<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] 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 registrant as specified in its charter)
Delaware 87-0418807
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 Presidential Boulevard, Bala Cynwyd, PA 19004
------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(610) 668-2440
--------------
(Registrant's telephone number including area code)
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 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 May 3, 1999, there were 3,478,956 shares of the registrant's Common Stock
issued and outstanding.
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL INFORMATION
Consolidated Balance Sheets as of March 31, 1999
and June 30, 1998................................................................................ 2
Consolidated Statements of Income for the three and nine months ended
March 31, 1999 and 1998.......................................................................... 3
Consolidated Statements of Stockholders' Equity for the nine months ended
March 31, 1999 and 1998.......................................................................... 4
Consolidated Statements of Cash Flows for the nine months ended
March 31, 1999 and 1998.......................................................................... 5
Notes to Consolidated Financial Statements........................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 12
Item 3. Quantitative and Qualitative Disclosure about Market Risk............................................ 27
PART II OTHER INFORMATION.................................................................................... 28
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL INFORMATION
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS March 31, June 30,
- ------ 1999 1998
------------- -------------
(Unaudited) (Note)
<S> <C> <C>
Cash and cash equivalents $ 20,876,988 $ 4,485,759
Loan and lease receivables, net
Available for sale 55,283,112 62,381,973
Other 5,773,137 4,096,554
Interest only strips and other receivables 168,628,210 100,736,564
Prepaid expenses 3,792,476 2,572,182
Property and equipment net of accumulated
depreciation and amortization 10,076,878 7,784,663
Other assets 62,969,454 44,493,365
------------- -------------
Total assets $ 327,400,255 $ 226,551,060
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
Subordinated debt and notes payable $ 219,003,978 $ 144,584,819
Accounts payable and accrued expenses 21,282,546 15,563,254
Deferred income taxes 11,023,244 10,863,538
Other liabilities 22,052,344 12,797,283
------------- -------------
Total liabilities 273,362,112 183,808,894
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001
Authorized 1,000,000 shares
Issued and outstanding - none -- --
Common stock, par value $.001
Authorized 9,000,000 shares
Issued and outstanding - 3,527,156 in 1999 3,527 3,523
and 3,523,406 shares in 1998
Additional paid-in capital 23,339,366 23,255,957
Accumulated other comprehensive income, net 1,190,000 --
Retained earnings 30,105,282 20,082,718
------------- -------------
54,638,175 43,342,198
Less: note receivable (600,032) (600,032)
------------- -------------
Total stockholders' equity 54,038,143 42,742,166
------------- -------------
Total liabilities and stockholders' equity $ 327,400,255 $ 226,551,060
============= =============
</TABLE>
Note: The balance sheet at June 30, 1998 has been derived from the audited
Financial Statements at that date.
See accompanying notes to consolidated financial statements.
2
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------------- ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Gain on sale of loans and leases $17,723,950 $10,427,033 $46,487,966 $25,532,711
Interest and fees 4,736,008 4,224,584 13,181,766 11,603,658
Servicing income 487,049 162,797 1,501,789 415,691
Other income 22,314 36,906 37,772 154,775
----------- ----------- ----------- -----------
Total revenues 22,969,321 14,851,320 61,209,293 37,706,835
----------- ----------- ----------- -----------
EXPENSES
Interest 6,126,339 3,035,427 15,674,620 7,971,728
Provision for credit losses 542,288 296,614 745,269 460,487
Employee related costs 1,157,304 1,795,656 3,666,108 3,662,856
Sales and marketing 6,227,525 2,811,446 16,436,396 8,185,052
General and administrative 3,434,251 1,708,452 8,555,955 5,092,940
----------- ----------- ----------- -----------
Total expenses 17,487,707 9,647,595 45,078,348 25,373,063
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 5,481,614 5,203,725 16,130,945 12,333,772
PROVISION FOR INCOME TAXES 1,973,378 1,892,604 5,704,080 4,316,820
----------- ----------- ----------- -----------
NET INCOME $ 3,508,236 $ 3,311,121 $10,426,865 $ 8,016,952
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE
Basic $1.00 $0.94 $2.96 $2.28
===== ===== ===== =====
Diluted $0.96 $0.90 $2.87 $2.19
===== ===== ===== =====
Average Common Shares:
Basic 3,526,573 3,523,406 3,524,446 3,514,690
Diluted 3,625,379 3,688,516 3,629,932 3,667,646
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Nine months ended March 31, 1999
- --------------------------------
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
-------------------- Paid-In Comprehensive Retained Note Stockholders'
Shares Amount Capital Income Earnings Receivable Equity
--------- ------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
July 1, 1998 3,523,406 $ 3,523 $23,255,957 $ -- $20,082,718 $(600,032) $42,742,166
Comprehensive income:
Net income 10,426,865 10,426,865
Unrealized gains on
investment securities 1,190,000 1,190,000
--------- ------- ----------- ----------- ----------- --------- -----------
Total comprehensive
income 1,190,000 10,426,865 11,616,865
Cash dividends
($0.115 per share) (404,301) (404,301)
Issuance of non-employee
stock options 73,400 73,400
Exercise of
stock options 3,750 4 10,009 10,013
--------- ------- ----------- ----------- ----------- --------- -----------
Balance at
March 31, 1999 3,527,156 $ 3,527 $23,339,366 $ 1,190,000 $30,105,282 $(600,032) $54,038,143
========= ======= =========== =========== =========== ========= ===========
</TABLE>
Nine Months ended March 31, 1998
- --------------------------------
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
-------------------- Paid-In Comprehensive Retained Note Stockholders'
Shares Amount Capital Income Earnings Receivable Equity
--------- ------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
July 1, 1997 3,503,166 $ 3,503 $22,669,477 $ -- $ 8,839,080 $(600,032) $30,912,028
Net income 8,016,952 8,016,952
Cash dividends
($0.045 per share) (157,924) (157,924)
Shares issued
for acquisition 20,240 20 499,980 500,000
Issuance of non-employee
stock options 86,500 86,500
--------- ------- ----------- ----------- ----------- ---------- -----------
Balance at
March 31, 1998 3,523,406 $ 3,523 $23,255,957 $ -- $16,698,108 $(600,032) $39,357,556
========= ======= =========== =========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------------------------------
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 10,426,865 $ 8,016,952
Adjustments to reconcile net income to net
cash used in operating
activities
Gain on sales of loans/leases (46,487,966) (29,976,347)
Amortization of origination fees and costs 84,123 61,661
Amortization of deferred servicing rights 3,674,787 1,000,440
Provision for credit losses 5,175,855 2,193,762
Accounts written off, net (812,377) (351,775)
Depreciation and amortization of
property and equipment 2,058,067 1,015,439
Amortization of financing and organization costs 830,597 529,291
Amortization of goodwill 850,054 522,762
Loans originated for sale (653,804,780) (233,617,709)
Proceeds from sale of loans and leases 600,874,986 204,996,008
Increase in loans in process 9,255,062 2,246,961
Increase in accrued interest and fees on
loan and lease receivables (1,676,584) (1,479,893)
Decrease in interest only strips and other receivables 6,015,736 3,717,280
Increase in prepaid expenses (1,220,294) (3,453,057)
Increase in accounts payable and accrued expenses 5,719,292 7,221,715
Decrease in deferred income taxes 159,706 2,250,143
Decrease in other, net (1,942,243) (2,385,385)
------------- -------------
Net cash used in operating activities (60,819,114) (37,491,752)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Leases originated for portfolio -- (47,436,330)
Loan and lease payments received 13,351,326 8,768,823
Purchase of property and equipment (4,350,282) (3,045,353)
Proceeds from sale of property and equipment 683,523 --
Decrease in securitization gain receivable -- 2,336,268
Principal receipts on investments 699,428 313,731
Initial over collateralization of loans (3,725,004) (3,575,000)
Purchase of subsidiary -- (11,000,000)
Cash acquired upon purchase of subsidiary -- 1,414,905
Purchase of investment (645,636) --
Sale of investments -- 5,000,000
------------- -------------
Net cash provided by (used in) investing activities 6,013,355 (47,222,956)
------------- -------------
</TABLE>
(continued on following page)
5
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
---------------------------------
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Financing costs incurred $ (2,217,760) $ (1,186,052)
Net borrowings on revolving lines of credit 6,827,939 47,733,006
Record fair value of options granted 73,400 86,500
Exercise of employee stock options 10,013 --
Dividends paid (404,301) (157,924)
Principal payments on capital lease obligation (50,422) (73,061)
Principal payments on note payable, other (636,343) --
Proceeds from issuance of subordinated debentures 111,616,157 57,151,885
Redemptions of subordinated debentures (44,021,695) (19,379,159)
------------- -------------
Net cash provided by financing activities 71,196,988 84,175,195
------------- -------------
Net increase (decrease) in cash and cash equivalents 16,391,229 (539,513)
Cash and cash equivalents, beginning of period 4,485,759 5,013,936
------------- -------------
Cash and cash equivalents, end of period $ 20,876,988 $ 4,474,423
============= =============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 13,302,174 $ 7,287,823
============= =============
Income taxes $ 2,755,545 $ 50,000
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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 subsidiaries, (all of which are wholly-owned,)
collectively the "Company". All significant inter-company transactions
and balances have been eliminated.
Effective October 1, 1997, the Company acquired all of the issued and
outstanding stock of New Jersey Mortgage and Investment Corp.
("NJMIC"), a mortgage and leasing company based in Roseland, New
Jersey. The transaction was accounted for under the purchase method of
accounting. Accordingly, the results of operations of NJMIC have been
included with the Company since the date of acquisition.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly,
they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month
period ended March 31, 1999 are not necessarily indicative of financial
results that may be expected for the full year ended June 30, 1999.
These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1998.
Certain prior period financial statement balances have been
reclassified to conform to the current period presentation.
Recent Accounting Pronouncements
In June 1997 the Financial Accounting Standards Board ("FASB"), issued
Statement of Financial Accounting Standard No. 131 "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131")
which is effective for financial statements issued for years beginning
after December 15, 1997. The pronouncement is not required to be
applied to interim periods in the initial year of its application. SFAS
No. 131 established standards for the method that public entities
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating results in interim financial reports issued
to shareholders. It also establishes standards for related disclosures
about products and services, geographical areas and major customers.
The adoption of SFAS No. 131 is not expected to have a material effect
on the Company's financial reporting.
7
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. Basis of Financial Statement Presentation - continued
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." ("SFAS No. 133"). SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. If certain conditions are met,
a derivative may be specifically designated as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment (fair value hedge), (b) a
hedge of the exposure to variable cash flows of a forecasted
transaction (cash flow hedge), or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. SFAS No. 133 is
effective on a prospective basis for all fiscal quarters of fiscal
years beginning after June 15, 1999. The adoption of this standard is
not expected to have a material effect on the Company's financial
condition or results of operations.
In October 1998, the FASB issued SFAS No. 134 "Accounting for
Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" (SFAS
No. 134). SFAS No. 134 requires that after the securitization of a
mortgage loan held for sale, an entity classify the resulting
mortgage-backed security or other retained interests based on its
ability and intent to hold or sell those investments. SFAS No. 134
became effective for fiscal quarters beginning after December 15, 1998.
In accordance with the provisions of SFAS No. 134, the Company has
reclassified its retained interests from trading securities to
available-for-sale securities. As available-for-sale securities,
subsequent adjustments to the fair value of retained interests are
recorded in stockholders' equity and reported as a component of
comprehensive income. The adoption of SFAS No. 134 did not have a
material effect on the Company's financial condition, but reduced the
Company's gains on sale by $2.5 million pre-tax in the quarter ended
March 31, 1999.
8
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
2. Loan and Lease Receivables - Available for Sale
Loan and lease receivables available for sale which are held in the
Company's portfolio were as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
----------- -----------
<S> <C> <C>
Real estate secured loans $32,366,735 $47,971,399
Leases net of unearned income of $2,973,942
and $2,670,954 17,679,753 11,401,104
Unamortized origination
costs and fees 6,243,129 4,087,636
----------- -----------
56,289,617 63,460,139
Less: allowance for credit losses on
loans and lease receivables available for sale 1,006,505 1,078,166
----------- -----------
$55,283,112 $62,381,973
=========== ===========
</TABLE>
3. Interest Only Strips and Other Receivables
The interest only strips and other receivables balance at March 31,
1999 and June 30, 1998 was comprised of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
----------- -----------
<S> <C> <C>
Interest only and residual strips $153,146,944 $ 95,912,756
Receivables for sold loans 9,146,867 2,376,542
Advances to securitization trusts 2,232,812 738,407
Other receivables 4,101,587 1,708,859
------------ -------------
$168,628,210 $ 100,736,564
============ =============
</TABLE>
9
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
4. Subordinated Debt and Notes Payable
Subordinated debt and notes payable at March 31, 1999 and June 30, 1998
are summarized as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
------------ ------------
<S> <C> <C>
Subordinated debt, due, April 1999 through March 2009; interest at
rates ranging from 6.15% to 11.50%; subordinated to all of the
Company's senior indebtedness $176,096,145 $105,651,694
Note payable, $150,000,000 revolving line of credit expiring September
2000; interest at rates ranging from LIBOR plus 1.375% to LIBOR plus
2%; collateralized by loan receivables 15,442,867 25,720,478
Note payable, $20,000,000 revolving line of credit expiring September
2000; interest at prime less 1% or LIBOR plus 1.875% at the Company's
option; collateralized by lease receivables 12,585,463 --
Note payable, $5,000,000 revolving line of credit expiring December
1999; interest at LIBOR plus 2.0% payable monthly; collateralized by
certain residual interests in securitized loans 5,000,000 --
Subordinated debt, due, April 1999 through May 2003; interest at rates
ranging from 9.0% to 10.45%; subordinated to all of the Company's
senior indebtedness 4,862,801 6,529,854
Note payable, $100,000,000 revolving line of credit expiring August
1999; interest at LIBOR plus 1.25%, payable monthly; collateralized by
loan receivables 50,822 530,735
Senior subordinated debt due July 1999 through December 1999; interest
at 12% payable monthly; subordinated to subsidiary's senior debt 1,875,000 3,000,000
</TABLE>
10
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
4. Subordinated Debt and Notes Payable - continued
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, June 30,
1999 1998
------------ ------------
Note payable, due April 1999 through October 2000; interest at 8%,
payable monthly. 2,338,261 2,914,920
Capitalized lease, due April 1999 through December 2001; interest at
7.7% payable monthly; collateralized by certain office
equipment. 575,165 --
Other notes payable 177,454 237,138
------------ ------------
$219,003,978 $144,584,819
============ ============
</TABLE>
5. Reconciliation of Basic and Diluted Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Earnings
(a) Net income $3,508,236 $3,311,121 $10,426,865 $8,016,952
========== ========== =========== ==========
Average Common Shares
(b) Average common shares outstanding 3,526,573 3,523,406 3,524,446 3,514,690
Average potentially dilutive shares 98,806 165,110 105,486 152,956
---------- ---------- ----------- ----------
(c) Average common and potentially
dilutive shares 3,625,379 3,688,516 3,629,932 3,667,646
========= ========= ========= =========
Earnings Per Common Share
Basic (a/b ) $1.00 $0.94 $2.96 $2.28
Diluted ( a/c ) $0.96 $0.90 $2.87 $2.19
</TABLE>
11
<PAGE>
PART 1. FINANCIAL INFORMATION (continued)
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the
Company's Consolidated Financial Statements and the accompanying 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, 1998.
FORWARD LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-Q the words or phrases
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "projected," or similar expressions are intended to identify
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, including but not limited to changes in interest rates, the
Company's dependence on debt financing and securitizations to fund operations,
risks associated with the Year 2000 issue, and fluctuations in operating
results. Such factors, which are discussed in Management's Discussion and
Analysis of Financial Condition and Results of Operations, could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinion or statements expressed
herein with respect to future periods. As a result, the Company wishes to
caution readers not to place undue reliance on any such forward looking
statements, which speak only as of the date made.
BALANCE SHEET INFORMATION
(in thousands, except per share data)
Balance Sheet Data:
March 31, 1999 June 30, 1998
-------------- -------------
Cash and cash equivalents ................ $ 20,877 $ 4,486
Loan and lease receivables, net:
Available for sale ................. 55,283 62,382
Other .............................. 5,773 4,097
Interest only strips and other receivables 168,628 100,737
Total assets ............................. 327,400 226,551
Subordinated debt and notes payable ...... 219,004 144,585
Total liabilities ........................ 273,362 183,809
Total stockholders' equity ............... 54,038 42,742
Book value per common share .............. $ 15.32 $ 12.13
Total assets increased $100.8 million, or 44.5%, to $327.4 million at
March 31, 1999 from $226.6 million at June 30, 1998 primarily due to increases
in interest only strips, cash and cash equivalents and other assets.
Cash and cash equivalents increased $16.4 million, or 365.4%, to $20.9
million at March 31, 1999 from $4.5 million at June 30, 1998 primarily due to
receipts from sales of subordinated debt.
12
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Interest only strips and other receivables (comprised mainly of
interest only and residual strips created in connection with the Company's
securitizations) increased $67.9 million, or 67.4%, to $168.6 million at March
31, 1999 from $100.7 million at June 30, 1998. The Company completed $204.0
million in loan and lease securitizations during the third fiscal quarter of
1999, resulting in a nine-month total of $532.4 million of loans and leases
securitized. Other assets increased $18.5 million, or 41.5%, to $62.9 million at
March 31, 1999 from $44.5 million at June 30, 1998 due primarily to the
recording of $20.4 million of mortgage servicing rights obtained in connection
with the Company's loan and lease securitizations, partially offset by
amortization of servicing rights.
Total liabilities increased $89.6 million, or 48.7%, to $273.4 million
at March 31, 1999 from $183.8 million at June 30, 1998 due primarily to an
increase in subordinated debt and notes payable. The increase in subordinated
debt and notes payable of $74.4 million, or 51.5%, was primarily attributable to
$68.8 million of net sales of subordinated debt. The Company had $181.0 million
of subordinated debt outstanding at March 31, 1999. Additional borrowings of
$1.8 million, net of repayments, were obtained under the Company's warehouse and
line of credit facilities to fund lending and leasing activities. (See
"--Liquidity and Capital Resources" beginning on page 22 for further detail.)
Accounts payable and accrued expenses increased $5.7 million, or 36.7%,
to $21.3 million at March 31, 1999 from $15.6 million at June 30, 1998. This
increase was due to increases in liabilities for trade payables of $4.4 million
due to the increased business activity of the Company and to a lesser extent
increases in accrued interest payable due to the higher subordinated debt
balance at March 31, 1999.
Other liabilities increase $9.3 million or 72.3% to $22.1 million at
March 31, 1999 from $12.8 million at June 30, 1998 due to an increase in the
liability for loans in process (primarily comprised of closed loans which have
not yet been funded.)
As previously announced on July 17, 1998, the Company's Board of
Directors authorized the management of the Company to repurchase up to 10% of
the outstanding shares of its common stock in the open market over a 12 month
period. Acting under that authorization, and subsequent to March 31, 1999, the
Company repurchased 111,000 shares of its common stock representing
approximately 3% of the outstanding shares.
RESULTS OF OPERATIONS
Summary Financial Results
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- Percentage --------------------- Percentage
1999 1998 Increase 1999 1998 Increase
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Total revenues...................... $22,969 $14,851 54.7% $61,209 $37,707 62.3%
Total expenses...................... $17,488 $ 9,648 81.3% $45,078 $25,373 77.7%
Net income.......................... $ 3,508 $ 3,311 6.0% $10,427 $ 8,017 30.1%
Return on average equity............ 27.48% 35.59% 28.88% 30.43%
Return on average assets............ 4.45% 6.30% 4.84% 6.53%
Earnings per share:
Basic............................. $ 1.00 $ 0.94 6.4% $ 2.96 $ 2.28 29.8%
Diluted........................... $ 0.96 $ 0.90 6.7% $ 2.87 $ 2.19 31.1%
Dividends declared per share........ $ 0.05 $ 0.015 $ 0.115 $ 0.045
</TABLE>
13
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Net Income. For the third quarter of fiscal 1999 net income increased
$0.2 million, or 6.0%, to $3.5 million from $3.3 million for the third quarter
of fiscal 1998, basic earnings per common share increased to $1.00 on average
common shares of 3,526,573 compared to $0.94 per share on average common shares
of 3,523,406 for the third quarter of fiscal 1998. Diluted earnings per common
share increased to $0.96 on average common shares of 3,625,379 compared to $0.90
per share on average common shares of 3,688,516 for the third quarter of fiscal
1998.
For the nine months ended March 31, 1999, net income increased $2.4
million, or 30.1%, to $10.4 million from $8.0 million for the nine months ended
March 31, 1998. Basic earnings per common share increased to $2.96 on average
common shares of 3,524,446 compared to $2.28 per share on average common shares
of 3,514,690 for the nine months ended March 31, 1998. Diluted earnings per
common share increased to $2.87 on average common shares of 3,629,932 compared
to $2.19 per share on average common shares of 3,667,646 for the nine months
ended March 31, 1998.
Net income for both the three month and nine month periods increased
primarily as a result of increases in the volume of loans and leases securitized
during the periods and increases in fee income due to the increase in the
Company's total managed portfolio.
In the second quarter of fiscal 1999, the Company increased its
quarterly dividend by 233% to $0.05 per share, which continued in the third
quarter. The Company declared dividends of $0.015 on its common stock in the
third quarter of fiscal 1998. The common dividend payout ratio based on diluted
earnings per share was 5.2% for the third quarter of fiscal 1999, compared to
1.7% for the third of fiscal 1998.
Since the Company's securitization strategy requires the accumulation
of an inventory of loans and leases over time, the Company may experience
fluctuations in operating results as a consequence of incurring costs and
expenses in a fiscal period prior to the fiscal period in which the
securitization is consummated. As such, the results of operations for a given
period may not be indicative of results for subsequent comparable periods. In
addition, as a result of the Company's securitization strategy, the Company may
operate on a negative operating cash flow basis, which could negatively impact
the Company's results of operations during such periods.
The Company's growth strategy is dependent upon its ability to increase
its loan and lease origination volume through both geographic expansion and
growth in current markets. The implementation of this strategy will depend in
large part on a variety of factors outside the control of the Company,
including, but not limited to, the Company's ability to obtain adequate
financing on favorable terms and profitably securitize its loans and leases on a
regular basis and continue to expand in the face of increasing competition. The
Company's failure with respect to any of these factors could impair its ability
to successfully implement its growth strategy, which could adversely affect the
Company's results of operations and financial condition.
Total Revenues. For the third quarter of fiscal 1999, total revenues
increased $8.1 million, or 54.7%, to $23.0 million from $14.9 million for the
third quarter of fiscal 1998. For the first nine months of fiscal 1999, total
revenues increased $23.5, million or 62.3%, to $61.2 million from $37.7 million
for the first nine months of fiscal 1998. Growth in total revenue for both
periods was the result of increased gains on sales of loans and leases from the
increased volume of loans and leases securitized and, to a lesser extent,
increases in servicing income due to the growth of the Company's total managed
portfolio.
14
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Gain on Sale of Loans and Leases. Gain on sale of loans and leases
increased $7.3 million, or 70.0%, to $17.7 million for the third quarter of
fiscal 1999 from $10.4 million in the third quarter of fiscal 1998. The
increases were the result of securitizations of $16.4 million principal amount
of loans secured by real estate and other business assets ("Business Purpose
Loans"), $168.6 million principal amount of loans secured by real estate on
single family residences ("Home Equity Loans") and sales of $19.0 million of
small ticket and middle market leases ("Equipment Leases") into a commercial
paper conduit. Securitizations in the third quarter of fiscal 1998 included
$16.0 million of Business Purpose Loans and $89.0 million of Home Equity Loans.
No Equipment Leases were securitized in the third quarter of fiscal 1998. Gains
recognized in the third quarter of fiscal 1999 represent the allocated cost of
the interest only and residual strips recorded of $23.9 million, net loan and
lease servicing assets of $8.0, million less $14.2 million of costs associated
with the transactions including write-offs of deferred loan origination costs
and recording a provision for the expected impact of credit losses on the fair
value of interest only and residual strips.
For the nine months ended March 31, 1999, gain on sale of loans and
leases increased $21.0, million or 82.1%, to $46.5 million from $25.5 million
for the nine months ended March 31, 1998. The increases were the result of sales
of $41.7 million principal amount of Business Purpose Loans, $423.3 million
principal amount of Home Equity Loans and $67.7 million of Equipment Leases.
Securitizations in the first nine months of fiscal 1998 included $39.1 million
of Business Purpose Loans and $165.9 million of Home Equity Loans. No Equipment
Leases were securitized in the first nine months of fiscal 1998.
The following schedule details the Company's loan and lease originations during
the three month and nine month periods ended March 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Business Purpose Loans $ 16,771 $ 14,601 $ 42,721 $ 37,808
Home Equity Loans, including first mortgages 169,725 102,538 500,121 224,363
Equipment Leases 24,441 21,964 76,745 44,728
-------- -------- -------- --------
Total Loans and Leases originated $210,937 $139,103 $619,587 $306,899
======== ======== ======== ========
</TABLE>
15
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
In October 1998, the FASB issued SFAS No. 134 "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise" (SFAS No. 134). SFAS No. 134
requires that after the securitization of a mortgage loan held for sale, an
entity classify the resulting mortgage-backed security or other retained
interests based on its ability and intent to hold or sell those investments.
SFAS No. 134 became effective for fiscal quarters beginning after December 15,
1998. In accordance with the provisions of SFAS No. 134, the Company has
reclassified its retained interests from trading securities to
available-for-sale securities. As available-for-sale securities, subsequent
adjustments to the fair value of retained interests are recorded in
stockholders' equity and reported as a component of comprehensive income. The
adoption of SFAS No. 134 did not have a material effect on the Company's
financial condition, but reduced the Company's gains on sale by $2.5 million
pre-tax in the quarter ended March 31, 1999.
Interest and Fees. Interest and fee income for the third quarter of
fiscal 1999 increased $0.5 million or 12.1% to $4.7 million from $4.2 million in
the third quarter of fiscal 1998. For the nine months ended March 31, 1999,
interest and fee income increased $1.6 million, or 13.6%, to $13.2 million from
$11.6 million for the first nine months of fiscal 1998. Interest and fee income
consists primarily of interest income earned on loans and leases while held in
the Company's portfolio, premiums earned on loans sold with servicing released,
and other ancillary fees collected in connection with loan and lease
originations.
Interest income decreased $0.9 million, or 33.3%, to $1.8 million for
the third quarter of fiscal 1999 from $2.7 million for the third quarter of
fiscal 1998. This decrease was primarily attributable to a reduction in the
duration of time portfolio loans accrued interest income prior to
securitization. During the nine months ended March 31, 1999, interest income
decreased $1.3 million, or 19.1%, to $5.8 million from $7.1 million for the nine
months ended March 31, 1998. The decrease was attributable to the effect of the
accelerated timing of securitizations in fiscal 1999 partially offset by the
impact of an increase in the average balance of portfolio loans. The Company
currently securitizes loans quarterly. Prior to the third quarter of fiscal
1998, securitizations were completed semi-annually.
Fee income increased $1.4 million, or 88.7%, to $2.9 million for the
third quarter of fiscal 1999 from $1.5 million for the third quarter of fiscal
1998. During the nine months ended March 31, 1999, fee income increased $2.9
million, or 65.8%, to $7.4 million from $4.5 million for the nine months ended
March 31, 1998. Increases in the volume of loans originated resulted in
increased fees for the three-month and nine-month periods ended March 31, 1999.
16
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Servicing Income. Servicing income is comprised of contractual and
ancillary fees collected on securitized loans and leases less amortization of
the servicing assets recorded at the time the loans and leases are securitized.
For the third quarter of fiscal 1999, servicing income increased $0.3 million,
or 199.2%, to $0.5 million from $0.2 million for the third quarter of fiscal
1999. Servicing income increased $1.1 million or 261.3%, to $1.5 million for the
nine months ended March 31, 1999 from $0.4 million for the nine months ended
March 31, 1998. The increases were the result of growth in the Company's total
managed portfolio (includes loans and leases available for sale and loans and
leases serviced for others) from $441.7 million at March 31, 1998 to $559.4
million at June 30, 1998 to $1.0 billion at March 31, 1999.
Total Expenses. For the third quarter of fiscal 1999, total expenses
increased $7.8 million, or 81.3%, to $17.5 million from $9.6 million for the
third quarter of fiscal 1998. Total expenses increased $19.7 million, or 77.7%,
to $45.1 million for the nine months ended March 31, 1999 from $25.4 million for
the nine months ended March 31, 1998. As described in more detail below, these
increases were a result of increased interest expense attributable to the
Company's sales of subordinated debt and borrowings used to fund loan and lease
originations and increases in sales and marketing, and general and
administrative expenses related to growth in loan and lease originations and the
growth of the total managed portfolio and the continued building of support area
infrastructure to support the increases in originated and managed portfolios.
Interest Expense. For the third quarter of fiscal 1999, interest
expense increased $3.1 million, or 101.8%, to $6.1 million from $3.0 million for
the third quarter of fiscal 1998. The increase was attributable to an increase
in the amount of the Company's subordinated debt outstanding during the third
quarter of fiscal 1999, the proceeds of which were used to fund the Company's
loan and lease originations and investments in operations required to position
the Company for future growth, and the costs related to greater utilization of
warehouse and credit line facilities to fund loan and lease originations.
Average subordinated debt outstanding during the three months ended March 31,
1999 was $166.7 million compared to $94.0 million during the three months ended
March 31, 1998. The average outstanding balances under warehouse and other
credit lines were $130.5 million during the three months ended March 31, 1999,
compared to $71.7 million during the three months ended March 1998.
During the first nine months of fiscal 1999 interest expense increased
$7.7 million, or 96.6%, to $15.7 million from $8.0 million for the nine months
ended March 31, 1998. In addition to increases in average debt balances
described above, additional debt was assumed in connection with the acquisition
of NJMIC in October 1997. Average subordinated debt outstanding during the nine
months ended March 31, 1999 was $143.5 million compared to $78.7 million during
the nine months ended March 31, 1998. The average outstanding balances under
warehouse and other credit lines were $99.2 million during the nine months ended
March 31, 1999 compared to $42.1 million during the nine months ended March 31,
1998.
17
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Provision for Credit Losses. The Company maintains an allowance for
credit losses on portfolio loans to account for loans and leases that are
delinquent and are expected to be ineligible for sale into a securitization. In
addition, an allowance for credit losses is maintained to account for the
expected impact of credit losses on the fair value of interest only
strips/residual interests. The allowance for credit losses as it relates to the
Company's securitizations approximates the impact that anticipated credit losses
will have on the cash flows expected to be received from the securitized loans
and is included in the estimation of the fair value of the company's interest
only and residual strips. The allowance is calculated based upon management's
estimate of the expected collectibility of loans and leases outstanding based
upon a variety of factors, including but not limited to, economic conditions and
credit and collateral considerations. 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 actual losses will not exceed
the estimated amounts or that additional provision will not be required. The
Company had an allowance for credit losses of $10.0 million on the total managed
portfolio at March 31, 1999 as compared to $5.6 million at June 30, 1998. The
ratio of the allowance for credit losses to the net total managed portfolio was
1.0% at March 31, 1999, June 30, 1998 and March 31, 1998.
The provision for credit losses on the total managed portfolio for the
third quarter of fiscal 1999 was $2.2 million (includes a $0.5 million provision
related to the Company's loan and lease portfolio and a $1.7 million provision
related to the Company's securitizations) as compared to $1.2 million (includes
a $0.2 million provision related to the Company's loan and lease portfolio and a
$1.0 million provision related to the Company's securitizations) for the third
quarter of fiscal 1998. The provision for credit losses related to the Company's
securitizations is a component of the gain on sale recognized at the time of
securitization.
The provision for credit losses on the total managed portfolio for the
nine months ended March 31, 1999 was $5.2 million (includes a $0.7 million
provision related to the Company's loan and lease portfolio and a $4.5 million
provision related to the Company's securitizations) as compared to $2.2 million
(includes a $0.4 million provision related to the Company's loan and lease
portfolio and a $1.8 million provision related to the Company's securitizations)
for the nine months ended March 31, 1998.
The following table summarizes changes in the allowance for credit
losses for the three and nine-month periods ended March 31, 1999 (in thousands):
Total
Three Months Ended March 31, 1999 Company Managed
Portfolio Securitizations Portfolio
--------- --------------- ---------
Balance at beginning of period . $ 1,070 $ 7,257 $ 8,327
Provision for credit losses .... 542 1,638 2,180
Charge offs, net of recoveries . (550) -- (550)
------- ------- -------
Balance at March 31, 1999 ...... $ 1,062 $ 8,895 $ 9,957
======= ======= =======
Nine Months Ended March 31, 1999
Balance at beginning of period . $ 1,078 $ 4,516 $ 5,594
Provision for credit losses .... 745 4,430 5,175
Charge offs, net of recoveries . (761) (51) (812)
------- ------- -------
Balance at March 31, 1999 ...... $ 1,062 $ 8,895 $ 9,957
======= ======= =======
Credit losses related to the Company's securitizations are generally recorded in
the Company's books at the time an impaired loan is repurchased from the
securitization.
18
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Sales and Marketing Expenses. For the third quarter of fiscal 1999,
sales and marketing expenses increased $3.4 million, or 121.5%, to $6.2 million
from $2.8 million for the third quarter of fiscal 1998. For the nine months
ended March 31, 1999, sales and marketing expenses increased $8.2 million, or
100.8%, to $16.4 from $8.2 million for the nine months ended March 31, 1998. The
increases were primarily attributable to targeted television and radio
advertising related to Home Equity Loans and advertising costs resulting from
increased newspaper and direct mail advertising related to the Company's sales
of subordinated debt and loan products. During the third quarter of fiscal 1999,
targeted television advertising was intensified in Chicago, Florida and Georgia.
Subject to market conditions, the Company plans to continue to expand its
service area throughout the United States. As a result, it is anticipated that
sales and marketing expenses will continue to increase in the future.
General and Administrative Expenses. For the third quarter of fiscal
1999, general and administrative expenses increased $1.7 million, or 101.0%, to
$3.4 million from $1.7 million for the third quarter of fiscal 1998. For the
nine months ended March 31, 1999, general and administrative expenses increased
$3.5 million, or 68.0%, to $8.6 million from $5.1 million for the nine months
ended March 31, 1998. The increases were primarily attributable to increases in
rent, telephone, office expense, professional fees and other expenses incurred
as a result of the previously discussed growth in loan and lease originations
and in the volume of total loans and leases managed during fiscal 1999 and the
continued building of support area infrastructure to support the increases in
originations and managed portfolio.
LOAN AND LEASE QUALITY
Total delinquencies (loans and leases with payments past due greater
than 30 days) in the total managed portfolio were $32.6 million at March 31,
1999 as compared to $16.8 million at June 30, 1998 and $13.3 million at March
31, 1998. Total delinquencies as a percentage of the total managed portfolio
(the "delinquency rate") was 3.22% at March 31, 1999 as compared to 3.01% at
June 30, 1998 and 3.02% at March 31, 1998. The increase in the delinquency rate
from March 31, 1998 was attributable to the maturation of the Company's total
managed portfolio, which was $1.0 billion at March 31, 1999, $559.4 million at
June 30, 1998 and $441.7 million at March 31, 1998. (See Provision for Credit
Losses on page 18 for further discussion of risks associated with potential
increases in delinquencies.)
Total REO (comprising foreclosed properties and deeds acquired in
lieu of foreclosure) increased to $6.8 million, or 0.68% of the total managed
portfolio at March 31, 1999. The increase in REO reflects the seasoning of the
portfolio and the results of the Company's loss mitigation initiatives of quick
repossession of collateral through accelerated foreclosure processes and "Cash
For Keys" programs.
19
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
The following table provides data concerning delinquency experience, real estate
owned ("REO") and loss experience for the Company's total managed loan and lease
portfolio (dollars in thousands):
<TABLE>
<CAPTION>
March 31, 1999 June 30, 1998
--------------------- ----------------------
Delinquency by Type Amount % Amount %
- ------------------- ---------- ---- ---------- ----
<S> <C> <C> <C> <C>
Business Purpose Loans
Total managed portfolio $ 133,700 $ 101,250
========== ==========
Period of delinquency:
31-60 days 1,241 0.93% $ 1,236 1.22%
61-90 days 1,153 0.86 928 0.92
Over 90 days 6,304 4.72 3,562 3.52
---------- ---- ---------- ----
Total Delinquencies $ 8,698 6.51% $ 5,726 5.66%
========== ==== ========== ====
REO $ 2,868 $ 611
========== ==========
Home Equity Loans
Total managed portfolio $ 715,187 $ 349,685
========== ==========
Period of delinquency:
31-60 Days $ 5,217 0.73% $ 3,726 1.08%
61-90 Days 4,052 0.57 1,022 0.29
Over 90 Days 11,665 1.63 3,541 1.02
---------- ---- ---------- ----
Total Delinquencies $ 20,934 2.93% $ 8,289 2.39%
========== ==== ========== ====
REO $ 4,049 $ 311
========== ==========
Equipment Leases
Total managed portfolio $ 162,871 $ 108,463
========== ==========
Period of delinquency:
31-60 days $ 725 0.45% $ 1,000 0.92%
61-90 days 370 0.23 320 0.30
Over 90 days 1,867 1.15 1,478 1.36
---------- ---- ---------- ----
Total Delinquencies $ 2,962 1.82% $ 2,798 2.58%
========== ==== ========== ====
Company Combined
- ----------------
Total managed portfolios $1,011,758 $ 559,398
========== ==========
Period of delinquency:
31-60 days $ 7,183 0.71% $ 5,962 1.07%
61-90 days 5,575 0.55 2,270 0.41
Over 90 days 19,836 1.96 8,581 1.53
---------- ---- ---------- ----
Total Delinquencies $ 32,594 3.22% $ 16,813 3.01%
========== ==== ========== ====
Total REO $ 6,849 $ 922
========== ==========
Losses, net of recoveries,
experienced during the period $ 812(a) 0.14%(b) $ 667(c) 0.12%
========== ==== ========== ====
Allowance for credit losses at end
of period $ 9,957 1.0% $ 5,594 1.0%
========== ==== ========== ====
</TABLE>
- --------------------------------------------------------------------------------
(a) For the nine month period ended March 31, 1999.
(b) Annualized based on the year to date average portfolio balance.
(c) For the fiscal year ended June 30, 1998.
20
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
INTEREST RATE RISK MANAGEMENT
A primary market risk exposure to the Company is interest rate risk.
Profitability is sensitive to the spread between the effective rate of interest
received on loans and leases available for sale or securitized (generally fixed
interest rates) and the interest rates paid pursuant to the Company's credit
facilities or the pass-through rate for interests issued in connection with
securitizations. Also, a substantial and sustained increase in market interest
rates could adversely affect the Company's ability to originate and purchase
loans.
Loans and Leases Available for Sale - The Company's gain on sale of
loans and leases may be unfavorably impacted to the extent it holds fixed-rate
mortgage loans or leases in its available for sale portfolio prior to
securitization. The adverse effect on the Company's gain may be the result of
increases in interest rates during the period the loans are held prior to
securitization or as a result of an increase in the rate required to be paid to
investors in connection with the securitization.
The Company implemented a hedging strategy in an attempt to mitigate
the effect of changes in interest rates on its fixed-rate mortgage loan and
lease portfolios between the date of origination and securitization. The nature
and quality of hedging transactions are determined by the Company's management
based on various factors, including market conditions and the expected volume of
mortgage loan and lease originations and purchases. A strategy used in the first
six months of fiscal 1999 involved short sales of a combination of U.S. Treasury
securities with an average life that closely matched the expected average life
of the loans to be securitized. The settlement date of the short sale, as well
as the buy back of the Treasury securities coincided with the anticipated
settlement date of the underlying securitization. During the first half of
fiscal year 1999, the Company incurred a loss of approximately $3.0 million on
short sales of securities, which was recognized as an offset to the gain on sale
recorded on securitizations during the period. At March 31, 1999, the Company
had no outstanding short sales. Another hedging strategy the Company uses
involves prefunding loan originations in connection with securitizations, which
enables the Company to determine in a current period the rate to be received by
the investors when the prefund balance of a securitization is satisfied.
In the future the Company may expand the types of financial instruments
it uses to hedge interest rate risk. Such instruments could include interest
rate swaps, financial futures and interest rate options or other derivative
instruments.
The Company believes that it is able to implement a cost-effective
hedging program to provide a level of protection against changes in market value
of its fixed-rate mortgage loans held for sale. However, an effective interest
rate risk management strategy is complex and no such strategy can completely
insulate the Company from interest rate changes. The nature and timing of
hedging transactions may impact the effectiveness of hedging strategies. Poorly
designed strategies or improperly executed transactions may increase rather than
mitigate risk. In addition, hedging involves transaction and other costs. Such
costs could increase as the period covered by the hedging protection increases.
It is expected that such loss would be offset by income realized from the
securitizations in that period or in future periods. As a result, the Company
may be prevented from effectively hedging its fixed-rate loans held for sale,
without reducing the Company's income in current periods due to the costs
associated with the Company's hedging activities.
21
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Interest Only Strips and Servicing Assets - A significant decline in market
interest rates could increase the level of loan prepayments, thereby decreasing
the size of the Company's loan servicing portfolio. To the extent that interest
only strips and servicing assets have been recorded on the books of the Company,
higher than anticipated rates of loan prepayments could require the Company to
write down the value of such interest only strips and servicing rights,
adversely impacting earnings during the period of adjustment. Anticipated
prepayment rates used to value interest only strips and servicing assets are as
follows:
Business Purpose Loans...........3% ramping to 13% over twenty-four months
Home Equity Loans................2% ramping to 24% over twelve months
Subordinated Debt - The Company also experiences interest rate risk to the
extent that as of March 31, 1999 approximately $83.9 million of its liabilities
were comprised of subordinated debt with scheduled maturities of greater than
one year. To the extent that interest rates decrease in the future, the rates
paid on such liabilities could approach or exceed the rates received on new loan
originations resulting in a reduction or elimination of the Company's spread.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's business requires continual access to short and long-term
sources of debt financing. The Company's cash requirements include the funding
of loan and lease originations, payment of interest expense, funding of
over-collaterization requirements in connection with its securitizations,
payment of operating expenses and funding of capital expenditures.
The Company continues to significantly rely on access to the
asset-backed securities market through securitizations to generate cash proceeds
for the repayment of debt and to fund its ongoing operations. As a result of the
terms of the securitizations, the Company will receive less cash flow from the
portfolios of loans and leases securitized than it would otherwise receive
absent securitizations. Additionally, pursuant to the terms of the
securitizations, the Company will act as the servicer of the loans and leases
and in that capacity will be obligated to advance funds in certain circumstances
which may create greater demands on the Company's cash flow than either selling
loans with servicing released or maintaining a portfolio of loans.
A significant portion of the Company's loan originations are
non-conforming mortgages to subprime borrowers. Certain participants in the
non-conforming mortgage industry have experienced greater than anticipated
losses on their securitization residual interests due to the effects of
increased credit losses and increased prepayment rates, requiring them to record
valuation allowances or write downs for these conditions. In addition, unusual
movements in the capital markets resulted in increased demand for US Treasury
securities which had an adverse impact on the demand for asset-backed securities
including those backed by non-conforming mortgage loans. As a result, some
participants experienced restricted access to capital required to fund loan
originations, and have been precluded from participation in the asset-backed
securitization market. However, the Company has maintained its ability to obtain
funding and to securitize loans. Factors that have minimized the effect of
adverse market conditions on the Company include its ability to originate loans
through its established retail channels, assessment of prepayment fees on loans,
diversification of lending in the home equity, business loan and equipment lease
markets and the ability to raise capital through its Registered Investment Note
Offering.
22
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Subject to economic, market and interest rate conditions, the Company
intends to continue to implement additional securitizations of its loan and
lease portfolios. Any delay or impairment in the Company's ability to securitize
its loans and leases, as a result of market conditions or otherwise, could
adversely affect the Company's results of operations.
To a limited extent, the Company intends to continue to augment the
interest and fee income it earns on its loan and lease portfolios by selling
loans and leases either at the time of origination or from its portfolio to
unrelated third parties. These transactions also create additional liquid funds
available for lending activities.
The Company also relies on borrowings such as its subordinated debt and
warehouse credit facilities to fund its operations. At March 31, 1999, the
Company had a total of $182.8 million of subordinated debt outstanding, and
available credit facilities totaling $275.0 million, of which $33.1 million was
drawn upon at such date.
Effective October 1, 1997, ABFS assumed $9.9 million of subordinated
debt previously issued by NJMIC. Of this amount, $4.9 million was outstanding at
March 31, 1999 and included maturity dates ranging from April 1999 to May 2003.
In addition, during the nine months ended March 31, 1999, ABFS sold $68.7
million in principal amount of subordinated debt (including redemptions and
repurchases by investors) pursuant to a registered public offering with
maturities ranging between one day and ten years (the "Registered Investment
Note Offering"). As of March 31, 1999, the Company had approximately $181.0
million of subordinated debt outstanding under the Registered Investment Note
Offering. Under a shelf registration statement declared effective by the
Securities and Exchange Commission on October 20, 1998, the Company registered
an additional $250.0 million of subordinated debt to be offered pursuant to the
Registered Investment Note Offering of which $170.0 was available at March 31,
1999. The proceeds of such sales of subordinated debt will be used to fund
general operating and lending activities. The Company intends to meet its
obligation to repay such debt as it matures with income from operations,
including securitization or sale of loans or leases, working capital and cash
generated from additional debt financing. The utilization of funds for the
repayment of such obligations should not adversely affect the Company's
operations.
The following is a description of the Company's warehouse and line of
credit facilities that are utilized to fund the Company's origination of loans
and leases prior to securitization. All of these facilities are senior in right
of payment to the Company's subordinated debt.
The Company's subsidiaries have an aggregate $100.0 million Interim
Warehouse and Security Agreements with Prudential Securities Credit Corporation
to fund loan originations. In May 1998, the aggregate amount that could be
advanced under these agreements was extended from $50.0 million to $100.0
million. These agreements were also amended in August 1998 to extend the term to
August 31, 1999. The obligations under these agreements are guaranteed by the
Company. Under these agreements, the subsidiaries may obtain advances subject to
certain conditions, which extensions of credit bear interest at a specified
margin over the LIBOR rate. The obligations under these agreements are
collateralized by pledged loans. At March 31, 1999, $51.0 thousand of these
facilities were being utilized.
23
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
In July 1997, the Company and certain of its subsidiaries obtained a
$110.0 million warehouse credit facility from a syndicate of banks led by Chase
Bank of Texas N.A. Under this warehouse facility, the Company may obtain
advances, subject to certain conditions, including sublimits based upon the type
of collateral securing the advance. Interest rates on the advances are based
upon 30-day LIBOR plus a margin. The Company's obligations under the facility
are collateralized by certain pledged loans and other collateral related
thereto. The facility also requires the Company to meet certain financial ratios
and contains restrictive covenants, including covenants limiting loans to and
transaction with affiliates, the issuance of additional debt, and the types of
investments that can be made by the Company and its subsidiaries. The aggregate
amount that could be advanced under this credit facility was increased from
$110.0 million to $150.0 million and the term was extended two years so that
such facility now expires on October 1, 2000. At March 31, 1999, $15.4 million
of this facility was being utilized.
In September 1998 the Company's subsidiaries, American Business
Leasing, Inc. ("ABL") and Federal Leasing Corp., ("FLC"), entered into a credit
agreement with First Union National Bank ("FUNB") pursuant to which FUNB
committed to extend $20.0 million of credit in the form of a warehouse line of
credit to such entities to enable them to fund eligible lease receivables. The
agreement terminates in September 2000. Under the FUNB line of credit, ABL and
FLC may obtain advances in increments of $500,000 or greater, subject to certain
conditions, which extensions of credit shall bear interest at either the LIBOR
rate plus 187.5 basis points or the prime rate set by FUNB less 100 basis points
at the borrower's option. Such agreement has a term of two years unless
accelerated upon an event of default as described in such agreement. The
obligation under the FUNB line of credit is collateralized by pledged leases and
other collateral related thereto. Such obligation is also guaranteed by the
Company and certain of its subsidiaries. The FUNB line of credit requires ABL
and FLC to meet certain financial and delinquency ratios and contains
restrictive covenants included but not limited to the incurrence of additional
debt, the retention of certain members of senior management and Year 2000
compliance. At March 31, 1999, $12.6 million of this line of credit was being
utilized.
In October 1998, ABL and American Business Lease Funding Corporation
("ABLFC"), a wholly-owned subsidiary of ABL, entered into a $100.0 million
commercial paper conduit underwritten by First Union Capital Markets to finance
equipment lease production. The agreement allows for up to two sales of
equipment leases per month into the conduit. The agreement terminates on October
14, 1999 unless terminated earlier in the event of a certain event of default
described therein. The cost of financing is the average interest rate on
commercial paper plus 65 basis points. At March 31, 1999, $47.0 million of this
facility was being utilized.
In December 1998, the Company's subsidiaries, ABC, HAC and NJMIC
entered into a credit agreement with Chase Bank of Texas ("CBT") pursuant to
which CBT committed to extend $5.0 million of credit in the form of a Security
Agreement against the Class R Certificate of the ABFS Mortgage Loan Trust
1998-2. Under the CBT line of credit ABC, HAC and NJMIC may borrow up to $5.0
million, subject to certain conditions which extensions of credit shall bear
interest at the LIBOR rate plus 200 basis points. Such agreement has a term of
one year unless accelerated upon an event of default as described in such
agreement. At March 31, 1999, $5.0 million of this line of credit was being
utilized.
24
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
As of March 31, 1999, the Company had $97.1 million of debt scheduled
to mature during the twelve months ending March 31, 2000 which was comprised of
maturing subordinated debt, warehouse lines of credit and other debt incurred in
connection with the acquisition of NJMIC. The Company currently expects to
refinance the maturing debt through extensions of maturing debt or new debt
financing and, if necessary, may retire the debt through cash flow from
operations and loan sales or securitizations. Despite the Company's current use
of securitizations to fund loan growth, the Company is also dependent upon other
borrowings to fund a portion of its operations. The Company intends to continue
to utilize debt financing to fund its operations in the future.
Any failure to renew or obtain adequate funding under a warehouse
credit facility, or other borrowings, or any substantial reduction in the size
or pricing in the markets for the Company's loans and leases, could have a
material adverse effect on the Company's results of operations and financial
condition. To the extent the Company is not successful in maintaining or
replacing existing financing, it would have to curtail its loan and lease
production activities or sell loans and leases rather than securitize them,
thereby having a material adverse effect on the Company's results of operations
and financial condition.
The Company leases certain of its facilities under a five-year
operating lease expiring in January 2003 at a minimum annual rental of
approximately $700,000. The lease contains a renewal option for an additional
period at increased annual rental.
Year 2000 Update
The Company established its Year 2000 (Y2K) Task Force to assess the
Company's Y2K issues and to implement its Y2K compliance program. The Task Force
includes members of the Company's Information Technology Department, Finance
Department, Legal Department and an independent consultant with Y2K expertise.
The Task Force reports periodically to executive management. The Task Force has
completed an assessment of its core information technology (IT) systems and is
continuing the process of evaluating the remainder of its non-core IT systems as
well as non-IT systems. The non-IT systems include the Company's
telecommunications systems, business machines and building and premises systems.
The Company's Task Force has adopted a five-phase approach to assess
Y2K issues and to address those issues that are reasonably within its control:
Phase 1 - Awareness: One of the first tasks performed by the Task Force was
to generate greater awareness of Y2K issues. The awareness process included
contacting all business units to educate management regarding the Y2K program
and to discern any potential issues. Each business unit has assigned a point of
contact to assist the Task Force in the assessment and compliance process.
Awareness efforts will continue throughout the span of the project.
25
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Phase 2 - Assessment: The Company has conducted an inventory of all IT
hardware and software, including business applications, operating systems,
third-party products, and internal and external interfaces that may be at risk.
Each critical system was reviewed, rated for importance to business operations
and identified as "retain" or "retire." This process has been completed for all
core IT systems. All non-core IT systems are also under review. The review
process is near completion for the non-core systems. It should be noted that the
Company is currently in the process of replacing most core IT systems due to
strategic and growth reasons unrelated to the Y2K issue. The Company commenced
this replacement process in 1996 and currently anticipates completion by
September 30, 1999. All systems acquired as part of this enhancement project
will be certified by their vendors as Y2K compliant. The Company also is
evaluating non-IT systems, which include the Company's telecommunications
systems, business machines, building and premises systems and key suppliers,
whose Y2K failures could have a material impact on the Company's operation. This
part of the assessment, which is dependent on obtaining specific responses from
third parties, is expected to be completed by June 1999. The assessment phase
also includes the development of appropriate response plans, which may include
repair, conversion, replacement or elimination of affected systems.
Phase 3 - Renovation: This phase involves the remediation of Y2K issues
identified as a result of the assessment (Phase 2). Efforts have commenced on
certain in-house developed systems. This phase is expected to be completed by
June 1999.
Phase 4 - Validation: This phase involves establishing a test
environment, performing systems tests and validating the results. The systems to
be used for testing have been acquired, and the validation process has
commenced. Vendors that have provided existing critical business applications
have reported that they are Y2K compliant. The Company will validate these
claims only if the replacement process is not completed in the scheduled time
frames. Y2K testing and verification of all new "replacement" systems will be
done as part of the implementation process. Test plans are being written, with
verification testing projected to be completed by September 1999.
Phase 5 - Implementation: This phase involves the deployment of the
appropriate Y2K compliant strategy based on the results of the Company's
Assessment, Renovation and Validation phases (Phases 2, 3 and 4).
Year 2000 Risks and Contingency Plans
The majority of the Company's IT hardware and infrastructure is less
than 2 years old, minimizing exposure to Y2K issues. This inventory is being
checked against vendor provided Y2K information for validation. Also, the
Company intends that all new hardware and software acquisitions are represented
and warranted by the vendors as Y2K compliant and that any systems developed by
in-house programmers will continue to be created using Y2K compliant tools,
platforms, and procedures.
The Company has been contacting suppliers who provide necessary goods
and services, including banking institutions who provide financial services to
the Company, to evaluate their Y2K compliance plans. As responses are received,
their responses are reviewed and evaluated to ensure that no Y2K related event
will materially impede the ability of the Company's suppliers to continue to
provide needed goods and services as the Year 2000 is approached and reached. To
date, the Company believes all responses received indicate that these goods and
services are, or will be, Year 2000 compliant. The failure of the Company's
suppliers to address their Y2K issues on a timely basis may have a material
adverse effect on the Company's operations.
26
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Based upon the current status, the Company has targeted the end of
September 1999 for completion of its Y2K compliance program. However, no
assurance can be given that the Company will meet this time frame. The Company
currently estimates that the costs directly associated with its Y2K compliance
program will be approximately $0.3 million. This budgeted amount does not
include the costs associated with the "replacement" systems as referenced in
Phase 2. The funds necessary to complete the systems replacement project and the
Y2K compliance program are included in the Company's Information Technology
operating budget. Approximately one-third of the amount budgeted for costs
directly associated with the Company's Y2K compliance program have been expended
as of March 31, 1999.
The Company is in the process of developing a contingency plan that
will be used in the event that any of its hardware, software or other computer
systems, or those of its vendors are not Y2K compliant, based on risks
identified as a result of the Company's assessment and testing phase of its Year
2000 compliance program.
While the Company fully expects that the precautions being taken will
prepare the Company for entering Year 2000, there is always the potential for
risk. The failure of the Company or any of its material suppliers to bring their
systems into Year 2000 compliance on a timely basis may have a material adverse
effect on the Company's operations.
27
<PAGE>
PART 1. FINANCIAL INFORMATION (continued)
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosure about Market Risk
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS-INTEREST RATE RISK MANAGEMENT" on page 21.
Additional quantitative and qualitative disclosures regarding market risk are
contained in the Company's Form 10-KSB for the fiscal year ended June 30, 1998.
28
<PAGE>
PART II. OTHER INFORMATION
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings
On October 23, 1997, a class action suit was filed in the Superior
Court of New Jersey - Law Division, Essex County (the "Superior Court") at
Docket No. L-12066-97 against New Jersey Mortgage and Investment and Corp.
("NJMIC") by Alfred G. Roscoe, on behalf of himself and others similarly
situated. Mr. Roscoe sought certification that the action may be maintained as a
class action as well as unspecified compensatory damages and injunctive relief.
In his complaint, Mr. Roscoe alleged that NJMIC violated New Jersey's Mortgage
Financing on Real Estate Law, N.J.S.A. 46:10A-1 et seq., by requiring him and
other borrowers to pay or reimburse NJMIC for attorneys' fees and costs in
connection with loans made to them by NJMIC. Mr. Roscoe further asserted that
NJMIC's alleged actions violated New Jersey's Consumer Fraud Act, N.J.S.A.
56:8-1, et seq., and constituted common law fraud and deceit. On February 24,
1998, after oral argument before the Superior Court, an order was entered in
favor of NJMIC and against Mr. Roscoe granting NJMIC's Motion for Summary
Judgement. Mr. Roscoe appealed to the Superior Court of New Jersey - Appellate
Division (the "Appellate Division"). Oral argument on the appeal was heard on
January 20, 1999 before a two-judge panel of the Appellate Division. On February
3, 1999, the panel filed a per curiam opinion affirming the superior court's
ruling in favor of NJMIC.
On March 4, 1999, a Petition for Certification for review of the final
judgment of the Superior Court was filed with the Supreme Court of New Jersey
(the "Supreme Court"). NJMIC filed its Brief in Opposition to the Petition for
Certification on March 16, 1999, which pleading was followed by the Petitioner's
filing of a Reply Brief. No decision has been rendered by the Supreme Court at
this time.
Pursuant to the terms of the Agreement for Purchase and sale of Stock
of NJMIC between the Company and the former stockholders of NJMIC, such former
stockholders are required to indemnify the Company up to $16.0 million in
connection with any losses related to, caused by or arising from NJMIC's failure
to comply with applicable law to the extent such losses exceed $100,000. Such
former stockholders have agreed to defend the Company in this suit.
Additionally from time to time, the Company is involved as plaintiff or
defendant in various legal proceedings arising in the normal course of its
business. While the ultimate outcome of these various legal proceedings cannot
be predicted with certainty, it is the opinion of management that the resolution
of these legal actions should not have a material effect on the Company's
financial position, results of operations or liquidity.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended March 31, 1999.
29
<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: May 14, 1999 BY: /s/ Albert W. Mandia
------------ ----------------------------------------------------
Albert W. Mandia
Executive Vice President and Chief Financial Officer
30
<PAGE>
AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------ ----------------------
27 Financial Data Schedule
31
<TABLE> <S> <C>
<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 March 31, 1999 and the nine months then ended and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 20,876,966
<SECURITIES> 0
<RECEIVABLES> 61,056,249
<ALLOWANCES> 1,006,505
<INVENTORY> 0
<CURRENT-ASSETS> 131,477,424
<PP&E> 16,372,338
<DEPRECIATION> 6,295,460
<TOTAL-ASSETS> 327,400,255
<CURRENT-LIABILITIES> 169,667,371
<BONDS> 0
0
0
<COMMON> 3,527
<OTHER-SE> 54,034,616
<TOTAL-LIABILITY-AND-EQUITY> 327,400,255
<SALES> 0
<TOTAL-REVENUES> 61,209,293
<CGS> 0
<TOTAL-COSTS> 45,078,348
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 745,269
<INTEREST-EXPENSE> 15,674,620
<INCOME-PRETAX> 16,130,945
<INCOME-TAX> 5,704,080
<INCOME-CONTINUING> 10,426,865
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,426,865
<EPS-PRIMARY> 2.96
<EPS-DILUTED> 2.87
</TABLE>
