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.
The following table identifies the gross unrealized gains/losses of the interest
rate swaps and Treasury rate locks as of March 31, 2000 and December 31, 1999:
8
<PAGE> 9
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
-----------------------------------------
2000 1999
-----------------------------------------
GROSS GROSS
GROSS GROSS
TYPE REFERENCE RATE UNREALIZED GAIN UNREALIZED GAIN
-----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest Rate Swap 5 Year Swap $ 769 --
Interest Rate Swap 10 Year Swap -- $ 609
</TABLE>
7. ACQUISITIONS:
In December 1999, the Company completed the acquisition of Dynex Financial,
Inc. (DFI) from Dynex Holding, Inc. (DHI), a subsidiary of Dynex Capital, Inc
(DCI). The Company acquired certain manufactured home loans from DFI all of
the issued and outstanding stock of DFI 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. DFI specializes
in lending to buyers of manufactured homes and has regional and district
offices in nine states. In addition DFI provides servicing for manufactured
home and land/home loans.
The DFI 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 the
Company has 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 has 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 DFI acquisition, the Company recognized accrued
liabilities of $5.0 million related to its plans to close certain of DFI's
regional and district offices and terminate or relocate certain of its
employees. For the quarter ended March 31, 2000 there were approximately $1.2
million of costs paid related to these liabilities, $880,000 for severance
payments and personnel costs and $348,000 in costs connected with closed
locations incurred subsequent to the cessation of operations.
As of the quarter ended March 31 the Company has 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 the assets acquired. The
Company has recognized this increase as an adjustment to the amount
previously allocated to purchased loan servicing rights. The Company
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.
9
<PAGE> 10
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
The following table summarizes pro forma unaudited results of operations for
the acquisition completed during 1999 as if it had occurred at the beginning
of each year presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1999
---------------------------------------------------------------------------
(In thousands)
<S> <C>
Revenues $ 9,877
Income before income taxes $ 1,487
Net Income 968
Basic earnings per share $ 0.61
Diluted earnings per share $ 0.52
</TABLE>
8. MHFC, Inc. Restructuring and Sale:
Effective January 15, 2000, the Company committed to an exit plan for MHFC,
Inc.'s manufacturing home loan origination operations as part of the
Company's plan to conduct all of its manufactured home loan origination
operations through DFI. The exit plan involves termination of MHFC, Inc.
employees, sale of substantially all MHFC, Inc. portfolio loans to DFI and
sale of MHFC, Inc. The Company has 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, Inc. As of March 31, 2000
substantially all of the exit costs accrued, including $186,000 for
involuntary termination benefits, have been incurred and paid. In March 2000
DFI purchased $66.9 million of loans from MHFC, Inc., a subsidiary of Bingham
specializing in manufactured home lending 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 DFI. The cash portion of the purchase price may be adjusted upward or
downward pursuant to a fairness opinion as to the fair market value of MHFC
to be rendered by a third party appraiser.
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 period presented are not necessarily indicative of
results which may be expected for the entire year.
RESULTS OF OPERATIONS
The Company reported a net loss of $2.9 million for the quarter ended March 31,
1999 compared to net income of $480,000 for the quarter ended March 31, 1998.
The loss for the current quarter was due primarily to the significant increase
in personnel and general and administrative costs associated with the
acquisition of Dynex Financial, Inc. ("DFI") in December 1999. For the current
quarter the Company also incurred approximately $796,000 in nonrecurring costs
related to the shutdown and sale of MHFC, its previous manufactured home loan
origination subsidiary. Also, during the quarter ended March 31, 2000 the
Company did not sell any portion of its manufactured home loan portfolios. In
the comparable period ended March 31, 1999 the Company recognized a gain on sale
of loans of $1.4 million. The gain included a recovery of $1.2 million related
to the valuation of the loan portfolio and related hedge positions.
Interest income on loans increased to $4.1 million for the period ended March
31, 2000, or approximately 57.7% over interest income of $2.6 million in the
comparable period in 1999. The increase is primarily due to an increase in
the average outstanding loan receivable balance of $163.9 million for the
three months ended March 31, 2000 versus $122.8 million for the three months
ended March 31, 1999, an increase of 33.5%. The increase in interest income
was also the result of an increase in the average yield on the loan
receivable portfolio of 10.1% for the period in 2000 versus 8.5% in 1999.
This was due to a larger percentage of the loan portfolio consisting of
higher yielding manufactured home loans versus lower yielding commercial
mortgage loans.
Interest expense for the three months ended March 31, 2000 was $3.5 million
compared to $1.8 million for the comparable period ended March 31, 1999, an
increase of 94%. The increase in interest expense 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
$159.2 million for the period ended March 31, 2000 versus $117.9 million in
the comparable period in 1999, an increase of 35%. The average borrowing rate
also increased to 8.9% for the quarter ended March 31, 2000 compared to 6.3%
for the quarter ended March 31, 1999.
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.
11
<PAGE> 12
BINGHAM FINANCIAL SERVICES CORPORATION
----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
----------------------------------------------------------------------------------------------
AVERAGE BALANCE AVERAGE RATE INTEREST INCREASE VARIANCE DUE TO:
---------------------------------------------------------------
2000 1999 2000 1999 2000 1999 (DECREASE) VOLUME RATE
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest-earning assets:
Loans $ 163,955 $ 122,872 10.05% 8.52% $ 4,118 $ 2,617 $ 1,501 875 626
Cash and equivalents 5,759 4,367 3.56% 3.32% 73 36 37 12 25
----------------------------------------------------------------------------------------------
169,714 127,239 9.88% 8.34% 4,191 2,653 1,538 887 651
----------------------------------------------------------------------------------------------
Interest-bearing Liabilities
Term loan 4,000 4,000 11.68% 11.68% 117 117 -- -- --
Revolving line of credit 42,500 21,014 8.32% 6.54% 920 344 576 351 225
Loans sold under repurchase 112,691 92,878 8.48% 5.95% 2,501 1,381 1,120 295 825
----------------------------------------------------------------------------------------------
159,191 117,892 8.89% 6.25% 3,538 1,842 1,696 646 1,050
----------------------------------------------------------------------------------------------
Interest rate spread 0.99% 2.09%
Excess average earning assets 10,523 9,347 9.88% 8.34%
==========================================
Net interest margin 1.54% 2.55% $ 653 $ 811 $ (158) $ 241 (399)
======================================================================
</TABLE>
Mortgage origination fees earned on commercial mortgage loans originated and
placed with outside investors increased 49.2% to $191,000 for the three
months ended March 31, 2000 versus $128,000 for the comparable three month
period in 1999. This is a result of an increase in the amount of commercial
loans originated and placed with outside investors of $21.1 million for the
current quarter ended from $12.1 million for the same period in 1999.
Servicing fees collected for the period ended March 31, 2000 increased to
$1.9 million from $73,000 in the same period in 1999. This was primarily the
result of an increase in the average principal balance of manufactured home
loans serviced for others of approximately $1.1 billion and an increase in
the average principal of commercial mortgage loans serviced for outside
investors of approximately $450 million. The increases were primarily the
result of the acquisitions of DFI in December 1999, which had a servicing
portfolio balance of $980 million and Hartger & Willard Mortgage
Associates, Inc., an originator and servicer of commercial mortgage loans, in
June 1999 which had a servicing portfolio of $440 million. The Company also
sold approximately $100 million of its manufactured home loan portfolio in
December 1999 and retained 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. 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. There were no significant sales of loans held in either the
Company's manufactured home loan or commercial mortgage loan portfolios in
the quarter ended March 31, 2000. In the three month period ended March 31,
1999 the Company sold approximately $5.4 million of its manufactured home
loan portfolio recognizing gain on sale of loans of $274,000.
12
<PAGE> 13
BINGHAM FINANCIAL SERVICES CORPORATION
----------
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 and loans sold with recourse. Provision for credit
losses increased to $1.2 million for the period ended March 31, 2000 compared
to $63,000 for the same period in 1999. The large increase is primarily
related to a 208% increase in average outstanding principal balance of
manufactured home loans which was $87.9 million for the period ended March
31, 2000 as compared to $28.6 million for the period ended March 31, 1999.
The provision increase is also affected by the increase in non-performing
manufactured home loans, which were 1.46% of the manufactured home loan
outstanding principal balance at March 31, 2000 versus .32% of the
outstanding principal balance for the comparable period in 1999.
General and administrative and other operating expenses totaled approximately
$6.2 million for the current quarter. This was an increase of $4.6 million
over general and administrative expenses in the comparable quarter in 1999 of
$1.6 million. The largest part of the increase is directly attributable to
personnel costs related to the acquisition of DFI. The acquisition increased
the number full time employees to 214 and personnel costs of $3.8 million for
the current quarter as compared to 52 full time employees and $971,000 for
the quarter ended March 31,1999, an increase in personnel costs of 291%. The
acquisition also increased the number of leased locations for the origination
and servicing of manufactured home loans to six at March 31, 2000 as compared
to one at March 31, 1999.
As part of the Company's plan to conduct all of its manufactured home loan
origination operations through DFI, in March 2000 DFI purchased $66.9 million
of loans from MHFC, Inc. a subsidiary of Bingham specializing in manufactured
home lending 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 DFI. The cash portion of the
purchase price may be adjusted upward or downward pursuant to a fairness
opinion as to the fair market value of MHFC to be rendered by a third party
appraiser. The Company now conducts all of its manufactured home loan
origination activities through DFI.
As a result of the plan to sell MHFC, for the quarter ended March 31, 2000
the Company incurred approximately $396,000 in non-recurring costs to
shutdown 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.
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.
During the three-month period ended March 31,2000 total borrowings increased
to $180.2 from $124.8 million at December 31, 1999. The increased borrowings
were primarily for the funding of new loan originations and operations.
During the period ended March 31, 2000 the Company increased its available
borrowings under its repurchase facility to a total of $250 million. $200
million of the facility is allocated for the financing of manufactured home
loans and $50 million is allocated for the origination of commercial
13
<PAGE> 14
BINGHAM FINANCIAL SERVICES CORPORATION
----------
mortgage loans.
The Company has also entered into a demand line of credit agreement for the
purpose of funding required principal, interest, taxes and insurance advances
on manufactured home loans that are serviced for outside investors. The
available borrowing limit under this facility is $10 million and has an
annual interest rate equal to LIBOR plus a spread.
LOANS RECEIVABLE
Net loans receivable increased $38.8 million from $141.5 million at December
31, 1999 to $180.3 million at March 31, 2000. Commercial mortgage loans
originated and held for sale were $17.3 million and manufactured home loan
originations were $35.1 million for the three months ended March 31, 2000.
New loan originations were offset by the sale of approximately $3.7 million
of manufactured home loans sold in the sale of MHFC.
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>
March 31, 2000
-----------------------------------------------
Manufactured Home Commercial
--------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Principal balance loans receivable, net $106,319 $ 69,822
Number of loans................................ 2,569 31
Average loan balance........................... $ 40 $ 2,237
Weighted average loan yield.................... 11% 8.51%
Weighted average initial term.................. 25 years 10 years
</TABLE>
Delinquency statistics at March 31, 2000 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 2,569 2.7% 1.3% 2.5% 6.5%
Manufactured home loans
sold with recourse 1,257 2.2% 0.9% 0.3% 3.4%
----------------------------------------------------------------------
3,826 2.6% 1.2% 1.8% 5.6%
======================================================================
<CAPTION>
Gross Principal Greater
Balance 31-60 61-90 than 90 Total
--------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Manufactured home loans $107,903 2.3% 1.0% 2.0% 5.3%
Manufactured home loans
sold with recourse 40,032 2.4% 1.0% 0.3% 3.7%
----------------------------------------------------------------------
$147,935 2.3% 1.0% 1.6% 4.9%
======================================================================
</TABLE>
There were no delinquent commercial mortgage loans at March 31, 2000.
14
<PAGE> 15
BINGHAM FINANCIAL SERVICES CORPORATION
----------
YEAR 2000 READINESS
Some computers, software, and other equipment include a programming code in
which calendar year data was abbreviated to only two digits. As a result of
this design decision, some of these systems could have failed to operate or
failed to produce correct results if "00" was 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.
Phase I of the Company's year 2000 project was completed prior to December
31, 1999. 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 Company's management information systems 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 were corrected. There were no systems that required complete
replacement. All non-compliant hardware had been replaced. Any new systems or
hardware to be acquired are verified to be year 2000 compliant. Phase II also
included testing of updated systems and hardware for compliance. This portion
of the project was completed prior to December 31, 1999.
The Company continues to obtain statements of compliance from its external
vendors and business relationships to verify that they are year 2000
compliant. 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 incurred totaled approximately $45,000. The
majority of the cost was incurred for MIS personnel expense required for
identifying, testing and, where necessary, updating critical systems. The
cost also included the replacement of some non-compliant hardware. The
Company estimates the total costs of the year 2000 project will not be
material to its financial position or results of operations.
The Company has experienced no significant problems related to the year 2000
issue but continues to monitor both its internal systems and external vendors
to attempt to prevent any future potential problems that may occur.
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, 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 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
- --------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and equivalents $ 1,669 $ - $ - $ - $ 1,669
Restricted cash 1,350 4,082 - - 5,432
Loans receivable 6,823 19,418 96,658 55,412 178,311
Servicing rights 510 1,406 5,380 1,417 8,713
Servicing advances 6,580 839 - - 7,419
Other assets 2,894 5,472 4,318 1,848 14,532
-------------------------------------------------------------
TOTAL ASSETS $19,826 $ 31,217 $106,356 $ 58,677 $216,076
=============================================================
Liabilities:
Advances by mortgagors $ 1,339 $ 4,015 $ - $ - $ 5,354
Accounts payable and accrued expenses 796 2,179 1,824 - 4,799
Deferred revenue 65 206 1,904 523 2,698
Advances under repurchase agreement 1,945 12,798 73,336 41,190 129,269
Subordinated debt (19) (57) 3,682 - 3,606
Notes Payable 18,144 29,232 - - 47,376
Other liabilities 26 25 - - 51
-------------------------------------------------------------
TOTAL LIABILITIES 22,296 48,398 80,746 41,713 193,153
-------------------------------------------------------------
Stockholders' Equity
Common stock - - - 27,635 27,635
Paid-in-capital - - - (137) (137)
Accumulated other comprehensive loss - - (185) - (185)
Unearned stock compensation (70) (210) (885) (235) (1,400)
Retained deficit - - - (2,990) (2,990)
-------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $22,226 $ 48,188 $ 79,676 $ 65,986 $216,076
=============================================================
Reprice difference $(2,400) $(16,971) $ 26,680 $ (7,309)
Cumulative gap $(2,400) $(19,371) $ 7,309 $ -
Percent of total assets (-1.11%) (-8.96%) 3.38% -
</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
16
<PAGE> 17
BINGHAM FINANCIAL SERVICES CORPORATION
----------
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.
The Company also currently manages interest rate risk through the use of
Treasury security rate locks and forward interest rate swaps to hedge a
portion of the fixed rate loans in the commercial loan portfolio. The Company
uses these instruments in an attempt to reduce risk by essentially creating
offsetting market exposures.
To effect a Treasury rate lock the Company has entered into an agreement with
a counter-party whereby a "locked in" Treasury rate is established, usually
the yield to maturity rate on an U.S. Treasury security. If the current yield
to maturity is greater than the locked in yield to maturity, a situation that
would indicate rising interest rates, the rate lock will have increased in
value and the Company will have an unrealized gain. The unrealized gain will
help offset the decrease in value of the fixed rate loans caused by rising
interest rates. In a declining interest rate environment the current yield to
maturity on the treasury security would be less than the locked in rate
creating an unrealized loss on the hedge position. The declining interest
rate environment should increase the value of the loans thereby off-setting
the loss on the hedge.
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 you to lock in a rate starting in the
future. The difference is that you will be locking in a future swap rate, not
a forward treasury yields. 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 March 31, 2000.
17
<PAGE> 18
BINGHAM FINANCIAL SERVICES CORPORATION
----------
<TABLE>
<CAPTION>
CONTRACTUAL MATURITY
--------------------------------------------------------------------------------------
TOTAL
2000 2001 2002 2003 2004 THEREAFTER FAIR VALUE
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest sensitive assets:
Loans receivable $ 22,195 $ 23,268 $ 19,267 $ 12,176 $ 16,390 $ 85,246 $178,542
Average interest rate 9.84% 9.66% 10.33% 11.29% 10.90% 9.80% 10.04%
Interest bearing deposits 5,759 - - - - - 5,759
Average interest rates 3.56% - - - - - 3.56%
Interest Rate Swaps - - - - - 35,787 35,787
Average interest rate - - - - - 7.30% 7.30%
======================================================================================
Total interest sensitive assets $ 27,954 $ 23,268 $ 19,267 $ 12,176 $ 16,390 $121,033 $220,088
======================================================================================
Interest sensitive liabilities:
Borrowings:
Advances under repurchase agreements $ 16,070 $ 16,847 $ 13,950 $ 8,816 $ 11,867 $ 61,720 $129,269
Average interest rate 8.48% 8.48% 8.48% 8.48% 8.48% 8.48% 8.48%
Subordinated debt
- - - - - 3,606 3,606
Average interest rate - - - - - 11.68% 11.68%
Note payable
11,406 5,353 4,433 2,801 3,771 19,612 47,376
Average interest rate 8.32% 8.32% 8.32% 8.32% 8.32% 8.32% 8.32%
======================================================================================
Total interest sensitive liabilities $ 27,476 $ 22,200 $ 18,382 $ 11,617 $ 15,638 $ 84,938 $180,251
======================================================================================
</TABLE>
18
<PAGE> 19
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 (Filed herewith)
ITEM 6.(B) - REPORTS ON FORM 8-K
None.
19
<PAGE> 20
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 12, 2000
BINGHAM FINANCIAL SERVICES CORPORATION
By: /s/ Ronald A. Klein
----------------------------------------------
Ronald A. Klein, Chief Executive Officer
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
FILED NUMBER
EXHIBIT NO. DESCRIPTION HEREWITH HEREIN
- ----------- ----------- -------- ------
<S> <C> <C> <C>
27 Financial Data Schedule X X
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 178,311
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,965
<DEPRECIATION> 0
<TOTAL-ASSETS> 216,476
<CURRENT-LIABILITIES> 193,102
<BONDS> 0
0
0
<COMMON> 27,635
<OTHER-SE> (4,261)
<TOTAL-LIABILITY-AND-EQUITY> 216,476
<SALES> 0
<TOTAL-REVENUES> 6,575
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,190
<LOSS-PROVISION> 1,200
<INTEREST-EXPENSE> 3,538
<INCOME-PRETAX> (4,353)
<INCOME-TAX> (1,450)
<INCOME-CONTINUING> (2,897)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,897)
<EPS-BASIC> (1.12)
<EPS-DILUTED> (1.12)
</TABLE>
