<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER: 0-22474
AMERICAN BUSINESS FINANCIAL SERVICES, INC
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 87-0418807
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
111 PRESIDENTIAL BOULEVARD, BALA CYNWYD, PA 19004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(610) 668-2440
(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such report(s),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
As of November 1, 1996, there were 2,353,166 shares of the registrant's Common
Stock issued and outstanding.
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
FORM 10-QSB - SEPTEMBER 30, 1996
INDEX
Part I Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheet
- September 30, 1996 1
Consolidated Statements of Operations
- Three Months Ended September 30, 1996 and 1995 2
Consolidated Statement of Stockholders' Equity
- Three Months Ended September 30, 1996 3
Consolidated Statements of Cash Flows
- Three Months Ended September 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
September 30,
1996
-------------
(unaudited)
Cash and cash equivalents $ 8,812,590
Loans and leases receivable - net
Available for sale 10,894,302
Other 579,134
Other receivables 20,762,050
Prepaid expenses 2,476,037
Property and equipment - net of accumulated
depreciation and amortization 1,577,699
Other assets 6,873,364
-------------
Total assets $51,975,176
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Debt $37,876,268
Accounts payable and accrued expenses 4,286,597
Deferred income taxes 2,128,539
Other liabilities 2,171,913
-------------
Total liabilities 46,463,317
-------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value
Authorized 1,000,000 shares
Issued and outstanding, none
Common stock, par value $.001
Authorized 9,000,000 shares
Issued and outstanding 2,353,166 shares 2,353
Additional paid-in capital 1,931,699
Retained earnings 4,177,839
------------
6,111,891
Less note receivable 600,032
------------
Total stockholders' equity 5,511,859
------------
Total liabilities and stockholders' equity $51,975,176
------------
------------
See notes to consolidated statements.
-1-
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
-----------------------
1996 1995
--------- -------
(unaudited) (unaudited)
REVENUES
Gain on sale of loans $4,373,235 $ 55,362
Interest and fees 1,135,228 888,674
Other income 75,647 466
---------- ------------
5,584,110 944,502
EXPENSES
Interest 1,041,659 451,790
Provision for credit losses 300,000 44,824
Payroll and related costs 198,611 130,593
Sales and marketing 1,369,253 492,219
General and administrative 896,678 261,030
---------- ------------
3,806,201 1,380,456
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (RECOVERABLE) 1,777,909 (435,954)
PROVISION FOR INCOME TAXES (RECOVERABLE) 622,268 (152,584)
---------- ------------
NET INCOME (LOSS) $1,155,641 $ (283,370)
---------- ------------
NET INCOME (LOSS) PER SHARE $ .47 $ (.13)
---------- ------------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 2,448,031 2,128,154
See Notes to consolidated financial statements.
-2-
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
------------------
Additional Total
Number of Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
--------- ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE,
July 1, 1996 2,353,166 $2,353 $1,931,699 $3,057,495 $4,991,547
Cash dividends
($.015 per share) (35,297) (35,297)
Net income 1,155,641 1,155,641
---------- ------- ---------- ----------- ------------
BALANCE,
September 30, 1996 2,353,166 $2,353 $1,931,699 $4,177,839 $6,111,891
---------- ------- ---------- ----------- ------------
</TABLE>
See notes to accompanying financial statements.
-3-
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
1996 1995
-------------- ------------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOW FROM OPERATIONS
Net income (loss) $ 1,155,641 $ (283,370)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Amortization of loan origination cost 86,321 75,058
Amortization of deferred servicing rights 51,643
Provision for credit losses 300,000 44,824
Accounts written off (50,443)
Depreciation and amortization of property
and equipment 106,980 68,472
Amortization of financing and organization costs 127,933 109,840
Increase (Decrease) in deferred income taxes 622,268 (152,584)
Gain on sale of loans (4,373,235) (55,362)
Increase in accrued interest and fees on loans receivable (44,809) (72,097)
(Increase) Decrease in other receivables (1,083,286) 365,267
Increase in prepaid expenses (1,134,877) (216,585)
(Increase) decrease in other assets 299,466 (28,447)
Increase in accounts payable and accrued expenses 1,154,427 262,450
Increase in other liabilities 295,107 279,968
------------ -----------
Net cash provided by (used in) operating activities (2,486,864) 397,434
------------ -----------
CASH FLOW FROM INVESTING ACTIVITIES
Loan and leases originated (22,971,918) (7,876,031)
Loan and lease payments received 856,130 355,338
Proceeds of loans sold 26,676,311 958,413
Purchase of property and equipment (231,783) (477,338)
Decrease in securitization gain receivable -- 14,839
Principal receipts on investment 16,245 5,245
------------ -----------
Net cash provided by (used in) investing activities 4,344,985 (7,019,534)
------------ -----------
CASH FLOW FROM FINANCING ACTIVITIES
Financing costs incurred (244,368) (92,225)
Net principal payments on revolving line of credit (2,348,465) --
Dividends paid (35,297) --
Principal payments on notes payable - other (104) (1,296)
Proceeds from issuance of subordinated debentures 5,945,884 3,724,674
Principal payments on subordinated debentures (1,708,450) (637,976)
------------ -----------
Net cash provided by financing activities 1,609,200 2,993,177
------------ -----------
</TABLE>
-4-
(continued)
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
1996 1995
-------------- ------------
(unaudited) (unaudited)
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH 3,467,321 (3,628,923)
CASH AND CASH EQUIVALENTS - BEGINNING 5,345,269 4,734,368
------------ -----------
CASH AND CASH EQUIVALENTS - ENDING $ 8,812,590 $ 1,105,445
------------ -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 888,622 $ 211,580
Income taxes -- 75,000
Noncash transactions recorded in connection with the sale
of and foreclosure on loans receivable
Increase in other receivables $ 5,583,603 $ 59,405
Increase in deferred servicing rights 574,210 --
Increase in fixed assets -- 51,425
</TABLE>
During the three months ended September 30, 1995, stock options for 225,012
shares of common stock were exercised. The shares with a price of $600,032
were issued in exchange for a note receivable for the same amount.
See notes to consolidated financial statements.
-5-
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements are unaudited and
include the accounts of American Business Financial Services, Inc.
(ABFS) and its wholly owned subsidiaries, collectively the "Company".
All significant inter-company transactions and balances have been
eliminated.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) have been made which are necessary to present fairly
the financial position of the Company as of September 30, 1996, and the
results of its operations for the three months ended September 30, 1996
and 1995. Results of operations for the three months ended September 30,
1996 are not necessarily indicative of the results to be experienced
for fiscal 1997.
The statements and related notes have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principals have been omitted pursuant to such rules
and regulations. The accompanying notes should be read in conjunction
with the Company's June 30, 1996 annual financial statements.
1996 amounts have been reclassified to conform to current account
classifications.
2. DEBT
Debt is summarized as follows:
Subordinated debentures (a) $36,532,442
Subordinated debentures (b) 1,325,421
Note payable (c) 18,355
-----------
$37,876,268
-----------
(a) This represents aggregate sales made pursuant to total public
offerings of debentures. These debentures mature during the
period of October 1996 through September 2005 and are
subordinate to all of the Company's Senior Indebtedness.
(b) This represents aggregate sales made pursuant to a prior
public offering of debentures. These debentures mature in
November 1996 through October 1998 and are subordinate to all
of the Company's Senior Indebtedness. Payment of principal
and interest is guaranteed by ABC but such guarantee is
subordinate to ABC's Senior Indebtedness.
(c) This represents an equipment collateralized note payable in
monthly installments of $655 including interest at 11.8%;
final payment due in March 1999.
-6-
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the
consolidated financial statements and the notes thereto included in Item
1 of this Quarterly Report, and the financial statements and notes
thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1996.
BALANCE SHEET INFORMATION
Total assets increased $5,081,013, or 11%, to $51,975,176 at
September 30, 1996 from $46,894,163 at June 30, 1996. The primary
reason for the increase was increases in cash and other receivables.
Cash increased $3,467,321, or 65%, from $5,345,269 at June 30, 1996 to
$8,812,590 at September 30, 1996 as a result of the net cash received
from a securitization and additional sales of subordinated debentures.
Other receivables increased $6,671,508, or 47%, from $14,090,542 at June
30, 1996 due to the Company's retention of the residual interest in a
trust in connection with its loan securitization.
Total liabilities increased $3,960,669, or 9%, from $42,502,648 at June
30, 1996 to $46,463,317 at September 30, 1996 primarily due to an increase in
debt. The increase in debt was due to net sales of subordinated debentures
of $4,237,332 during the three months ended September 30, 1996 and a net
decrease in institutional debt of $2,348,465. At September 30, 1996, the
Company had approximately $37,850,000 of subordinated debentures outstanding.
The Company's ratio of total debt to equity at September 30, 1996 was 6.8:1
as compared to 8.2:1 at June 30, 1996.
Stockholders' equity increased $1,120,344, or 25%, due to an
increase in retained earnings net of dividends paid.
RESULTS OF OPERATIONS
Revenues increased $4,639,608 or 491% to $5,584,110 in the first
quarter of fiscal 1997 from $944,502 for the first quarter of fiscal
1996. As described in more detail below, the increase in revenues was
primarily the result of gains on sales of loans through securitizations.
Gain on sale of loans increased $4,357,087 to $4,412,449 for the quarter
ended September 30, 1996 from $55,362 for the comparable period of 1995.
This increase was the result of a sale of loans through a securitization in
September of 1996. The Company recognized a gain of $4,412,449 (representing
the fair value of residual certificates of $5,563,603 less $1,151,154 of
costs associated with the transaction) on the Company's participation in
$26.9 million of loans sold through a $40.0 million securitization. The
balance of $13.1 million was in the form of a pre-funded account which the
Company will complete in the second quarter of fiscal year 1997. The Company
did not participate in a securitization during the corresponding quarter of
the prior fiscal year.
Interest and fee income consists of interest income, fee income and
amortization of origination costs. Interest and fee income increased
$246,554 or 28% to $1,135,228 in the quarter ended September 30, 1996
from $888,674 in the quarter ended September 1995 due to an increase in
interest income as a result of a higher amount of loans retained in
portfolio prior to the securitization.
Interest income consists of interest income the Company earns on the
loans and leases it holds in its portfolio. Interest income from loans
and leases held in portfolio increased $468,689 to $941,700 for the
first quarter of fiscal 1997 or a 99% increase over the $473,011
reported for the first quarter of fiscal 1996.
-7-
<PAGE>
The increase was attributable to increased originations of consumer and
business loans and leases, as well as management's decision to retain
home equity loans in portfolio in contemplation of future
securitizations.
During the three months ended September 30, 1996, the Company
originated approximately $12.7 million of consumer loans, $7.4 million
of business loans and $1.9 million of leases. During the comparable
period of fiscal 1996, the Company originated $4.8 million of consumer
loans, $7.0 million of business loans and $1.3 million of leases. The
majority of the consumer loans originated during the comparable period
were sold to third parties (with servicing released). Beginning in
October 1995, as part of the Company's securitization strategy, the
Company placed consumer loans into its held for sale portfolio until
sold as part of a securitization. As a result of this strategy, the
Company has the ability to hold a greater amount of loans in its
portfolio thereby generating an increase in interest income and a
decrease in fee income, as described below.
Fee income, includes primarily premium and points earned when loans
are closed, funded and immediately sold to unrelated third party
purchasers. Fee income decreased $195,091 from $474,939 for the three
months ended September 30, 1995 to $279,848 for the three months ended
September 30, 1996. The reduction in fee income was due to the
Company's current strategy of building a portfolio of loans and
securitizing them. As a result of this strategy, the Company is not
selling as many loans upon origination, thereby reducing fee income.
The third component of interest and fee income is amortization of
origination costs. During the three months ended September 30, 1996
amortization of origination costs was $86,320 compared to $74,507
recognized during the comparable period last year. The increase was
partly attributable to an increase in the amortization of lease
originations of $29,254 caused by growth in the lease portfolio.
Amortization of loan origination costs, not considering the effect of
leases, actually decreased by $17,441. The amount of origination cost
recognized is in part determined by the length of time a loan is held in
portfolio. In the current fiscal quarter, the Company securitized its
loan portfolio on August 30th resulting in the average loan being held
in portfolio for one month. No loans were securitized in the comparable
period resulting in an average holding period of 1.5 months.
Total expenses increased $2,425,745 or 176% to $3,806,201 for the three
months ended September 30, 1996 from $1,380,456 for the three months ended
September 30, 1995. As described in more detail below, this increase was
primarily a result of increased interest and sales expense attributable to
the Company's continued sale of subordinated debentures. Also contributing
to the increase in total expenses was increases in provision for credit
losses, payroll, sales and marketing and general and administrative expenses
related to increased loan and lease originations.
Interest expense increased $589,869 or 77% to $1,041,659 for the
three months ended September 30, 1996 from $451,790 for the three months
ended September 30, 1995. The increase was primarily attributable to an
increase in the amount of the Company's subordinated debt outstanding.
Average subordinated debt outstanding was $35.8 million during the first
quarter of fiscal 1997 as compared to $19.9 million during the first
quarter of fiscal 1996. Average interest rates paid on the subordinated
debt increased from 8.81% to 8.99%. Interest expense on lines of credit
utilized by the Company during the three months ended September 30, 1996
was $138,879. The lines were not in use during the comparable period of
fiscal 1996.
The Company maintains an allowance for credit losses based upon
management's estimate of the expected collectability of loans and leases
outstanding. The allowance is determined based upon management's estimate of
potential losses in the portfolio in light of economic conditions, the credit
history of the borrowers, and the nature and characteristics of the
underlying collateral as well as the Company's historical loss experience.
Although the Company's historical loss experience has been minimal, the
increase in the allowance reflects the increase in originations. Although
the Company maintains its allowance for credit losses at the level it
considers adequate to provide for potential losses, there can be no
assurances that such losses will not exceed the estimated amounts or that
additional provisions will not be required. The allowance is increased
through an increase in the provision for credit losses. The provision for
credit losses increased by $255,176 to $300,000 from $44,824 in the prior
period. The increase in the provision for credit losses was due to the
Company's growing loan and lease portfolios. The Company had an allowance
for credit losses of $956,982 at September 30, 1996. The ratio of the
allowance for credit losses to total net loan and lease receivables, owned
and serviced, was 1.0% at September 30, 1996 as compared to .81% at September
30, 1995.
-8-
<PAGE>
Payroll and related costs increased $68,018, or 52%, to $198,611 for
the three months ended September 30, 1996 from $130,593 for the three
months ended September 30, 1995. The increase was due to an increase in
the number of administrative employees as a result of the Company's
growth in loan and lease originations and increase in loans serviced for
others. Management anticipates that such expense will continue to
increase in the future as the Company's expansion and increasing
originations continue.
Sales and marketing expenses increased $877,034, or 178%, to
$1,369,253 for the quarter ended September 30, 1996 from $492,219 in the
comparable quarter of fiscal 1996. The increase is attributable to
increases in advertising costs as a result of increased newspaper,
direct mail and radio advertising related to the Company's sales of
debentures and loan products. In addition, the Company initiated a
television advertising program for the sale of its home equity product.
Subject to market conditions, the Company plans to expand its service
area along the Atlantic Coast. As a result, it is therefore anticipated
that sales and marketing expenses will continue to increase in the
future.
General and administrative expenses increased $635,648, or 244%, to
$896,678 for the quarter ended September 30, 1996 from $261,030 for the
quarter ended September 30, 1995. The increase was primarily
attributable to increases in rent, telephone, office expense,
professional fees and other expenses incurred as a result of previously
discussed increases in loan and lease originations and loan servicing
experienced during the first quarter of fiscal 1997.
Net income increased $1,439,011 to $1,155,641 for the three months
ended September 30, 1996 from a net loss of $283,370 for the three
months ended September 30, 1995. As a result of the increase, earnings
per share increased to $.47 on weighted average common shares
outstanding of 2,448,301 compared to a loss per share of $.13 on
weighted average common shares outstanding of 2,128,154.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to fund its loans principally through (i)
institutional debt financing, (ii) the securitization and sales of loans
which it purchases or originates, (iii) the sale of the Company's
registered subordinated debentures, and (iv) retained earnings. The
Company's cash requirements include the funding of loan originations,
payment of interest expense, funding over-collaterization requirements,
operating expenses and capital expenditures.
During the three months ended September 30, 1996 the Company sold
approximately $5.9 million in principal amount of subordinated
debentures pursuant to a registered offering with varying maturities
ranging from three months to ten years. The proceeds of such debenture
sales have been used to fund general operating and lending activities.
The Company intends to meet its obligations to repay such debentures as
they mature with income generated through its lending activities and
funds generated through repayment of outstanding loans and leases. The
repayment of such obligations should not affect the Company's operations.
During the first quarter of fiscal 1997, the Company completed the
initial portion of a loan securitization involving $26.9 of business and home
equity loans. The securitization resulted in proceeds of approximately $26.7
million. The Company intends to utilize the proceeds of the securitization
to fund the origination of new loans and leases.
The Company maintains a $3.5 million revolving line of credit for
the funding of business loans and two revolving lines of credit totaling
$32.5 million for the funding of consumer loans. None of the lines were
in use at September 30,1996.
-9-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27: Financial Data Schedule
(b) Form 8-K: NONE
-10-
<PAGE>
SIGNATURE
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.
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
DATE: 11/14/96
BY: /S/ DAVID M. LEVIN
------------------
David M. Levin
Senior Vice
President and
Chief Financial
Officer
-11-
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC.
INDEX TO EXHIBITS
S-B Exhibit
NUMBER NAME
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of American Business Financial Services, Inc.
and Subsidiaries as of September 30, 1996 and the three months then ended and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,812,590
<SECURITIES> 0
<RECEIVABLES> 12,430,418
<ALLOWANCES> 956,982
<INVENTORY> 0
<CURRENT-ASSETS> 23,233,217
<PP&E> 2,503,539
<DEPRECIATION> 925,840
<TOTAL-ASSETS> 51,975,176
<CURRENT-LIABILITIES> 26,135,227
<BONDS> 0
0
0
<COMMON> 2,353
<OTHER-SE> 6,109,538
<TOTAL-LIABILITY-AND-EQUITY> 51,975,176
<SALES> 0
<TOTAL-REVENUES> 5,584,110
<CGS> 0
<TOTAL-COSTS> 3,806,201
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 300,000
<INTEREST-EXPENSE> 1,041,659
<INCOME-PRETAX> 1,777,709
<INCOME-TAX> 622,268
<INCOME-CONTINUING> 1,155,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,155,641
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
