<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------- --------
Commission File No. 0-23381
BINGHAM FINANCIAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF MICHIGAN 38-3313951
State of Incorporation I.R.S. Employer I.D. No.
260 EAST BROWN STREET
SUITE 200
BIRMINGHAM, MICHIGAN 48009
(248) 644-5470
(Address of principal executive offices and telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
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. [X] Yes [ ] No
<PAGE> 2
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of August 30, 2000, the aggregate market value of the Registrant's
voting stock held by non-affiliates of the Registrant was approximately
$4,937,636, determined in accordance with the highest price at which the stock
was sold on such date as reported by the Nasdaq SmallCap Market.
As of August 30, 2000, there were 2,639,681 shares of the Registrant's
common stock issued and outstanding.
2
<PAGE> 3
Explanatory note: This Form 10-K/A is being filed solely to correct an
inadvertent typographical error in the "Net cash provided (used) by operating
activities" line item on Bingham's Consolidated Statement of Cash Flows set
forth in Item 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BINGHAM FINANCIAL SERVICES CORPORATION
FINANCIAL STATEMENTS FURNISHED PURSUANT TO
THE REQUIREMENTS OF FORM 10-K
AND
REPORTS OF INDEPENDENT ACCOUNTANTS
FOR THE YEARS AND PERIOD ENDED SEPTEMBER 30, 1999, 1998 AND 1997
3
<PAGE> 4
BINGHAM FINANCIAL SERVICES CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Accountants..........................................................5
Financial Statements:
Consolidated Balance Sheets - September 30, 1999 and 1998...................................7
Consolidated Income Statements for the years and period ended
September 30, 1999, 1998 and 1997..................................................8
Consolidated Statements of Changes in Stockholders' Equity for the
years and period ended September 30, 1999, 1998 and 1997...........................9
Consolidated Statements of Cashflows for the years and period ended
September 30, 1999, 1998 and 1997..................................................10
Notes to Consolidated Financial Statements..................................................11
</TABLE>
4
<PAGE> 5
Independent Auditor's Report
To the Board of Directors
Bingham Financial Services Corporation
We have audited the accompanying consolidated balance sheet of Bingham Financial
Services Corporation as of September 30, 1999 and the related consolidated
statements of changes in stockholders' equity, income and cash flows for the
year ended September 30, 1999. These consolidated financial statements are the
responsibility of the corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Bingham
Financial Services Corporation as of September 30, 1999 and the consolidated
results of their operations and their cash flows for the year ended September
30, 1999, in conformity with generally accepted accounting principles.
Plante & Moran, LLP
Southfield, Michigan
December 22, 1999
5
<PAGE> 6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Bingham Financial Services Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and changes in stockholders' equity and of
cash flows, as included in 1999 Form 10K present fairly, in all material
respects, the financial position of Bingham Financial Services Corporation and
its subsidiaries at September 30, 1998 and the results of their operations and
their cash flows for the year ended September 30, 1998 and for the period from
January 2, 1997 (date of inception) through September 30, 1997, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Detroit, Michigan
December 18, 1998
6
<PAGE> 7
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------
ASSETS 1999 1998
---------------------------------------------------------
<S> <C> <C>
Cash and equivalents $ 730 $ 1,979
Restricted cash 3,901 2,253
Loans receivable 117,887 86,075
Servicing rights 2,120 156
Property and equipment, net 1,100 655
Other assets 6,960 3,741
-------------- ---------------
Total assets $ 132,698 $ 94,859
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Advances by mortgagors $ 3,882 $ 2,238
Accounts payable and accrued expenses 1,474 636
Advances under repurchase agreements 69,026 56,892
Subordinated debt, net of debt discount of $433 3,567 3,490
Note payable 28,477 17,848
-------------- ---------------
Total liabilities 106,426 81,104
-------------- ---------------
Minority Interest
204 298
-------------- ---------------
Stockholders' equity
Preferred stock, no par value, 10,000,000 shares
Authorized; no shares issued and outstanding
- -
Common Stock, no par value, 10,000,000 shares
Authorized; 2,528,473 and 1,576,818 shares issued
and outstanding at 1999 and 1998, respectively 26,696 13,608
Paid-in capital 619 533
Accumulated other comprehensive loss (304) -
Unearned stock compensation (1,035) -
Retained earnings (deficit) 92 (684)
-------------- ---------------
Total stockholders equity 26,068 13,457
-------------- ---------------
Total liabilities and stockholders' equity $ 132,698 $ 94,859
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS AND PERIOD ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED JANUARY 2 TO
SEPTEMBER 30, SEPTEMBER 30,
REVENUES 1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Interest income on loans $ 9,477 $ 3,296 $ 280
Mortgage origination and servicing fees 2,069 1,361 -
Gain on sale of loans 4,399 738 -
Sale of servicing rights - 618 -
Other income 332 128 -
----------------------------------------------------
Total revenues 16,277 6,141 280
----------------------------------------------------
COSTS AND EXPENSES
Interest expense 6,856 1,933 195
Provision for credit losses 653 147 58
Provision for unrealized hedge loss - 2,400 -
General and administrative 5,215 1,250 -
Other operating expenses 2,336 1,204 137
----------------------------------------------------
Total costs and expenses 15,060 6,934 390
----------------------------------------------------
Income (loss) before income tax expense (benefit) 1,217 (793) (110)
Federal income tax expense (benefit) 441 (219) -
----------------------------------------------------
Net income (loss) $ 776 $ (574) $ (110)
====================================================
Weighted average common shares outstanding 1,966,288 1,261,031
===============================
Weighted average common shares outstanding,
Diluted 2,145,939
============
Earnings (loss) per share:
Basic $ 0.39 $ (0.46)
================================
Diluted $ 0.36 $ (0.46)
================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 9
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS AND PERIOD ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER UNEARNED RETAINED TOTAL
COMMON PAID-IN COMPREHENSIVE STOCK EARNINGS STOCKHOLDER'S
STOCK CAPITAL LOSS COMPENSATION (DEFICIT) EQUITY
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 2, 1997 $ - $ - $ - $ $ - $ -
Issuance of 100 shares
of common stock
Comprehensive loss:
Net loss (110) (110)
------------------------------------------------------------------------------------------
Balance, October 1, 1997 - - - (110) (110)
Issuance of 1,295,000 shares
of common stock 11,583 11,583
Issuance of 281,818 shares of
common stock in conjunction
with acquisition 2,025 (119) 1,906
Issuance of 400,000 warrants
with subordinated debt 577 577
Option amortization 75 75
Comprehensive loss:
Net loss (574) (574)
------------------------------------------------------------------------------------------
Balance, September 30, 1998 13,608 533 - (684) 13,457
Issuance of 867,001 shares
of common stock 11,968 11,968
Issuance of 84,658 restricted
stock awards 1,120 - - (1,120) - -
Restricted stock award amortization - 85 85
Option amortization 86 86
Net income 776 776
Comprehensive income:
Unrealized loss on securities
available for sale, net of tax (304) (304)
-----------------
Total comprehensive income 472
------------------------------------------------------------------------------------------
Balance, September 30, 1999 $ 26,696 $ 619 $ (304) $ (1,035) $ 92 $ 26,068
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 10
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS AND PERIOD ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED JANUARY 2 TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
---------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 776 $ (574) $ (110)
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for unrealized hedge (gain) loss (2,400) 2,400
Provision for credit losses 653 147 58
Depreciation and amortization 1,135 516 18
Originations of loans held for sale (144,344) (92,806) (9,844)
Principal collections on loans held for sale 3,256 2,191 244
Proceeds from sale of loans held for sale 113,494 12,513
Gain on sale of investment securities (3) (13) -
Gain on sale of loans (1,999) (738) -
Increase in other assets (5,320) (2,386) (129)
Increase in other liabilities 3,860 115 210
-------------------------------------------------
Net cash used by operating
activities (30,892) (78,635) (9,553)
-------------------------------------------------
Cash flows from investing activities:
Purchase of Hartger & Willard (1,900) - -
Purchase of investment securities (1,529) - -
Proceeds from the sale of investment securities 369 71 -
Capital expenditures (486) (27) -
-------------------------------------------------
Net cash used in investing activities (3,545) 44 -
-------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 11,968 11,582 -
Issuance of subordinated debt, including discount - 4,000 -
Advances under repurchase agreements 98,990 56,892 -
Repayment of advances under repurchase agreements (86,855)
Advances on note payable 109,164 30,117 9,553
Repayment of note payable (100,079) (22,021) -
-------------------------------------------------
Net cash provided by financing activities 33,188 80,570 9,553
-------------------------------------------------
Net change in cash and cash equivalents (1,249) 1,979 -
Cash and cash equivalents, beginning of period 1,979 - -
-------------------------------------------------
Cash and cash equivalents, end of period $ 730 $ 1,979 $ -
=================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE> 11
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: The Company was incorporated for the purpose of
providing financing to residents living in manufactured housing communities
for the purchase of new and used manufactured homes. The Company originates
conventional loans that generally range in size from $4,500 to $90,000 and
have a term of 5-25 years. The Company has focused its marketing efforts
principally through manufactured home community owners and operators. This
effort has traditionally been targeted at Sun Communities, where the
Company's services are offered as the preferred source of financing.
However, the Company has expanded its manufactured home lending activities
through the use of "dealer networks" to communities not owned and operated
by Sun to the extent that now 75% of manufactured home lending is done
outside the Sun owned and operated communities. The Company continues to
take the steps necessary to capture a greater share of the loans generated
by home purchasers and owners in Sun Communities as well as dealer
generated loans.
The Company also participates and is active in all aspects of commercial
real estate mortgage banking, including originating, underwriting, placing,
securitizing, and servicing commercial real estate loans through Bloomfield
and Bloomfield Servicing. Bloomfield acts as both a direct lender, making
commercial real estate loans for its own portfolio as well as for
accumulation and securitization, and as a traditional mortgage banker,
placing commercial real estate loans with institutional investors.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts and transactions of the Company and its subsidiaries.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
For purposes of income statement and cashflow comparison, the Company does
not have a period covering the twelve months ended September 30, 1997.
Information presented covers the period from January 2, 1997 (date of
inception) through September 30, 1997. The Company's initial public
offering of common stock did not take place until the quarter ended
December 31, 1997.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents represent short-term
highly liquid investments with original maturities of three months or less
and include cash and interest bearing deposits at banks. The Company has
restricted cash related to serviced loans held by others that is held in
trust for subsequent payment to the owners of those loans.
11
<PAGE> 12
LOANS RECEIVABLE: Loans receivable consist of commercial real estate loans
and manufactured home loans. The commercial loans primarily consist of
fixed rate loans collateralized by mortgages on commercial property.
Commercial loans originated are either sold immediately to permanent
investors or held for sale. Manufactured home loans are conventional fixed
rate loans under contracts collateralized by the borrowers' manufactured
homes. Manufactured home loans are also held for sale.
12
<PAGE> 13
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
Loans receivable are carried at the lower of cost or market value
determined on an aggregate basis. Loans receivable include accrued interest
and are net of deferred hedging gains or losses and an allowance for
expected losses.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses forward sales of U.S.
Treasury securities, Treasury rate locks and forward interest rate swaps to
hedge a portion its commercial mortgage loan portfolio. These instruments
are used as a means to hedge interest rate risk connected to anticipated
sales or securitizations of the commercial mortgage loans. The Company's
accounting for derivative financial instruments that are used to manage
risk is in accordance with the concepts established in SFAS No. 80,
"Accounting for Futures Contracts".
Deferral (hedge) accounting is applied if the derivative reduces the risk
of the underlying hedged item and is designated at inception as a hedge
with respect to the hedged item. Additionally, the derivative must result
in payoffs that are expected to be inversely correlated to the hedged item.
Derivatives are measured for effectiveness both at inception and on an
ongoing basis. If a derivative instrument ceases to meet the criteria for
deferral accounting, any subsequent gains and losses are currently
recognized in income.
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, loans sold with recourse and 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.
SERVICING RIGHTS: The Company accounts for servicing rights in accordance
with SFAS No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities" ("SFAS 125"). SFAS 125 requires
that a separate asset or liability be recorded representing the right or
obligation to service loans for others. A servicing asset or liability is
determined by allocating the loans' previous carrying amount between the
servicing asset and the loans that were sold, based on their relative fair
values at the date of sale. The fair value of the servicing asset or
liability is based on an analysis of discounted cash flows that
incorporates estimates of market servicing costs, projected ancillary
servicing revenue, projected prepayment rates and market profit margins.
Servicing rights are periodically assessed for impairment based on the fair
value of those rights calculated on a discounted basis. This assessment is
performed on a disaggregated basis, stratified by mortgage type and term.
Identified impairments are recognized through a valuation allowance.
INTEREST ON LOANS: Interest on loans is credited to income when earned. An
allowance for interest on loans is provided when a loan becomes more than
75 days past due as the collection of these loans is considered doubtful.
13
<PAGE> 14
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
LOAN FEES: Loan origination fees and certain direct loan origination costs
are deferred and recognized over the expected lives of the related loans as
an adjustment of the yields using a level-yield method.
REPOSESSED HOMES: Manufactured homes acquired through foreclosure or
similar proceedings are recorded at the lower of the related loan balance
plus any operating expenses of such homes or the estimated fair value of
the home at acquisition date.
OTHER COMPREHENSIVE INCOME: The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," as of January 1, 1998. Accounting principles
generally require that recognized revenue, expenses, gains and losses be
included in net income. Certain changes in assets and liabilities, however,
such as unrealized gains and losses on available-for-sale securities, are
reported as a direct adjustment to the equity section of the balance sheet.
Such items, along with net income, are considered components of
comprehensive income under the new standard.
Accumulated other comprehensive income at September 30, 1999 is comprised
solely of unrealized losses on available-for-sale securities, net of tax
benefit of $158,000.
OTHER ASSETS: Other assets is comprised of margin deposits with brokers,
organization and licensing costs, prepaid expenses, investment securities
deferred financing costs, goodwill and other miscellaneous receivables.
Organization and licensing costs are amortized on a straight-line basis
over a five-year life. Deferred financing costs are capitalized and
amortized over the life of the corresponding line of credit.
LOANS SOLD UNDER AGREEMENTS TO REPURCHASE: The Company enters into sales of
loans under agreements to repurchase the loans. The agreements are
short-term and are accounted for as secured borrowings. The obligations to
repurchase the loans sold are reflected as a liability, and the loans that
collateralize the agreements are reflected as assets in the balance sheet.
DEPRECIATION: Provisions for depreciation are computed using the
straight-line method over the estimated useful lives of office properties
and equipment, as follows: leasehold improvements - life of the lease;
furniture and fixtures - seven years; capitalized software - five years;
computers - five years.
INCOME TAXES: The Company uses the liability method in accounting for
income taxes. Under this method, deferred income taxes result from
temporary differences between the tax bases of assets and liabilities and
the bases reported in consolidated financial statements. The deferred taxes
are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
GOODWILL: Goodwill, which represents the excess of purchase price over the
fair value of net assets acquired, is amortized on a straight-line basis
over the expected periods to be benefited, generally 25 years.
PER SHARE DATA: Basic earnings per share are computed by dividing net
income available to common shareholders by the weighted average common
shares outstanding. In the computation of fully diluted earnings per share,
the treasury stock method of determining weighted average shares is
required, which assumes the exercise of existing stock options and the
repurchase of shares with the proceeds. At September 30, 1998 there were
approximately 260,000 potential shares of common stock from stock options
and warrants outstanding. Had these stock options and warrants been
exercised in 1998 they would have had an anti-dilutive effect on the net
loss. The effect of the anti-dilutive shares is not included in the
earnings per share calculation for 1998.
The following table presents a reconciliation of the numerator (income
applicable to common shareholders) and denominator (weighted average common
shares outstanding) for the basic loss per share calculation:
14
<PAGE> 15
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------------
1999 1998
--------------------------------------------------------------
(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 1,966 $ 0.39 1,261 $ (0.46)
Net dilutive effect of:
Options 22 - - -
Warrants 158 (0.03) - -
--------------------------------------------------------------
Diluted earnings (loss) per share 2,146 $ 0.36 1,261 $ (0.46)
==============================================================
</TABLE>
SECURITIES: All securities owned as of September 30, 1999 are classified as
securities available for sale. Using the specific identification method,
such securities are carried at market value with a corresponding market
value adjustment carried as a separate component of the equity section of
the balance sheet on a net of tax basis. The adjusted cost of the
securities would be used to compute realized gains or losses if the
securities are sold.
RECENT ACCOUNTING PRONOUNCEMENTS: In April 1998 the Financial Accounting
Standards Board issued Statement of Position Number 98-5 (SOP 98-5)
"Reporting on the Cost of Start-Up Activities". This statement, which is
required to be adopted for fiscal years beginning after December 15, 1998
establishes guidance for the accounting of start-up activities. It states
that the cost of start-up activities, including organizational costs,
should be expensed as incurred. The Company has deferred organizational and
start up costs related to the formation of its manufactured home lending
subsidiary and the filing of its application to become a unitary thrift
holding company and for the formation of a federally chartered savings
bank. As of September 30, 1999 those costs totaled approximately $682,000.
Any remaining unamortized balance at October 1, 1999 will be expensed.
In June 1998 Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133")
was issued. SFAS 133 requires all derivative instruments to be recorded on
the balance sheet at estimated fair value. Changes in the fair value of
derivative instruments are to be recorded each period either in current
earnings or other comprehensive income, depending on whether a derivative
is designated as part of a hedge transaction and, if it is, on the type of
hedge transaction. SFAS 133 is effective for the year 2000. The Company is
currently evaluating the impact of SFAS 133; at present the Company does
not believe it will have a material effect on the consolidated financial
position or results of operations.
B. ACQUISITIONS
In March 1998 the Company acquired 100% of the outstanding stock of
Bloomfield Acceptance Company, L.L.C. ("Bloomfield") and Bloomfield
Servicing Company, L.L.C. ("Bloomfield Servicing") for 281,818 shares of
the Company's common stock valued at approximately $2.1 million. Bloomfield
is engaged in the business of the origination of mortgages and real estate
15
<PAGE> 16
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
lending. Loans originated by Bloomfield primarily consist of fixed rate
loans secured by mortgages on commercial property. Bloomfield Servicing was
formed to service the loans originated by Bloomfield and other investors.
In addition to the shares of common stock issued to the former owners of
Bloomfield and Bloomfield Servicing, additional consideration of up to
$500,000, in the form of the Company's common stock, will be paid to the
owners subject to the performance of the merged entities after a two year
period following the date of merger.
Each of the acquisitions was accounted for as a purchase. The results of
operations for the year ended September 30, 1998 include the results of
operations for each of the acquired companies since the date of their
respective acquisitions.
The aggregate purchase price for the acquisitions completed for the year
ended September 30, 1998, was $2.1 million. The purchase price was
allocated to the assets acquired and liabilities assumed based on the
related fair values at the date of acquisition. The excess of the aggregate
purchase price over the fair values of the assets acquired and liabilities
assumed has been allocated to goodwill and is being amortized on a
straight-line method over 25 years.
On July 1, 1999 pursuant to a Reorganization Agreement dated as of June 30,
1999 (the "Reorganization Agreement") the Company acquired all of the
issued and outstanding stock of Hartger and Willard Mortgage Associates,
Inc. ("Hartger & Willard") from DMR Financial Services, Inc. ("DMRFS"), an
affiliate of Detroit Mortgage and Realty Company ("DMR"). Pursuant to the
terms of the agreement, 66,667 shares of Bingham common stock, without par
value, were issued to DMRFS.
In connection with the acquisition of Hartger & Willard the Company loaned
$1.5 million to DMRFS pursuant to a Promissory Note dated July 31, 1999.
The loan was guaranteed by DMR and secured by the pledge of the 66,667
shares of Bingham common stock DMRFS received in the acquisition. The
Company has the right to cause DMRFS to surrender the pledged shares in
full payment of the principal amount of the loan and has demanded their
surrender. The effect of this transaction is that the Company has acquired
the Hartger & Willard shares for $1.5 million in cash.
The Hartger & Willard acquisition was accounted for as a purchase. The
results of operations for the year ended September 30, 1999 include the
results of operations for the acquired company since the date of the
acquisition.
The aggregate purchase price for the acquisition of $1.9 million, including
expenses of the acquisition, was allocated to the assets acquired and
liabilities assumed based on the related fair values at the date of
acquisition. The excess of the aggregate purchase price over the fair
values of the assets acquired and liabilities assumed has been allocated to
goodwill and is being amortized on a straight-line method over 20 years.
16
<PAGE> 17
In conjunction with the acquisition in July, 1999, liabilities assumed and
other non-cash consideration was as follows (in thousands, unaudited):
<TABLE>
<S> <C>
Fair value of assets acquired $ 1,753
Goodwill 151
Cash paid in consideration and expenses of company acquired (1,900)
-----------------
Liabilities assumed $ 4
=================
</TABLE>
17
<PAGE> 18
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
The following table summarizes pro forma unaudited results of operations as
if the acquisition completed during 1999 had occurred at the beginning of
each year presented:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------
1999 1998
------------------------------------------------------------------------------------------
(In thousands, except earnings per share)
<S> <C> <C>
Revenues $ 16,933 $ 8,074
Income before income taxes 1,158 (521)
Net income 733 (400)
Basic earnings (loss) per share $ 0.37 $ (0.32)
Diluted earnings (loss) per share 0.34 (0.32)
</TABLE>
C. LOANS RECEIVABLE
The carrying amounts and fair values of loans receivable consisted of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------------
1999 1998
---------------------------------------------------------------
Book Value Market Value Book Value Market Value
-------------------------------------------------------------------------------------------------------------
( In thousands)
<S> <C> <C> <C> <C>
Manufactured home loans $ 64,501 $ 66,114 $ 22,674 $ 24,098
Commercial loans 52,904 52,695 65,546 61,722
Accrued interest receivable 740 740 440 440
Valuation allowance - - - (2,400)
Reserve for credit loss (258) - (185) -
---------------------------------------------------------------
$ 117,887 $ 119,549 $ 86,075 $ 86,260
===============================================================
</TABLE>
The carrying amount of loans receivable includes a valuation allowance as a
result of the inclusion of the loss on the hedge positions. The entire loss
was recovered in 1999. The following table shows the valuation allowance
and any related additions or deductions:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Balance at beginning of year $ 2,400 $ 0
Recovery adjustment (2,400) 2,400
----------------------------------
Balance at end of year $ - $ 2,400
==================================
</TABLE>
18
<PAGE> 19
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
The following table sets forth the average loan balance, weighted average
loan yield and weighted average initial term of the loan portfolio:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------------
Manufactured Home Commercial Mortgage
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Principal balance loans receivable, net $ 64,730 $ 22,673 $ 53,157 $ 61,978
Number of loans receivable 2,190 803 20 13
Average loan balance $ 29 $ 29 $ 2,645 4,767
Weighted average loan yield 11.33% 10.9% 8.5% 7.6%
Weighted average initial term 22 Years 22 years 5.8 years 9.7 years
</TABLE>
The following table sets forth the concentration by state of the loan
portfolio:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------------------------------------------------------
1999 1998 1999 1998
-----------------------------------------------------------------------------------------------
Manufactured Home Commercial Mortgage
-----------------------------------------------------------------------------------------------
Principal % Principal % Principal % Principal %
-----------------------------------------------------------------------------------------------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michigan 25,102 38.9% 9,177 40.5% 11,338 21.4% 29,107 44.4%
Indiana 10,128 15.7% 5,729 25.3% - - - -
Arizona - - - - 17,431 32.9% 9,953 15.2%
Texas 5,516 8.6% 1,859 8.2% 1,807 3.4% - -
Florida 6,142 9.5% 1,805 8.0% 5,980 11.3% 14,260 21.8%
California - - - - 4,651 8.8% 8,504 0.13
Other 17,613 27.3% 4,104 18.1% 11,697 22.1% 3,722 5.6%
</TABLE>
The manufactured home contracts are collateralized by manufactured homes
which range in age from 1963 to 1999, with approximately 60% of the
manufactured homes built since 1997.
The following table sets forth the number and value of loans for various
terms for the manufactured home loan portfolio:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------------
TERM 1999 1998
-------------------------------------------------------------------------
Number of Principal Number of Principal
Loans Balance Loans Balance
----------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
5 or less 55 $ 393 27 $ 209
6-10 210 2,488 88 1,073
11-12 9 148 9 100
13-15 274 4,542 104 1,876
16-20 503 12,603 210 6,020
21-25 1,102 42,833 363 13,291
26-30 37 1,494 2 105
</TABLE>
19
<PAGE> 20
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
The commercial mortgage loans have amortization terms of between 25 and 30
years. In most cases they also have a hyper-amortization feature that
takes effect if the loan is not repaid on its anticipated repayment date.
At that time the interest rate increases and any excess cash flows from the
project are used to pay down the principal balance.
Delinquency statistics for the manufactured home loan portfolio are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------
Days No. of Principal % of No. of Principal % of
Delinquent Loans Balance Portfolio Loans Balance Portfolio
----------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
31-60 60 $ 1,748 2.7% 31 $ 730 3.2%
61-90 20 706 1.1% 18 508 2.2%
Greater than 90 40 988 1.5% 16 357 1.6%
</TABLE>
No commercial mortgage loans were delinquent as of September 30, 1999 or
1998.
D. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses and related additions and deductions to the
allowance for the years ended September 30, 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 185 $ 58 $ -
Provision for loan losses 653 166 58
Net losses (580) (39) -
--------------------------------------
Balance at end of year $ 258 $ 185 $ 58
======================================
</TABLE>
E. SERVICING RIGHTS
Changes in servicing rights are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Balance at beginning of year $ 156 $ -
Addition through acquisition of Bloomfield Servicing - 552
Purchased servicing rights 1,376 104
Originated serving rights 735
Amortization (94) (28)
Sales (53) (472)
-------------------------
Balance at end of year $ 2,120 $ 156
=========================
</TABLE>
20
<PAGE> 21
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
Bloomfield Servicing ("BSC") the Company's loan servicing subsidiary,
services commercial real estate loans that Bloomfield Acceptance originates
as well as commercial real estate loans on behalf of twenty seven
institutional investors. BSC also acts as the sub-servicer on the
approximately $80 million of commercial mortgage loans the Company
securitized and sold in June 1999. As of September 30, 1999 and 1998, BSC's
commercial mortgage loan servicing portfolio totaled approximately $900
million and $374 million respectively.
BSC also services the manufactured home loans originated by the Company and
held in its loan portfolio as well as manufactured home loans originated by
the Company and sold with the servicing rights retained. The manufactured
home loan servicing portfolio totaled $83 million at September 30, 1999.
There were no manufactured home loans serviced by BSC as of September 30,
1998.
F. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1999 1998
----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cost:
Furniture and fixtures $ 327 $ 159
Leasehold improvements 46 33
Capitalized Software 322 322
Computer equipment 556 175
------------------------
1,251 689
Less accumulated depreciation 151 34
------------------------
$ 1,100 $ 655
========================
</TABLE>
Depreciation expense was $116,000 and $33,700 in 1999 and 1998
respectively.
G. DEBT
In connection with its initial public offering The Company entered into a
subordinated loan agreement with Sun. The subordinated loan agreement
currently provides for a subordinated debt facility which indebtedness
shall be subordinated to all senior debt of the Company. The facility
consists of a $4 million term loan with an annual interest rate of 9.75%.
As of September 30, 1999 the Company also had a $10 million demand line of
credit and an $18 million demand line of credit with Sun, both of which
provide for an annual interest rate equal to the one month "Libor" rate
plus a spread. At September 30, 1999 the Company had used $32.0 million of
the subordinated debt and demand line of credit facilities. In accordance
with the subordinated loan agreement the Company issued detachable warrants
to Sun covering 400,000 shares of common stock at a price of $10.00 per
21
<PAGE> 22
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
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.
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. At September 30,1999 the maximum financing
limits on the facility were $50 million for commercial mortgage and bridge
loans and $50 million for manufactured home and floor plan loans. 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 loans are sold at 85- 92% of the then current face value,
depending on the asset class and certain concentration constraints. The
repurchase transactions are for 30 days and may be rolled over for up to
nine months.
At September 30, 1999 and 1998 debt outstanding was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------
1999 1998
-------------------------------
(In thousands)
<S> <C> <C>
Loans sold under agreements to repurchase $ 69,026 $ 56,900
Demand line of credit 28,477 17,800
Term loan, net of discount 3,567 3,500
-------------------------------
$ 101,070 $ 78,200
===============================
</TABLE>
H. SUN COMMUNITIES AGREEMENT
As of September 30, 1997 the Company entered into an agreement with
Sun Communities. Pursuant to the agreement, options were granted to Sun
September 30, 1997 and will vest if, and only if, Sun is a party to and in
compliance with the terms of the agreement on the vesting date and on
December 31 of the previous year. The options will vest in eight equal
annual amounts, each consisting of 41,250 options, on January 31, 2001
through 2008. The options may be exercised at any time after vesting until
expiration ten years after the date of vesting. Each option vesting January
31, 2001 to 2003 will entitle the holder to purchase one share of common
stock for a purchase price of $10. Each option vesting on January 31, 2004,
2005 and 2006 will entitle the holder to purchase one share of common stock
for $12. Each option vesting on January 31, 2007 and 2008 will entitle the
holder to purchase one share of common stock for $14.
The Company recognizes service costs related to the options based on the
fair value method as prescribed by Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock based Compensation".
Fair value is determined using quoted market prices. Service costs are
amortized based on the vesting periods of the options. Amortization for the
years ended September 30, 1999 and 1998 was $86,400 and $74,700
respectively.
22
<PAGE> 23
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
I. STOCK OPTION PLAN
The Company has stock option plans in which 248,915 shares of common stock
have been reserved for issuance as of September 30, 1999. Under the plans,
the exercise price of the options will not be less than the fair market
value of the common stock on the date of grant. The date on which the
options are first exercisable is determined by the administrator of the
Company's stock option plan, the Compensation Committee of the Board of
Directors or the entire Board of Directors, and options generally have
vested over a three-year period from the date of grant. The term of an
option may not exceed ten years from the date of grant.
The Company has adopted the disclosure requirements of Statements of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation." Accordingly, the fair value of each option
granted in 1999 and 1998 was estimated using the Black-Scholes option
pricing model based on the assumptions stated below:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------------------------------------
<S> <C> <C>
Estimated weighted average fair value
per share of options granted $ 4.39 $ 5.44
Assumptions:
Annualized dividend yield --% --%
Common stock price volatility 50.16% 44.14%
Weighted average risk free rate of return 5.31% 5.83%
Weighted average expected option term (in years)
6.0 6.0
</TABLE>
23
<PAGE> 24
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
The Company has elected to measure compensation cost using the intrinsic
value method, in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly since all options are granted at a fixed
price not less than the fair market value of the Company's common stock on
the date of grant, no compensation cost has been recognized for its stock
option plan. Had stock option costs of the plan been determined based on
the fair value at the grant dates for awards under those plans consistent
with the methodology of SFAS 123, the pro forma effects on the Company's
net income and earnings per share would be as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------------------------------------------------
(Dollars in thousands, except earnings per share)
<S> <C> <C>
Net income (loss) as reported $ 776 $ (489)
Stock option compensation cost 346 143
-----------------------------
Pro forma net income (loss) $ 430 $ (632)
=============================
Basic income (loss) per share as reported $ 0.39 $ (0.46)
Stock option compensation cost 0.18 0.11
-----------------------------
Pro forma earnings (loss) per share $ 0.21 $ (0.57)
=============================
Diluted earnings (loss) per share as reported $ 0.36 $ (0.46)
Stock option compensation cost 0.16 0.11
-----------------------------
Pro forma fully diluted earnings (loss) per share $ 0.20 $ (0.57)
=============================
</TABLE>
The following table sets forth changes in options outstanding:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
AMOUNT AVG. PRICE AMOUNT AVG. PRICE
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares under option:
Outstanding at beginning of year 109,900 $ 10.65 - $ -
Granted 29,250 13.19 111,850 10.65
Forfeited (1,332) 12.25 (1,950) 13.00
Canceled - - - -
Exercised - - - -
------------------------------------------------------------
Outstanding at end of year 137,818 $ 11.15 109,900 $ 10.65
============================================================
Exercisable at end of year 65,917 $ 10.38 30,000 $ 10.00
============================================================
</TABLE>
24
<PAGE> 25
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
The following table sets forth details of options outstanding at
September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999
------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF NUMBER REMAINING RANGE OF NUMBER REMAINING
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 10.00 85,568 8.17 years $ 10.00 56,926 8.17 Years
10.25 750 9.92 years 12.50 3,246 9.08 Years
11.00 2,500 9.83 years 13.00 5,745 8.42 Years
12.50 10,750 9.17 years
13.00 21,000 8.42 years
13.50 9,500 9.75 years
14.50 6,750 9.58 years
15.25 1,000 9.25 years
------------------------------------------------------------------------------------------------------------
$10.00 - 15.25 137,818 8.51 Years $ 10.00 - 13.00 65,917 8.24 Years
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF NUMBER REMAINING RANGE OF NUMBER REMAINING
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 10.00 85,900 9.08 Years $ 10.00 30,000 9.08 Years
13.00 24,000 9.42 Years
------------------------------------------------------------------------------------------------------------
$10.00 - 13.00 109,900 9.15 Years $ 10.00 30,000 9.08 Years
============================================================================================================
</TABLE>
There were no options outstanding in 1997.
25
<PAGE> 26
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
J. FEDERAL INCOME TAXES
Federal income tax expense consisted of the following:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Current tax provision $ (473) $ 683
Deferred tax provision (benefit) 914 (902)
-------------------------
Federal income tax expense (benefit) $ 441 $ (219)
=========================
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------------------
<S> <C> <C>
Statutory tax rate 34.00% (34.00%)
Effect of:
Nondeductible expenses 2.22 -
Other - 6.39
-------------------------
Effective tax rate 36.22% (27.61%)
=========================
</TABLE>
There was no federal income tax provision in 1997.
26
<PAGE> 27
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
Company believes its deferred tax liabilities and available tax planning
strategies will allow for the recovery of total net deferred tax asset.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Deferred Tax Assets:
Option amortization $ 55 $ 25
Net deferral required by SFAS 91 - 130
Reserve for loan losses 230 14
Unrealized loss on mortgage loans - 816
Other items, net 273 5
-----------------------
Total deferred tax assets 558 990
Deferred Tax Liabilities:
Net deferral required by SFAS 91 169 -
Deferred closing costs 148 88
Gain on sale of servicing rights required by SFAS 125 253 -
-----------------------
Total deferred tax liabilities 570 88
-----------------------
Total net deferred tax assets (liabilities) (12) 902
-----------------------
Total net federal income tax assets (liabilities) $ (12) $ 902
=======================
</TABLE>
27
<PAGE> 28
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
K. STOCKHOLDERS' EQUITY
The Company consummated an initial public offering of 1,200,000 shares of
common stock on November 19, 1997. The initial offering price was $10.00,
which provided approximate proceeds to the Company of $11.2 million. On
December 16, 1997, an additional 70,000 shares were issued which provided
approximate proceeds to the Company of $651,000.
Prior to the initial public offering, on October 27, 1997 the Company sold
25,000 shares to Sun Communities for gross proceeds of $250,000.
In April, 1999 the Company issued 800,330 shares of its common stock in
private equity raises. The stock issuances resulted in proceeds of
approximately $12 million.
During the year ended September 30, 1999 the Company issued stock awards of
84,658 restricted shares to executive officers and senior management.
Compensation costs related to the awards are being amortized over their
respective vesting periods, generally between 3 to 5 years.
L. LITIGATION
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 future
financial position, results of operations or cashflows.
M. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS: At September 30, 1999 aggregate minimum rental
commitments under noncancelable leases having terms of more than one year
were $937,000 payable $403,000 (2000), $414,000 (2001), $88,000 (2002) and
$31,000 (2004). Total rental expense for the year ended September 30, 1999
and 1998 was $420,000 and $83,000 respectively. These leases are for office
facilities and equipment and generally contain either clauses for cost of
living increases and/or options to renew or terminate the lease.
LOAN COMMITMENTS: At September 30, 1999 and 1998 the Company had
commitments to originate manufactured home installment contracts
approximating $5.1 million and $4.8 million respectively. Commercial
mortgage loan commitments totaled $73.1 and $14.7 million at September 30,
1999 and 1998 respectively.
N. FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET ACTIVITY
FINANCIAL INSTRUMENTS: The Company hedges its commercial mortgage loan
portfolio as part of its interest rate risk management strategy and as a
condition of the related repurchase agreement which finances the portfolio.
The Company hedges the interest rate risk on its portfolio by doing forward
sales of U.S. Treasury Securities, Treasury locks and forward interest rate
swaps.
28
<PAGE> 29
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
The Company classifies these transactions as hedges on specific loan
receivables. Any gross unrealized gains or losses on these hedge positions
are determined based on quoted market prices and are an adjustment to the
basis of the mortgage loan portfolio. They are also used in the lower of
cost or market valuation to establish a valuation allowance as shown in
Note C.
29
<PAGE> 30
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
The following table identifies the gross unrealized gains and losses of the
hedge positions based on quoted market prices as of September 30, 1999 and
1998:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------
1999 1998
--------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
TYPE REFERENCE RATE/TREASURY GAINS (LOSSES) GAINS (LOSSES)
------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Treasury Lock U.S. Treasury 4.750% - 11/08 $ 126 $ -
Treasury Lock U.S. Treasury 5.625% - 5/08 6 -
Treasury Lock U.S. Treasury 5.500% - 5/09 2 -
Treasury Lock 10 Year Treasury (146) -
Interest Rate Swap 10 Year Swap - (2,019)
Forward Sale U.S. Treasury 6.125% - 8/07 - (294)
Forward Sale U.S. Treasury 6.375% - 8/27 - (1,649)
Forward Sale U.S. Treasury 5.500% - 2/08 - (321)
Forward Sale U.S. Treasury 5.625% - 5/08 -
</TABLE>
LOANS SOLD WITH RECOURSE: As of September 30, 1999 and 1998 outstanding
principal on manufactured home loans the Company had sold with recourse
totaled $27.6 and $11.3 million respectively. The Company is required to
repurchase the outstanding principal balance, accrued interest and refund
of any purchase premium of any contract that goes into default, as defined
in the loan agreement, for the life of the loan.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting
Standards No. 107 ("SFAS 107") requires disclosure of fair value
information about financial instruments, whether or not recognized in the
Balance Sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques.
The following table shows the carrying amount and estimated fair values of
the Company's Financial instruments:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------------------
1999 1998
----------------------------------------------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Assets
Cash and equivalents 730 730 1,979 1,979
Restricted cash 3,901 3,901 2,253 2,253
Loans receivable 117,887 119,548 86,075 86,260
Other 6,960 6,960 3,741 3,741
Liabilities
Advances by mortgages 3,882 3,882 2,238 2,238
Accounts payable and accrued expenses 1,474 1,474 636 636
Advances under repurchase agreements 69,026 69,026 56,892 56,892
Subordinated debt 3,567 3,567 3,490 3,490
Note payable 28,477 28,477 17,848 17,848
</TABLE>
The carrying amount for cash and cash equivalents and other assets is a
reasonable estimate of their fair value.
Fair values for the Company's loans are estimated using quoted market
prices for loans with similar interest rates, terms and borrowers credit
quality as those being offered by the Company.
The carrying amount of accrued interest approximates its fair value. Due
to their short maturity, accounts payable and accrued expense carrying
values approximate fair value.
The fair value of the Company's fixed rate subordinated debt is based on
quoted market prices for debt with similar terms and remaining maturities.
The fair value of the variable rate date is based on its carrying amount
since effective rates reflect current market rates.
30
<PAGE> 31
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
O. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
1999:
Interest income $ 2,118 $ 2,617 $ 2,521 $ 2,221
Interest expense 1,699 1,841 1,953 1,363
Net income (loss) 764 480 304 (772)
Diluted earnings (loss) per share 0.43 0.26 0.13 (0.30)
1998:
Interest income $ 316 $ 433 $ 819 $ 1,797
Interest expense 151 135 405 1,241
Net income (loss) 22 120 435 (1,151)
Diluted earnings (loss) per share 0.04 0.08 0.22 (0.73)
1997:
Interest income $ - $ 10 $ 112 $ 158
Interest expense - 15 70 110
Net (loss) - (62) (3) (45)
</TABLE>
P. SUBSEQUENT EVENTS
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 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 bank borrowings. 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.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: August 31, 2000
BINGHAM FINANCIAL SERVICES
CORPORATION
By: /s/ Ronald A. Klein
-------------------------------------
Ronald A. Klein, President and
Chief Executive Officer
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
DESCRIPTION
-----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of February 17, 1998
by and among Bingham Financial Services Corporation, BAC
Acquiring Corp., BSC Acquiring Corp., Bloomfield Acceptance
Company, L.L.C., and Bloomfield Acceptance Company, L.L.C.
(Incorporated by reference to Exhibit 2.1 to Bingham's
Current Report on Form 8-K dated March 5, 1998)
2.2 Purchase Agreement dated as of November 27, 1999 by and
among DFI Acquiring Corp., Dynex Capital, Inc., Dynex
Holding, Inc. (incorporated by reference to Exhibit 2.1 to
Bingham's Report on Form 8-K filed December 30, 1999)
2.3 Reorganization Agreement dated as of June 30, 1999, by and
Bingham Financial Services Corporation, DMR Financial
Services, Inc., Hartger & Willard Mortgage Associates, Inc.
and Detroit Mortgage and Realty Company (Incorporated by
reference to Exhibit 2.1 to Bingham's Current Report on Form
8-K dated July 14, 1999)
2.4 Amended and Restated Agreement and Plan of Merger dated May
16, 2000 between Bingham and Franklin Bank, N.A. (Filed
herewith).
3.1 Amended and Restated Articles of Incorporation of Bingham
Financial Services Corporation (Incorporated by reference to
Exhibit 3.1 to Bingham's Registration Statement on Form S-1;
File No. 333-34453)
3.2 Amended and Restated Bylaws of Bingham Financial Services
Corporation (Incorporated by reference to Exhibit 3.3 to
Bingham's registration Statement on Form S-1; File No.
333-34453)
4.1 Shareholders Agreement dated March 5, 1998 (Incorporated by
reference to Exhibit 2.7 to Bingham's Current Report on Form
8-K dated March 13, 1998)
4.2 Amendment to Merger Agreement, Shareholders Agreement And
Employment Agreements, dated February 21, 1999 (Previously
filed)
4.3 Bloomfield Shareholders Agreement dated March 5, 1998
(Incorporated by reference to Exhibit 2.6 to Bingham's
Current Report on Form 8-K dated March 13, 1998)
</TABLE>
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NUMBER
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DESCRIPTION
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<S> <C>
4.4 Form of Registration Rights Agreement dated April 27, 1999
with respect to an aggregate of 800,330 shares (Incorporated
by reference to Exhibit 4.1 to Bingham's Quarterly Report on
Form 10-Q dated August 14, 2000)
4.5 Bingham Financial Services Corporation Second Amended and
Restated 1997 Stock Option Plan (Incorporated by reference
to Exhibit 4.2 to Bingham's Quarterly Report on Form 10-Q
dated August 14, 2000)
10.1 Participants Support Agreement, by and between Bingham
Financial Services Corporation and Sun Communities, Inc.
(assigned to Sun Communities Operating Limited Partnership
as of December 31, 1997) entered into on September 30, 1997,
but effective as of July 1, 1997 (Incorporated by reference
to Exhibit 10.1 to Bingham's Registration Statement on Form
S-1; File No. 333-34453)
10.2 Amendment to Participants Support Agreement between Bingham
Financial Services Corporation and Sun Communities Operating
Limited Partnership, dated as of April 1, 1999 (Previously
filed)
10.3 Administration Agreement, by and between Bingham Financial
Services Corporation and Sun Communities, Inc., dated July
1, 1997 (Incorporated by reference to Exhibit 10.3 to
Bingham's Registration Statement on Form S-1; File No.
333-34453)
10.4 Form of Indemnification Agreement between Bingham and its
directors (Incorporated by reference to Exhibit 10.4 to
Bingham's Registration Statement on Form S-1; File No.
333-34453)
10.5 Employment Agreement dated as of March 4, 1998 by and
between Bingham Financial Services Corporation and Daniel E.
Bober (Incorporated by reference to Exhibit 2.4 to Bingham's
Current Report on Form 8-K dated March 5, 1998)
10.6 Employment Agreement dated as of March 4, 1998 by and
between Bingham Financial Services Corporation and Creighton
J. Weber (Incorporated by reference to Exhibit 2.5 to
Bingham's Current Report on Form 8-K dated March 5, 1998)
10.7 Subordinated Loan Agreement dated September 30, 1997 between
Bingham Financial Services Corporation and Sun Communities,
Inc. (assigned to Sun Communities Operating Limited
Partnership as of December 31, 1997) (Incorporated by
reference to Exhibit 10.7 to Bingham's Registration
Statement on Form S-1; File No. 333-34453)
</TABLE>
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10.9 Term Promissory Note, dated September 30, 1997 between
Bingham Financial Services Corporation and Sun Communities,
Inc. (assigned to Sun Communities Operating Limited
Partnership as of December 31, 1997) (Incorporated by
reference to Exhibit 10.9 to Bingham's Registration
Statement on Form S-1; File No. 333-34453)
10.10 Loan Agreement between Bingham Financial Services
Corporation and Sun Communities Operating Limited
Partnership, dated March 1, 1998 (Incorporated by reference
to Exhibit 10.10 to Bingham's Current Report on Form 10-K,
for the year ended September 30, 1998)
10.12 Loan Agreement between Bingham Financial Services
Corporation and Sun Communities Operating Limited
Partnership, dated March 30, 1999 (Previously filed)
10.13 Demand Promissory Note between Bingham Financial Services
Corporation and Sun Communities Operating Limited
Partnership, dated March 30, 1999 (Previously filed)
10.14 Amendment to Loan Agreement dated March 30, 1999, between
Bingham Financial Services Corporation and Sun Communities
Operating Limited Partnership, dated as of June 11, 1999
(Previously filed)
10.15 Amended Demand Promissory Note between Bingham Financial
Services Corporation and Sun Communities Operating Limited
Partnership of March 30, 1999, dated as of June 11, 1999
(Previously filed)
10.16 Amendment to Subordinated Loan Agreement dated September 30,
1997 between Bingham Financial Services Corporation and Sun
Communities Operating Limited Partnership, dated as of June
11, 1999 (Previously filed)
10.17 Detachable Warrant Agreement, dated September 30, 1997
between Bingham Financial Services Corporation and Sun
Communities, Inc. (assigned to Sun Communities Operating
Limited Partnership as of December 31, 1997) (Incorporated
by reference to Exhibit 10.12 to Bingham's Registration
Statement on Form S-1; File No. 333-34453)
</TABLE>
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10.18 Warehousing Credit and Security Agreement dated as of April
1, 2000 among Bloomfield Servicing Company, L.L.C.,
Bloomfield Acceptance Company, L.L.C. and Residential
Funding Corporation (Incorporated by reference to Exhibit
10.1 to Bingham's Quarterly Report on Form 10-Q dated August
14, 2000)
10.19 First Amendment dated as of July 17, 2000 to Warehousing
Credit and Security Agreement dated as of April 1, 2000
among Bloomfield Servicing Company, L.L.C., Bloomfield
Acceptance Company, L.L.C. and Residential Funding
Corporation (Incorporated by reference to Exhibit 10.2 to
Bingham's Quarterly Report on Form 10-Q dated August 14,
2000)
10.20 Security Agreement dated December 13, 1999 between Sun
Communities Operating Limited Partnership and Bingham
(Incorporated by reference to Exhibit 10.3 to Bingham's
Quarterly Report on Form 10-Q dated August 14, 2000)
10.21 Second Amended Demand Promissory Note dated December 13,
1999 executed by Bingham in favor of Sun Communities
Operating Limited Partnership (Incorporated by reference to
Exhibit 10.4 to Bingham's Quarterly Report on Form 10-Q
dated August 14, 2000)
10.22 Employment Agreement dated January 1, 2000 between Bingham
and Ronald A. Klein (Incorporated by reference to Exhibit
10.5 to Bingham's Quarterly Report on Form 10-Q dated August
14, 2000)
10.23 Second Amended and Restated Master Repurchase Agreement
dated as of March 15, 2000 among Lehman Commercial Paper
Inc., Bloomfield Acceptance Company, LLC, MHFC, Inc., and
Dynex Financial, Inc. (Incorporated by reference to Exhibit
10.6 to Bingham's Quarterly Report on Form 10-Q dated August
14, 2000)
10.24 Amendment No. 1 dated March 16, 2000 to the Second Amended
and Restated Master Repurchase Agreement (Incorporated by
reference to Exhibit 10.7 to Bingham's Quarterly Report on
Form 10-Q dated August 14, 2000)
</TABLE>
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NUMBER
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<S> <C>
10.25 Credit Agreement dated March 31, 2000 among Bingham, Dynex
Financial, Inc., and Michigan National Bank (Incorporated by
reference to Exhibit 10.8 to Bingham's Quarterly Report on
Form 10-Q dated August 14, 2000)
10.26 Secured Promissory Note dated March 31, 2000 executed by
Bingham and Dynex Financial in favor of Michigan National
Bank (Incorporated by reference to Exhibit 10.9 to Bingham's
Quarterly Report on Form 10-Q dated August 14, 2000)
10.27 Security Agreement dated March 31, 2000 between Michigan
National Bank and Dynex Financial, Inc. (Incorporated by
reference to Exhibit 10.10 to Bingham's Quarterly Report on
Form 10-Q dated August 14, 2000)
10.28 Security Agreement dated March 31, 2000 between Michigan
National Bank and Bingham (Incorporated by reference to
Exhibit 10.11 to Bingham's Quarterly Report on Form 10-Q
dated August 14, 2000)
10.29 Stock Purchase Agreement dated as of March 17, 2000 between
Bingham and Gwenuc, LLC (Incorporated by reference to
Exhibit 2.2 to Bingham's Report on Form 8-K filed March 23,
2000)
10.30 Certificate of Merger for BAC Acquiring Corp. and Bloomfield
Acceptance Company, L.L.C., dated March 5, 1998.
(Incorporated by reference to Exhibit 2.2 to Bingham's
Current Report on Form 8-K dated March 13, 1998)
10.31 Certificate of Merger for BSC Acquiring Corp. and Bloomfield
Servicing Company, L.L.C., dated March 5, 1998.
(Incorporated by reference to Exhibit 2.3 to Bingham's
Current Report on Form 8-K dated March 13, 1998)
11 Calculation of Earnings Per Share (Previously filed)
21 List of Subsidiaries (Filed herewith)
27 Financial Data Schedule (Previously filed)
</TABLE>
37
