1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1998
Commission File Number: 0-19822
LITCHFIELD FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3023928
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
430 MAIN STREET, WILLIAMSTOWN, MA 01267
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (413) 458-1000
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of November 9, 1998, there were 6,840,797 shares of common stock of
Litchfield Financial Corporation outstanding.
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FORM 10-Q
66
LITCHFIELD FINANCIAL CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 36
SIGNATURES 37
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LITCHFIELD FINANCIAL CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
<S> <C> <C>
September December
30, 31,
1998 1997
--------- ----
(unaudited)
ASSETS
Cash and cash equivalents...................... $ 14,732 $ 19,295
Restricted cash................................ 28,941 23,496
Loans held for sale, net of allowance for loan
losses of
$778 in 1998 and $1,388 in 1997............. 11,131 16,366
Other loans, net of allowance for loan losses of
$2,526 in 1998 and $2,044 in 1997........... 155,694 86,307
Retained interests in loan sales, net of 28,954 30,299
allowance for loan losses of
$3,202 in 1998 and $2,445 in 1997...........
Other.......................................... 13,142 11,027
------ ------
Total assets............................. $252,594 $186,790
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Lines of credit............................. $ 40,840 $ 177
Term note payable and mortgage payable...... 1,500 5,210
Accounts payable and accrued liabilities.... 6,702 6,479
Dealer/developer reserves................... 10,028 10,655
Deferred income taxes....................... 8,681 6,851
------ ------
67,751 29,372
9.3% Notes.................................. 20,000 20,000
8.45% Notes due 2002........................ 51,750 51,750
8.875% Notes due 2003....................... 15,066 15,317
10% Notes due 2004.......................... 18,240 18,280
------ ------
105,056 105,347
Stockholders' equity
Preferred stock, $.01 par value; authorized
1,000,000 shares, none
issued and outstanding................... --- ---
Common stock, $.01 par value; authorized
12,000,000 shares, 6,840,797 shares issued and
outstanding in 1998 and 5,656,609
shares issued and outstanding in 1997.... 68 56
Additional paid in capital.................. 57,634 36,681
Accumulated other comprehensive income...... 1,273 1,071
Retained earnings........................... 20,812 14,263
------ ------
Total stockholders' equity............... 79,787 52,071
------ ------
Total liabilities and stockholders' equity $252,594 $186,790
======== ========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Income
(In thousands, except share and per share amounts)
Unaudited
<S> <C> <C>
Three Months Ended
Sept. 30,
1998 1997
Revinues:
Interest and fees on loans................... $ 6,819 $5,025
Gain on sale of loans........................ 2,906 2,684
Servicing and other fee income............... 740 554
10,465 8,263
Expenses:
Interest expense............................. 3,423 2,733
Salaries and employee benefits............... 1,277 883
Other operating expenses..................... 906 889
Provision for loan losses.................... 360 244
5,966 4,749
Income before income taxes and extraordinary item 4,499 3,514
Provision for income............................ 1,732 1,353
Income before extraordinary item................ 2,767 2,161
Extraordinary item (net of tax benefit of $48).. (77) ---
Net income...................................... $2,690 $2,161
Basic per common share amounts:
Income before extraordinary item............. $ .40 $ .38
Extraordinary item........................... (.01) ---
Net income................................... $ .39 $ .38
Basic weighted average number of shares......... 6,835,775 5,629,644
Diluted per common share amounts:
Income before extraordinary ................. $ .39 $ .36
Extraordinary item........................... (.01) ---
Net income................................... $ .38 $ .36
Diluted weighted average number of shares....... 7,158,882 5,980,698
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Income
(In thousands, except share and per share amounts)
Unaudited
<S> <C> <C>
Nine Months Ended Sept.
30,
1998 1997
Revenues:
Interest and fees on loans................... $18,107 $14,354
Gain on sale of loans........................ 8,585 6,751
Servicing and other fee income............... 1,699 1,256
28,391 22,361
Expenses:
Interest expense............................. 10,115 7,775
Salaries and employee benefits............... 3,557 2,529
Other operating expenses..................... 2,775 2,645
Provision for loan 1osses.................... 1,170 979
17,617 13,928
Income before income taxes and extraordinary item 10,774 8,433
Provision for income taxes...................... 4,148 3,247
Income before extraordinary item................ 6,626 5,186
Extraordinary item (net of tax benefit of $48).. (77) ---
Net income...................................... $6,549 $5,186
Basic per common share amounts:
Income before extraordinary item.............. $ 1.09 $ .94
Extraordinary item............................ (.01) ---
Net income.................................... $ 1.08 $ .94
Basic weighted average number of shares 6,083,183 5,545,497
Diluted per common share amounts:
Income before extraordinary item.............. $ 1.03 $ .88
Extraordinary item............................ (.01) ---
Net income.................................... $ 1.02 $ .88
Diluted weighted average........................ 6,432,422 5,876,651
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<TABLE>
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
(In thousands)
Unaudited
<S> <C> <C>
Three Months Ended
Sept. 30,
1998 1997
Net income...................................... $2,690 $2,161
Other comprehensive income, net of tax:
Net unrealized gain on retained interests in
loan sales........................... 22 159
Comprehensive income............................ $2,712 $2,320
Nine Months Ended
Sept. 30,
1998 1997
Net income........................................ $6,549 $5,186
Other comprehensive income, net of tax:
Net unrealized gain on retained interests in
loan sales..................................... 202 682
Comprehensive income.............................. $6,751 $5,868
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<TABLE>
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statement of Stockholders' Equity
(In thousands, except share amounts)
Unaudited
<S> <C> <C> <C> <C> <C>
Accumulated
Additional Other
Common Paid In Comprehensive Retained
Stock Capital Income Earnings Total
Balance, December 31, 1997.. $56 $36,681 $1,071 $14,263 $52,071
Issuance of 1,184,188
shares of common stock.... 12 20,914 --- --- 20,926
Other comprehensive income,
net of tax................ --- --- 202 --- 202
Tax benefit from stock
options exercised......... --- 39 --- --- 39
Net income................. --- --- --- 6,549 6,549
Balance, September 30, 1998. $68 $57,634 $1,273 $20,812 $79,787
=== ======= ====== ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
LITCHFIELD FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
Unaudited
<S> <C> <C>
Nine Months Ended
Sept. 30,
1998 1997
----- -----
Cash flows from operating activities:
Net income..................................... $ 6,549 $ 5,186
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain on sale of loans........................ (8,585) (6,751)
Amortization and depreciation................ 735 412
Amortization of retained interests in loan
sales........................................ 4,569 3,441
Provision for loan losses.................... 1,170 979
Deferred income taxes........................ 1,830 1,780
Net changes in operating assets and liabilities:
Restricted cash......................... (5,445) (1,925)
Loans held for sale..................... 6,748 (12,530)
Retained interests in loan sales........ (1,903) (1,588)
Dealer/developer reserves............... (627) 262
Net change in other assets and liabilities (1,652) 1,185
------ -----
Net cash provided by (used in) operating
activities.............................. 3,389 (9,549)
----- ------
Cash flows from investing activities:
Net originations, purchases and principal
payments on other loans...................... (128,624) (37,831)
Other loans sold............................. 58,822 40,790
Collections on retained interests in loan sales 5,863 3,567
Capital expenditures and other assets........ (1,296) (548)
Investments in affiliates.................... (306) ---
Net cash (used in) provided by investing
activities................................ (65,541) 5,978
-------- ------
Cash flows from financing activities:
Net borrowings (payments) on lines of credit. 42,163 (15,827)
Proceeds from issuance of 9.3% Notes......... --- 20,000
Retirement of long-term Notes................ (291) (613)
Payments on term note........................ (5,210) (1,631)
Net proceeds from issuance of common stock.. 20,927 1,994
Net cash provided by financing activities. 57,589 3,923
Net (decrease) increase in cash and cash
equivalents...................................... (4,563) 352
Cash and cash equivalents, beginning of period... 19,295 5,557
Cash and cash equivalents, end of period......... $14,732 $5,909
Supplemental Schedule on Noncash Financing and
Investing Activities:
Exchange of loans for retained interests in
loan sales.................................... $ 692 $ 577
Transfers from loans to real estate acquired
through foreclosure......................... $ 1,104 $ 815
Supplemental Cash Flow Information:
Interest paid............................... $ 9,948 $7,556
Income taxes paid........................... $ 1,419 $1,455
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
A. Basis of Presentation
The accompanying unaudited consolidated interim financial statements as of
September 30, 1998 and for the three and nine month periods ended September 30,
1998 and 1997, have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal accruals) considered necessary
for a fair presentation have been included. Operating results for the three and
nine month periods ended September 30, 1998, are not necessarily indicative of
the results expected for the year ending December 31, 1998. For further
information, refer to the consolidated financial statements and notes thereto
included in Litchfield Financial Corporation's annual report on Form 10-K for
the year ended December 31, 1997.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income." The
Company adopted the requirements of this Statement in the first quarter. This
Statement established standards for reporting comprehensive income and its
components and requires this disclosure be added as a new item in the financial
statements.
B. Gain on Sale of Loans and Retained Interests in Loan Sales
Gains on sales of loans are based on the difference between the allocated
cost basis of the assets sold and the proceeds received, which includes the fair
value of any assets or liabilities that are newly created as a result of the
transaction. Newly created interests, which consist primarily of interest only
strips and recourse obligations, are initially recorded at fair value. The
previous carrying amount is allocated between the assets sold and any retained
interests based on their relative fair values at the date of transfer. Retained
interests in transferred assets consist primarily of subordinate portions of the
principal balance of transferred assets and interest only strips.
The Company estimates fair value using discounted cash flow analysis (using
discount rates commensurate with the risks involved), because quoted market
prices are not readily available. The Company's analysis incorporates
assumptions that market participants would be expected to use in their estimates
of future cash flows, including assumptions about return on investment, defaults
and prepayment rates. The Company considers retained interests in loan sales,
such as subordinated pass-through certificates and interest only strips, as
available for sale.
There is generally no servicing asset or liability because the Company
estimates that the benefits of servicing are offset by the related costs
associated with its servicing responsibilities.
Since its inception, the Company has sold $451,554,000 of loans at face
value ($348,198,000 through December 31, 1997). The principal amount remaining
on the loans sold was $232,272,000 at September 30, 1998 and $179,790,000 at
December 31, 1997. In connection with certain loan sales, the
<PAGE>
FORM 10-Q
LITCHFIELD FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Company
guarantees, through replacement or repayment, loans that default up to a
specified percentage of loans sold. Dealer/developer guaranteed loans are
secured by repurchase or replacement guarantees in addition to, in most
instances, dealer/developer reserves.
The Company's exposure to loss on loans sold in the event of nonperformance
by the consumer, default by the dealer/developer on its guarantee, and the
determination that the collateral is of no value was $10,756,000 at September
30, 1998 ($9,238,000 at December 31, 1997). Such amounts have not been
discounted. The Company repurchased $57,000 and $104,000 of loans under the
recourse provisions of loan sales during the three months ended September 30,
1998 and 1997. Loans purchased during the nine months ended September 30, 1998
and 1997 were $201,000 and $558,000, respectively, and $740,000 during the year
ended December 31, 1997. In addition, when the Company sells loans through
securitization programs, the Company commits either to replace or repurchase any
loans that do not conform to the requirements thereof in the operative loan sale
documents. As of September 30, 1998, $27,582,000 of the Company's cash was
restricted as credit enhancements in connection with certain securitization
programs. To date, the Company has participated $10,240,000 of A&D and Other
Loans without recourse to the Company ($6,936,000 through December 31, 1997).
The Company's Serviced Portfolio is geographically diversified with
collateral and consumers located in 46 and 50 states, respectively. The Serviced
Portfolio consists of the principal amount of loans serviced by or on behalf of
the Company, except loans participated without recourse to the Company. At
September 30, 1998, 16.1% and 11.2% of the Serviced Portfolio by collateral
location was located in Texas and Florida (19.1% and 8.7% at December 31, 1997),
respectively and 17.5% and 15.8% of the Serviced Portfolio by borrower location
was located in Florida and Texas (12.9% and 19.1% at December 31, 1997),
respectively. No other state accounted for more than 8.5% of the total by either
collateral or borrower location.
C. Allowance for Loan Losses and Recourse Obligations
The total allowance for loan losses consists of the following:
<TABLE>
<S> <C> <C>
September December
30, 31,
1998 1997
Allowance for losses on loans held for $ 778,000 $1,388,000
sale
Allowance for losses on other loans..... 2,526,000 2,044,000
Recourse obligation on retained 3,202,000 2,445,000
interests in loan sales................. $6,506,000 $5,877,000
</TABLE>
D. Debt
In January 1997, the Company amended a line of credit, secured by consumer
receivables and other secured loans, to increase the line from $5,000,000 to
$8,000,000. This line of credit matures in January 1999. There were no
outstanding borrowings at September 30, 1998 or December 31, 1997.
In March 1997, the Company entered into an additional $25,000,000 secured
line of credit. The outstanding borrowings under this line of credit at
September 30, 1998 were $7,440,000 and there were no outstanding borrowings at
December 31, 1997. The facility is secured by loans to developers of vacation
ownership interest resorts ("VOI resorts"), popularly known as timeshare
resorts, for the acquisition and development of VOI resorts ("Facility A") and
the related financing of consumer purchases of VOIs ("Facility B"). Although the
maximum amount that can be borrowed on each facility is $15,000,000, the
aggregate outstanding borrowings cannot exceed $25,000,000. This facility
expires in March 2000.
In May 1997, the Company renewed and amended an additional secured line of
credit to increase the line from $30,000,000 to $50,000,000 and extend the
maturity to April 2000. The outstanding borrowings under this line of credit at
September 30, 1998 were $10,250,000. There were no outstanding borrowings at
December 31, 1997. This line of credit is secured by consumer receivables and
other secured loans.
In December 1997, the Company amended an additional line of credit to
increase the line from $20,000,000 to $30,000,000. Outstanding borrowings under
this line of credit at September 30, 1998, were $23,150,000. There were no
outstanding borrowings at December 31, 1997. This facility is secured by certain
retained interests in loan sales, cash collateral accounts and certain other
loans and matures in September 1999.
In March 1998, the Company renewed an additional $3,000,000 line of credit,
which is secured by consumer receivables and other secured loans. This line of
credit matures in March 1999. There were no outstanding borrowings under this
line of credit at September 30, 1998 and December 31, 1997.
In March 1998, the Company amended the $1,500,000 construction mortgage,
secured by certain assets of the Company, extending the maturity date to March
2009. Outstanding borrowings under this construction mortgage were $1,500,000
and $8,000 at September 30, 1998 and December 31, 1997, respectively.
Interest rates on the above lines of credit range from the Eurodollar or
LIBOR rates plus 2% to the prime rate plus 1.25%. The Company is not required to
maintain compensating balances or forward sales commitments under the terms of
these lines of credit.
As of September 30, 1998 and December 31, 1997, the Company had no
unsecured lines of credit.
The Company has a revolving line of credit and sale facility as part of an
asset backed commercial paper facility with a multi-seller commercial paper
issuer ("Conduit A"). In June 1998, the Company amended the facility to increase
the facility to $150,000,000, subject to certain terms and conditions. The
facility expires in June 2001.
In connection with the facility, the Company formed a wholly-owned
subsidiary, Litchfield Mortgage Securities Corporation 1994 ("LMSC"), to
purchase loans from the Company. LMSC either pledges the loans on a revolving
line of credit with Conduit A or sells the loans to Conduit A. Conduit A issues
commercial paper or other indebtedness to fund the purchase or pledge of loans
from LMSC. Conduit A is not affiliated with the Company or its affiliates. As of
September 30, 1998 and December 31, 1997, the outstanding balance of the sold or
pledged loans securing this facility was $131,439,000 and $108,625,000,
respectively. There were no outstanding borrowings at September 30, 1998.
Outstanding borrowings under the line of credit at December 31, 1997 were
$169,000. Interest is payable on the line of credit at an interest rate based on
certain commercial paper rates.
In March 1997, the Company closed an additional revolving line of credit
and sale facility of $25,000,000 with another multi-seller of commercial paper
conduit ("Conduit B"). The facility, which expires in March 2000, is subject to
certain terms and conditions, credit enhancement requirements and loan
eligibility criteria. The outstanding aggregate balance of the loans pledged and
sold under the facility at any time cannot exceed $25,000,000.
In connection with the facility, the Company formed a wholly-owned
subsidiary, Litchfield Capital Corporation 1996 ("LCC"), to purchase loans from
the Company. LCC either pledges the loans on a revolving line of credit with
Conduit B or sells the loans to Conduit B. Conduit B issues commercial paper or
other indebtedness to fund the purchase or pledge of loans from LCC. Conduit B
is not affiliated with the Company or its affiliates. As of September 30, 1998
and December 31, 1997, the outstanding aggregate balance of the loans sold under
the facility was $10,981,000 and $12,517,000, respectively. There were no
outstanding borrowings under the line of credit as of September 30, 1998 or
December 31, 1997. Interest is payable on the line of credit at an interest rate
based on certain commercial paper rates.
In September of 1998, the Company redeemed a term note which was payable
monthly based on collections from the underlying collateral resulting in an
extraordinary loss of $77,000, net of applicable tax benefit of $48,000. The
note was collateralized by certain of the Company's retained interests in loan
sales and cash. The balance outstanding on the note was $5,210,000 at December
31, 1997.
In April 1997, the Company issued unsecured notes with an initial principal
balance of $20,000,000. Interest is payable at 9.3% semiannually in arrears. The
notes require principal reductions of $7,500,000, $6,000,000, $6,000,000 and
$500,000 in March 2001, 2002, 2003 and 2004, respectively.
In November 1997, the Company completed a public offering of $51,750,000 of
8.45% Notes due 2002 ("1997 Notes"), which are unsecured obligations of the
Company. The proceeds were used to repay the outstanding balance on certain of
the Company's lines of credit and to retire the 10% Notes due 2002. The 1997
Notes allow for a maximum annual redemption at the election of the noteholders
of $2,588,000 and contain certain restrictions regarding the payment of cash
dividends and require the maintenance of certain financial ratios.
Previously, the Company completed public debt offerings of $17,570,000 in
May 1993 ("1993 Notes") and $18,400,000 in March 1995 ("1995 Notes"). The 1993
Notes and the 1995 Notes bear interest at 8 7/8% and 10%, respectively, and are
due 2003 and 2004, respectively. The 1993 Notes and the 1995 Notes are unsecured
obligations of the Company and each such issuance allows for a maximum annual
redemption by noteholders of 5% of the original principal amount thereof. In
June 1997, the noteholders redeemed, and the Company paid $613,000 of the 1993
Notes. In April of 1998, the noteholders redeemed, and the Company paid $40,000
of the 1995 Notes. In June of 1998, the noteholders redeemed, and the Company
paid $251,000 of the 1993 Notes.
E. Derivative Financial Instruments Held for Purposes Other than
Trading
The Company's objective in managing interest rate exposure is to match its
proportion of fixed versus variable rate assets, liabilities and loan sale
facilities. In June 1997, the Company entered into two interest rate swap
agreements. The swap agreements involve the payment of interest to the
counterparty at the prime rate on a notional amount of $110,000,000 and the
receipt of interest at the commercial paper rate plus a spread and the LIBOR
rate plus a spread on notional amounts of $80,000,000 and $30,000,000,
respectively. The swap agreements expire in June, 2000. There is no exchange of
the notional amounts upon which the interest payments are based.
The differential to be paid or received as interest rates change is accrued
and recognized as an adjustment to interest income or expense (the accrual
accounting method.) The related amount receivable from or payable to the
counterparty is included in other assets or other liabilities. The fair values
of the swap agreements are not recognized in the financial statements. The
Company intends to keep the contracts in effect until they mature in June 2000.
In June, 1994, the Company entered into an interest rate cap agreement with
a bank in order to manage its exposure to certain increases in interest rates.
The interest rate cap entitles the Company to receive an amount, based on an
amortizing notional amount, which at September 30, 1998 was $3,860,000, when
commercial paper rates exceed 8%. If payments were to be received as a result of
the cap agreement, they would be accrued as a reduction of interest expense.
This agreement expires in July 2003.
The Company is exposed to credit loss in the event of non-performance by
the swap counterparty or cap provider.
F. Subsequent Events
In October 1998, the Company issued unsecured notes with an initial
principal balance of $10,000,000 ("Series A Notes"). Interest is payable at
8.25% monthly in arrears. The net proceeds from the sale of the Series A Notes
were used for general corporate purposes.
<PAGE>
FORM 10-Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-looking Statements
Except for the historical information contained or incorporated by reference
in this Form 10-Q, the matters discussed or incorporated by reference herein are
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the risk factors set forth under "Risk Factors" as well as the
following: general economic and business conditions; industry trends; changes in
business strategy or development plans; availability and quality of management;
and availability, terms and deployment of capital. Special attention should be
paid to such forward-looking statements including, but not limited to,
statements relating to (i) the Company's ability to execute its growth
strategies and to realize its growth objectives and (ii) the Company's ability
to obtain sufficient resources to finance its working capital needs and provide
for its known obligations. Refer to the Company's annual report on Form 10-K for
the year ended 1997 for a complete list of factors as discussed under "Risk
Factors".
Overview
Litchfield Financial Corporation (the "Company") is a diversified finance
company that provides financing to creditworthy borrowers for assets not
typically financed by banks. The Company provides such financing by purchasing
consumer loans and by making loans to businesses secured by consumer receivables
or other assets.
The Company purchases consumer loans (the "Purchased Loans") consisting
primarily of loans to purchasers of rural and vacation properties ("Land Loans")
and vacation ownership interests popularly known as timeshare interests ("VOI
Loans"). The Company also provides financing to rural land dealers, timeshare
resort developers and other finance companies secured by receivables
("Hypothecation Loans") and to dealers and developers for the acquisition and
development of rural land and timeshare resorts ("A&D Loans"). In addition, the
Company purchases other loans, such as consumer home equity loans, mortgages and
construction loans, and provides financing to other businesses secured by
receivables or other assets ("Other Loans").
Land Loans are typically secured by one to twenty acre rural parcels. Land
Loans are secured by property located in 35 states, predominantly in the
southern United States. VOI Loans typically finance the purchase of ownership
interests in fully furnished vacation properties. VOI Loans are secured by
property located in 18 states, predominantly in California, Florida and
Pennsylvania. The Company requires most dealers or developers from whom it buys
loans to guarantee repayment or replacement of any loan in default. Ordinarily,
the Company retains a percentage of the purchase price as a reserve until the
loan is repaid.
The Company extends Hypothecation Loans to land dealers, resort developers
and other finance companies secured by receivables. Hypothecation Loans
typically have advance rates of 75% to 90% of the current balance of the pledged
receivables and variable interest rates based on the prime rate plus 2% to 4%.
The Company also makes A&D Loans to land dealers and resort developers for
the acquisition and development of rural land and timeshare resorts in order to
finance additional receivables generated by the A&D Loans. At the time the
Company makes A&D Loans, it typically receives an exclusive right to purchase or
finance the related consumer receivables generated by the sale of the subdivided
land or timeshare interests. A&D Loans typically have loan to value ratios of
60% to 80% and variable interest rates based on the prime rate plus 2% to 4%.
The principal sources of the Company's revenues are (i) interest and fees
on loans, (ii) gains on sales of loans and (iii) servicing and other fee income.
Gains on sales of loans are based on the difference between the allocated cost
basis of the assets sold and the proceeds received, which includes the fair
value of any assets or liabilities that are newly created as a result of the
transaction. Because a significant portion of the Company's revenues is
comprised of gains realized upon sales of loans, the timing of such sales has a
significant effect on the Company's results of operations.
Results of Operations
The following table sets forth the percentage relationship to revenues,
unless otherwise indicated, of certain items included in the Company's
statements of income.
<TABLE>
<S> <C> <C> <C> <C>
Three Months Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
Revenue ---- ---- ---- ----
Interest and fees on loans...... 65.1% 60.8% 63.8% 64.2%
Gain on sale of loans........... 27.8 32.5 30.2 30.2
Servicing and other fee income.. 7.1 6.7 6.0 5.6
---- ---- ---- ----
100.0 100.0 100.0 100.0
----- ----- ----- -----
Expenses
Interest expense................ 32.7 33.1 35.6 34.8
Salaries and employee benefits.. 12.2 10.7 12.5 11.3
Other operating expenses........ 8.7 10.8 9.8 11.8
Provision for loan losses....... 3.4 2.9 4.1 4.4
---- ---- ---- ----
57.0 57.5 62.0 62.3
---- ---- ---- ----
Income before income taxes and
extraordinary item.................. 43.0 42.5 38.0 37.7
Provision for income taxes.......... 16.6 16.3 14.6 14.5
---- ---- ---- ----
Income before extraordinary item.... 26.4 26.2 23.4 23.2
Extraordinary item.................. (0.7) --- (0.3) ---
---- ---- ---- ----
Net income.......................... 25.7% 26.2% 23.1% 23.2%
==== ==== ==== ====
</TABLE>
Revenues increased 26.6% and 27.0% to $10,465,000 and $28,391,000 for the
three and nine months ended September 30, 1998, from $8,263,000 and $22,361,000
for the same periods in 1997. Net income for the three and nine months ended
September 30, 1998 increased 24.5% and 26.3% to $2,690,000 and $6,549,000
compared to $2,161,000 and $5,186,000 for the same periods in 1997. Loan
originations grew 83.0% and 90.9% to $93,784,000 and $256,861,000 for the three
and nine months ended September 30, 1998 from $51,235,000 and $134,546,000 for
the same periods in 1997. The Serviced Portfolio increased 40.5% to $417,455,000
at September 30, 1998 from $297,098,000 at September 30, 1997.
Interest and fees on loans increased 35.7% and 26.1% to $6,819,000 and
$18,107,000 for the three and nine months ended September 30, 1998 from
$5,025,000 and $14,354,000 for the same periods in 1997, primarily as the result
of the higher average balance of other loans during the 1998 period. The average
rate earned on the Serviced Portfolio decreased to 12.0% at September 30, 1998
from 12.3% at September 30, 1997, primarily due to the effect of the growth in
Hypothecation Loans as a percentage of the portfolio. Hypothecation Loan yields
are usually less than Land Loan or VOI Loan yields, but Hypothecation Loan
servicing costs and loan losses are generally less as well.
Gain on the sale of loans increased 8.3% and 27.2% to $2,906,000 and
$8,585,000 for the three and nine months ended September 30, 1998 from
$2,684,000 and $6,751,000 in the same periods in 1997. The volume of loans sold
decreased 10.9% to $34,474,000 for the three months ended September 30, 1998
from $38,694,000 during the three months ended September 30, 1997. The volume of
loans sold increased 32.2% to $103,356,000 for the nine months ended September
30, 1998 from $78,195,000 during the same period in 1997. For the three months
ended September 30, 1998, compared to the same period in 1997, the gain on sale
of loans increased despite a decrease in the volume of loans sold primarily due
to a higher percentage of Land Loans sold than Hypothecation Loans sold.
Hypothecation Loan sales typically yield less than Land Loans. For the nine
months ended September 30, 1998, compared to the same period in 1997, the
percentage increase in the gain on sale of loans was slightly less than the
percentage increase in the volume of loans sold primarily due to the slight
increase in Hypothecation Loans sold during the nine months ended September 30,
1998.
Servicing and other fee income increased 33.6% and 35.3% to $740,000 and
$1,699,000 for the three and nine months ended September 30, 1998, from $554,000
and $1,256,000 for the same periods in 1997 largely due to the increase in the
other fee income including certain processing fees, a prepayment penalty from a
Hypothecation Loan and a significant repayment fee from an A&D Loan. Although
loans serviced for others increased 33.5% to $232,272,000 as of September 30,
1998 from $174,009,000 at September 30, 1997, servicing income remained
relatively constant due to an increase in Hypothecation Loans serviced for
others and a decrease in the average servicing fee per loan.
Interest expense increased 25.2% and 30.1% to $3,423,000 and $10,115,000
during the three and nine months ended September 30, 1998 from $2,733,000 and
$7,775,000 for the same periods in 1997. The increase in interest expense
primarily reflects an increase in average borrowings which was only partially
offset by lower rates. During the three and nine months ended September 30,
1998, borrowings averaged $142,225,000 and $140,577,000, respectively, at an
average rate of 8.8% for both periods compared to $112,159,000 and $105,688,000
at an average rate of 9.0% and 9.1% during the same periods in 1997. Interest
expense includes the amortization of deferred debt issuance costs.
Salaries and employee benefits increased 44.6% and 40.6% to $1,277,000 and
$3,557,000 for the three and nine months ended September 30, 1998 from $883,000
and $2,529,000 for the same periods in 1997 because of an increase in the number
of employees in 1998 and, to a lesser extent, an increase in salaries. Personnel
costs as a percentage of revenues increased to 12.2% and 12.5% for the three and
nine months ended September 30, 1998 compared to 10.7% and 11.3% for the same
periods in 1997. However, as a percentage of the Serviced Portfolio, personnel
costs remained constant at 1.2% and 1.1% for the three and nine months ended
September 30, 1998, respectively, compared to the same periods in 1997.
Other operating expenses increased 1.9% and 4.9% to $906,000 and $2,775,000
for the three and nine months ended September 30, 1998 from $889,000 and
$2,645,000 for the same periods in 1997. As a percentage of revenues, other
operating expenses decreased to 8.7% and 9.8% for the three and nine months
ended September 30, 1998 compared to 10.8% and 11.8% for the corresponding
periods in 1997. As a percentage of the Serviced Portfolio, other operating
expenses decreased to 0.9% for both the three and nine months ended September
30, 1998 from 1.2% for the same periods in 1997. A portion of the increase in
the number of employees in 1998 and the resulting increase in salaries and
employee benefits and the corresponding decrease in other operating expenses
relates to the resumption in July 1998 of certain customer service and
collections activities from a third party servicer.
During the three and nine months ended September 30, 1998, the provision
for loan losses increased 47.5% and 19.5% to $360,000 and $1,170,000 from
$244,000 and $979,000 for the same periods in 1997 primarily due to the growth
of the Serviced Portfolio.
Liquidity and Capital Resources
The Company's business requires continued access to short and long-term
sources of debt financing and equity capital. The Company's principal cash
requirements arise from loan originations, repayment of debt on maturity,
payments of operating and interest expenses and loan repurchases. The Company's
primary sources of liquidity are loan sales, short-term borrowings under secured
lines of credit, long-term debt and equity offerings and cash flows from
operations.
Since its inception, the Company has sold $451,554,000 of loans at face
value ($348,198,000 through December 31, 1997). The principal amount remaining
on the loans sold was $232,272,000 at September 30, 1998 and $179,790,000 at
December 31, 1997. In connection with certain loan sales, the Company commits to
repurchase from investors any loans that become 90 days or more past due. This
obligation is subject to various terms and conditions, including, in some
instances, a limitation on the amount of loans that may be required to be
repurchased. There were approximately $10,756,000 of loans at September 30, 1998
which the Company could be required to repurchase in the future should such
loans become 90 days or more past due. The Company repurchased $57,000 and
$201,000 as compared to $104,000 and $558,000 of such loans under the recourse
provisions of loan sales during the three and nine months ended September 30,
1998 and 1997, respectively. As of September 30, 1998, $27,582,000 of the
Company's cash was restricted as credit enhancement for certain securitization
programs. To date, the Company has participated $10,240,000 of A&D and Other
Loans without recourse to the Company ($6,936,000 through December 31, 1997).
The Company funds its loan purchases in part with borrowings under various
lines of credit. Lines are paid down when the Company receives the proceeds from
the sale of the loans or when cash is otherwise available. These lines of credit
totaled $116,000,000 at September 30, 1998 and December 31, 1997. Outstanding
borrowings on the lines of credit were $40,840,000 at September 30, 1998.
Interest rates on these lines of credit range from the Eurodollar or LIBOR rate
plus 2% to the prime rate plus 1.25%. The Company is not required to maintain
compensating balances or forward sales commitments under the terms of these
lines of credit.
The Company also finances its loan purchases with two revolving line of
credit and sale facilities as part of asset backed commercial paper facilities
with multi-seller commercial paper issuers. Such facilities totaled $175,000,000
at September 30, 1998 and $150,000,000 at December 31, 1997. As of September 30,
1998 and December 31, 1997, the outstanding balances of loans sold or pledged
under these facilities were $142,420,000 and $121,142,000, respectively. There
were no outstanding borrowings under these lines of credit at September 30,
1998. Outstanding borrowings under these lines of credit were $169,000 at
December 31, 1997. Interest is payable on these lines of credit based on certain
commercial paper rates.
In June 1998, the Company issued 1,000,000 shares of common stock at $19
per share. The net proceeds of the offering were $17,695,000 and were used to
pay down certain lines of credit. In connection with the underwriters' option to
purchase additional shares to cover over-allotments, the Company issued an
additional 166,500 shares in July 1998. Net proceeds of these shares totaled
$2,990,000 and were also used to pay down certain lines of credit.
The Company also finances its liquidity needs with long-term debt.
Long-term debt totaled $105,056,000 at September 30, 1998 and $105,347,000 at
December 31, 1997.
In September of 1998, the Company redeemed a term note payable monthly
based on the collection of the underlying collateral resulting in an
extraordinary loss of $77,000, net of applicable tax benefit of $48,000. The
note was collateralized by certain of the Company's retained interests in loan
sales and cash. The balance outstanding on the note was $5,210,000 at December
31, 1997.
In June 1997, the Company entered into two interest rate swap agreements.
The swap agreements involve the payment of interest to the counterparty at the
prime rate on a notional amount of $110,000,000 and the receipt of interest at
the commercial paper rate plus a spread and the LIBOR rate plus a spread on
notional amounts of $80,000,000 and $30,000,000, respectively. The swap
agreements expire in June 2000. There is no exchange of the notional amounts
upon which interest payments are based.
In June, 1994, the Company entered into an interest rate cap agreement with
a bank in order to manage its exposure to certain increases in interest rates.
The interest rate cap entitles the Company to receive an amount, based on an
amortizing notional amount, which at September 30, 1998 was $3,860,000, when
commercial paper rates exceed 8%. If payments were to be received as a result of
the cap agreement, they would be accrued as a reduction of interest expense.
This agreement expires in July 2003.
Historically, the Company has not required major capital expenditures to
support its operations.
Credit Quality and Allowances for Loan Losses
The Company maintains allowances for loan losses and recourse obligations
on retained interests in loan sales at levels which, in the opinion of
management, provide adequately for current and estimated future losses on such
assets. Past-due loans (loans 30 days or more past due which are not covered by
dealer/developer reserves and guarantees) as a percentage of the Serviced
Portfolio as of September 30, 1998, decreased to 1.05% from 1.20% at December
31, 1997. Management evaluates the adequacy of the allowances on a quarterly
basis by examining current delinquencies, the characteristics of the accounts,
the value of the underlying collateral, and general economic conditions and
trends. Management also evaluates the extent to which dealer/developer reserves
and guarantees can be expected to absorb loan losses. When the Company does not
receive guarantees on loan portfolios purchased, it adjusts its purchase price
to reflect anticipated losses and its required yield. This purchase adjustment
is recorded as an increase in the allowance for loan losses and is used only for
the respective portfolio. A provision for loan losses is recorded in an amount
deemed sufficient by management to maintain the allowances at adequate levels.
Total allowances for loan losses and recourse obligations on retained interests
in loan sales increased to $6,506,000 at September 30, 1998 compared to
$5,877,000 at December 31, 1997. The allowance ratio (the allowances for loan
losses divided by the amount of the Serviced Portfolio) at September 30, 1998
decreased to 1.56% from 1.93% at December 31, 1997 primarily as a result of the
increase in Hypothecation Loans as a percentage of the Serviced Portfolio.
As part of the Company's financing of Purchased Loans, arrangements are
entered into with dealers and resort developers, whereby reserves are
established to protect the Company from potential losses associated with such
loans. As part of the Company's agreement with the dealers and resort
developers, a portion of the amount payable to each dealer and resort developer
for a Purchased Loan is retained by the Company and is available to the Company
to absorb loan losses for those loans. The Company negotiates the amount of the
reserves with the dealers and developers based upon various criteria, two of
which are the financial strength of the dealer or developer and credit risk
associated with the loans being purchased. Dealer/developer reserves amounted to
$10,028,000 and $10,655,000 at September 30, 1998 and December 31, 1997,
respectively. The Company generally returns any excess reserves to the
dealer/developer on a quarterly basis as the related loans are repaid by
borrowers.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. As a result, many companies'
software and computer systems may need to be upgraded or replaced in order to
comply with "Year 2000" requirements.
State of Readiness. The Company is in the process of evaluating the year
2000 readiness of the information technology systems used in its operations ("IT
Systems") and its non-IT Systems, such as building security, voice mail and
other systems. The process consists of the following phases: (i) identification
of all IT Systems and non-IT Systems; (ii) assessment of repair or replacement
requirements; (iii) repair or replacement; (iv) testing; (v) implementation; and
(vi) creation of contingency plans in the event of year 2000 failures.
The Company's current financial and accounting software was installed in
October 1998, and the supplier has informed the Company that such software is
year 2000 compliant. The Company uses a third party servicer to perform some
functions, such as receipt and posting of loan payments and other loan related
activity. The third party servicer has represented to the Company that its
systems are year 2000 compliant. In addition, the Company relies upon various
vendors, governmental agencies, utility companies, telecommunication service
companies, delivery service companies and other service providers who are
outside of its control. There is no assurance that such parties will not suffer
a year 2000 business disruption, which could have a material adverse effect on
the Company's financial condition and results of operations.
During 1998, the Company circulated a questionnaire to vendors and
customers with whom the Company has material relationships to obtain information
about year 2000 compliance. Until the review of these questionnaires is
completed, the Company will not be able to effectively evaluate whether any
remediation efforts are necessary with respect to its IT Systems (except as
described above) or non-IT Systems.
Costs. To date, the Company has not incurred any material expenditures in
connection with identifying or evaluating year 2000 compliance issues. Most of
its expenses have related to the opportunity cost of time spent by employees of
the Company evaluating year 2000 compliance matters generally. The Company
believes that internally generated funds or available cash should be sufficient
to cover the projected costs associated with any modifications to existing
software to make it year 2000 compliant. However, no assurances can be given
that such modifications can be made in a timely and cost effective manner.
Failure to make timely modifications could, in a worse case scenario, result in
the inability to process loans and loan related data and could have a material
adverse effect on the Company. At this time, the Company does not possess the
information necessary to estimate the potential impact of year 2000 compliance
issues relating to its other IT-Systems, non-IT Systems, its vendors, its
customers, and other parties. Such impact, including the effect of a year 2000
business disruption, could have a material adverse effect on the Company's
financial condition and results of operations.
Contingency Plan. The Company has not yet developed a year 2000-specific
contingency plan. If further year 2000 compliance issues are discovered, the
Company then will evaluate the need for one or more contingency plans relating
to such issues.
Inflation
Inflation has not had a significant effect on the Company's operating
results to date.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
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
<TABLE>
Item 5. Other Information
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended
Year Ended December 31, September 30,
1997 1996 1995 1994 1993 1998 1997
---- ---- ---- ---- ---- ---- ----
Statement of IncomeData (1):
Revenues:
Interest and fees
on loans...............$ 19,374 $ 14,789 $ 11,392 $ 5,669 $ 4,330 $ 18,107 $ 14,354
Gain on sale of
loans.................. 8,564 7,331 5,161 4,847 4,550 8,585 6,751
Servicing and
other fee income....... 1,753 1,576 908 459 501 1,699 1,256
------ ------ ------ ------ ------ ------ ------
Total revenues... 29,691 23,696 17,461 10,975 9,381 28,391 22,361
------ ------ ------ ------ ------ ------ ------
Expenses:
Interest expense... 10,675 7,197 6,138 3,158 2,717 10,115 7,775
Salaries and
employee benefits...... 3,399 2,824 2,798 1,776 1,350 3,557 2,529
Other operating
expenses............... 3,480 3,147 2,120 1,164 1,017 2,775 2,645
Provision for
loan losses............ 1,400 1,954 890 559 620 1,170 979
------ ------ ------ ------ ------ ------ ------
Total expenses... 18,954 15,122 11,946 6,657 5,704 17,617 13,928
------ ------ ------ ------ ------ ------ ------
Income before
income taxes and
extraordinary item... 10,737 8,574 5,515 4,318 3,677 10,774 8,433
Provision for
income taxes......... 4,134 3,301 2,066 1,619 1,426 4,148 3,247
------ ------ ------ ------ ------ ------ ------
Income before
extraordinary item..... 6,603 5,273 3,449 2,699 2,251 6,626 5,186
Extraordinary item (2) (220) --- --- (126) --- (77) ---
------ ------ ------ ------ ------ ------ ------
Net income....... $ 6,383 $ 5,273 $ 3,449 $ 2,573 $ 2,251 $ 6,549 $ 5,186
====== ====== ====== ====== ====== ====== ======
Basic per common share amounts:
Income before
extraordinary item...$ 1.19 $ .97 $ .80 $ .66 $ .55 $ 1.09 $ .94
Extraordinary item... (.04) -- -- (.03) -- (.01) --
------ ---- ------ ------- ------ -------- ------
Net income per
share..................$ 1.15 $ .97 $ .80 $ .63 $ .55 $ 1.08 $ .94
======= ======= ====== ====== ====== ======= =======
Basic weighted
average number
of shares
outstanding...........5,572,465 5,441,636 4,315,469 4,116,684 4,065,688 6,083,183 5,545,497
Diluted per common
share amounts:
Income before
extraordinary item... $ 1.12 $ .93 $ .76 $ .63 $ .53 $ 1.03 $ .88
Extraordinary item... (.04) -- -- (.03) -- (.01) --
------ ---- ------ ------- ------ -------- ------
Net income per
share..................$ 1.08 $ .93 $ .76 $ .60 $ .53 $ 1.02 $ .88
===== ==== ====== ======= ====== ========= =======
Diluted weighted
average number
of shares
outstanding............5,909,432 5,682,152 4,524,607 4,282,884 4,216,151 6,432,422 5,876,651
Cash dividends
declared per
common share........$ .06 $ .05 $ .04 $ .03 $ .02 $ -- $ --
Other Statement of
Income Data:
Income before
extraordinary item
as a percentage
of revenues.......... 22.3% 22.3% 19.8% 24.6% 24.0% 23.4% 23.2%
Ratio of EBITDA to
interest expense (3) 2.17 2.90 2.44 3.31 2.81 2.13 2.16
Ratio of earnings
to fixed charges(4).... 2.01 2.19 1.90 2.37 2.35 2.07 2.08
Return on average
assets (5)............. 3.8% 4.0% 3.7% 4.6% 5.0% 3.9% 4.3%
Return on average
equity (5)............. 14.1% 13.3% 16.6% 17.2% 17.0% 13.9% 14.9%
- ----------
</TABLE>
(1) Certain amounts in the 1993 through 1996 financial information have been
restated to conform to the 1997 and 1998 presentation. (2) Reflects loss on
early extinguishment of a portion of the 1992 Notes (as defined herein), net of
applicable tax benefit of $76,000, for 1994, of the remainder of the 1992 Notes,
net of applicable tax benefit of $138,000, for 1997, and of the term note
payable, net applicable tax benefit of $48,000, for 1998. (3) The ratio of
EBITDA to interest expense is required to be calculated for the twelve month
period immediately preceding each calculation date, pursuant to the terms of the
indentures to which the Company is subject. EBITDA is defined as earnings before
deduction of taxes, depreciation, amortization, and interest expense (but after
deduction for any extraordinary item). (4) For purposes of calculating the ratio
of earnings to fixed charges, earnings consist of income before income taxes and
extraordinary items and fixed charges. Fixed charges consist of interest charges
and the amortization of debt expense. (5) The return on average assets and
average equity for the nine month periods are calculated on an annualized basis.
Calculations are based on income before extraordinary item.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION - (Continued)
(Dollars in thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
December 31, Sept. 30,
Balance Sheet Data (6): 1997 1996 1995 1994 1993 1998
Total assets..........$186,790 $152,689 $112,459 $63,487 $54,444 $252,594
Loans held for sale (7) 16,366 12,260 14,380 11,094 5,931 11,131
Other loans (7)....... 86,307 79,996 33,613 15,790 10,306 155,694
Retained interests in
loan sales (7)........ 30,299 28,912 22,594 11,996 11,764 28,954
Secured debt.......... 5,387 43,727 9,836 5,823 -- 42,340
Unsecured debt........ 105,347 46,995 47,401 29,896 32,302 105,056
Stockholders' equity.. 52,071 42,448 37,396 16,610 14,722 79,787
Nine Months
Ended
Year Ended, December 31, Sept. 30,
Other Financial Data: 1997 1996 1995 1994 1993 1998
------ ------ ----- ----- ----- -----
Loans purchased and
originated (8)........$184,660 $133,750 $121,046 $ 59,798 $ 42,410 $256,861
Loans sold (8)........ 98,747 54,936 65,115 40,116 28,099 103,356
Loans participated (8) 6,936 -- -- -- -- 3,304
Serviced Portfolio (9) 304,102 242,445 176,650 105,013 84,360 417,455
Loans serviced for
others................ 179,790 129,619 111,117 72,731 59,720 232,272
Dealer/developer
reserves.............. 10,655 10,628 9,644 6,575 4,926 10,028
Allowance for loan
losses (10)........... 5,877 4,528 3,715 1,264 1,064 6,506
Allowance ratio (11).. 1.93% 1.87% 2.10% 1.20% 1.26% 1.56%
Delinquency ratio (12) 1.20% 1.34% 1.73% .93% .61% 1.05%
Net charge-off ratio
(8)(13)............... .74% .94% .67% .38% .69% .56%
Non-performing asset
ratio (14)............ 1.03% 1.57% 1.35% 1.02% 1.48% .88%
- ----------
</TABLE>
(6) In 1997 the Company adopted Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Consequently, certain amounts included in
the 1993 through 1996 financial statements have been reclassified to conform
with the 1997 and 1998 presentation: "Subordinated pass through certificates
held to maturity," "Excess servicing asset" and "Allowance for loans sold"
have been reclassified as "Retained interests in loan sales." In addition,
"Loans held for investment" have been reclassified as "Other loans."
(7) Amount indicated is net of allowance for losses and recourse obligation on
retained interests in loan sales.
(8) During the relevant period.
(9) The Serviced Portfolio consists of the principal amount of loans serviced by
or on behalf of the Company, except loans participated without recourse to
the Company.
(10)The allowance for loan losses includes allowance for losses under the
recourse provisions of loans sold. See Note C to financial statements.
(11)The allowance ratio is the allowances for loan losses divided by the amount
of the Serviced Portfolio.
(12)The delinquency ratio is the amount of delinquent loans divided by the
amount of the Serviced Portfolio. Delinquent loans are those which are 30
days or more past due which are not covered by dealer/developer reserves or
guarantees and not included in other real estate owned.
(13)The net charge-off ratio is determined by dividing the amount of net
charge-offs for the period by the average Serviced Portfolio for the period.
The September 30, 1998 amount is calculated on an annualized basis.
(14)The non-performing asset ratio is determined by dividing the sum of the
amount of those loans which are 90 days or more past due and other real
estate owned by the amount of the Serviced Portfolio.
<PAGE>
BUSINESS
Overview
Litchfield Financial Corporation (the "Company") is a diversified finance
company that provides financing to creditworthy borrowers for assets not
typically financed by banks. The Company provides such financing by purchasing
consumer loans and by making loans to businesses secured by consumer receivables
or other assets.
The Company purchases consumer loans (the "Purchased Loans") consisting
primarily of loans to purchasers of rural and vacation properties ("Land Loans")
and vacation ownership interests popularly known as timeshare interests ("VOI
Loans"). The Company also provides financing to rural land dealers, timeshare
resort developers and other finance companies secured by receivables
("Hypothecation Loans") and to dealers and developers for the acquisition and
development of rural land and timeshare resorts ("A&D Loans"). In addition, the
Company purchases other loans, such as consumer home equity loans, mortgages and
construction loans, and provides financing to other businesses secured by
receivables or other assets ("Other Loans").
The principal sources of the Company's revenues are (i) interest and fees
on loans, (ii) gains on sales of loans and (iii) servicing and other fee income.
Gains on sales of loans are based on the difference between the allocated cost
basis of the assets sold and the proceeds received, which includes the fair
value of any assets or liabilities that are newly created as a result of the
transaction. Because a significant portion of the Company's revenues is
comprised of gains realized upon sales of loans, the timing of such sales has a
significant effect on the Company's results of operations.
Characteristics of the Serviced Portfolio, Loan Purchases and
Originations
The following table shows the growth in the diversity of the Serviced
Portfolio from primarily Purchased Loans to a mix of Purchased Loans,
Hypothecation Loans, A&D Loans and Other Loans:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
December 31, Sept.
30,
1997 1996 1995 1994 1993 1998
------ ------ ------ ------ ------ -----
Purchased Loans..........56.6% 67.1% 81.6% 85.3% 89.0% 42.6%
Hypothecation Loans......26.9 20.7 12.5 9.0 5.0 34.0
A&D Loans................13.7 8.7 3.1 3.3 4.3 12.1
Other Loans...............2.8 3.5 2.8 2.4 1.7 11.3
--- ----- ----- ----- ----- ----
Total.........100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
The following table shows the growth in the diversity of the Company's
originations from primarily Purchased Loans to a mix of Purchased Loans,
Hypothecation Loans, A&D Loans and Other Loans:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Nine Months
Year Ended December 31, Ended
Sept. 30,
1997 1996 1995 1994 1993 1997 1998
------ ------ ------ ------ ------ ------ ------
Purchased Loans..... 30.3% 49.9% 71.4% 67.6% 77.8% 16.7% 34.4%
Hypothecation Loans. 37.1 29.6 20.9 22.2 11.8 48.5 34.6
A&D Loans........... 24.0 14.4 3.1 6.0 7.1 12.1 22.6
Other Loans......... 8.6 6.1 4.6 4.2 3.3 22.7 8.4
----- ----- ----- ----- ----- ---- ----
Total.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>
(1) Purchased Loans
The Company provides indirect financing to consumers through a large number
of experienced land dealers and resort developers from which it regularly
purchases Land Loans and VOI Loans. The dealers and resort developers make loans
to consumers generally using the Company's standard forms and subject to the
Company's underwriting criteria. The Company then purchases such loans from the
land dealers and resort developers on an individually approved basis in
accordance with its credit guidelines.
Each land dealer and resort developer from whom the Company purchases loans
is interviewed by the Company and approved by its credit committee. Management
evaluates each land dealer's and resort developer's experience, financial
statements and credit references and inspects a substantial portion of the land
dealer's and resort developer's inventory of land and VOIs prior to approval of
loan purchases.
In order to enhance the creditworthiness of loans purchased from land
dealers and resort developers, the Company typically requires land dealers and
resort developers to guarantee payment of the loans and typically retains a
portion of the amount payable by the Company to each land dealer and resort
developer on purchase of the loan. The retained portion, or reserve, is released
to the land dealer or resort developer as the related loan is repaid.
Prior to purchasing Land Loans or VOI Loans, the Company evaluates the
credit and payment history of each borrower in accordance with it's underwriting
guidelines, performs borrower interviews on a sample of loans, reviews the
documentation supporting the loans for completeness and obtains an appropriate
opinion from local legal counsel. The Company purchases only those loans which
meet its credit standards.
The Company also purchases portfolios of seasoned loans primarily from land
dealers and resort developers. The land dealers or resort developers typically
guarantee the loans sold and the Company typically withholds a reserve as
described above. Management believes that the portfolio acquisition program is
attractive to land dealers and resort developers because it provides them with
liquidity to purchase additional inventory. The Company also purchases
portfolios of seasoned loans from financial institutions and others. Sellers
generally do not guarantee such loans, but the Company sets aside a portion of
the purchase discount as an allowance for future loan losses.
In evaluating such seasoned portfolios, the Company conducts its normal
review of the borrower's documentation, payment history and underlying
collateral. However, the Company may not always be able to reject individual
loans.
The Company's portfolio of Purchased Loans is secured by property located in
38 states.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Principal Amount of Loans
December 31, Sept.
30,
1997 1996 1995 1994 1993 1998
---- ---- ---- ---- ---- ----
Southwest...............30% 26% 16% 19% 18% 31%
South...................31 31 31 37 33 31
West....................17 20 20 3 2 19
Mid-Atlantic............10 10 16 16 17 8
Northeast...............12 13 17 25 30 11
-- -- -- -- -- ---
Total.............100% 100% 100% 100% 100% 100%
=== === === === === ===
</TABLE>
a. Land Loans
Dealers from whom the Company purchases Land Loans are typically
closely-held firms with annual revenues of less than $3.0 million. Dealers
generally purchase large rural tracts (generally 100 or more acres) from farmers
or other owners and subdivide the property into one to twenty acre parcels for
resale to consumers. Generally the subdivided property is not developed
significantly beyond the provision of graded access roads. In recreational
areas, sales are made primarily to urban consumers who wish to use the property
for a vacation or retirement home or for recreational purposes such as fishing,
hunting or camping. In other rural areas, sales are more commonly made to
persons who will locate a manufactured home on the parcel. The aggregate
principal amount of Land Loans purchased from individual dealers during the nine
months ended September 30, 1998 varied significantly from a low of approximately
$6,300 to a high of approximately $4.7 million. As of September 30, 1998 and
December 31, 1997, the five largest dealers accounted for approximately 21.1%
and 18.4%, respectively, of the principal amount of the Land Loans in the
Serviced Portfolio. No single dealer accounted for more than 5.4% and 5.0% at
September 30, 1998 and at December 31, 1997.
As of September 30, 1998 and December 31, 1997, 37.6% and 47.0%,
respectively, of the Serviced Portfolio consisted of Land Loans. The average
principal balance of such Land Loans was approximately $13,000 at both September
30, 1998 and December 31, 1997. The following table sets forth as of September
30, 1998 the distribution of Land Loans in the Company's Serviced Portfolio:
<TABLE>
<S> <C> <C> <C> <C>
Percentage of Percentage of
Principal Balance Principal Principal Number Number of
Amount Amount of Loans Loans
------ ------ ------ ------
Less than $10,000.....$29,083,000 18.5% 5,586 46.3%
$10,000-$19,999........60,720,000 38.7 4,261 35.4
$20,000 and greater....67,288,000 42.8 2,210 18.3
---------- ----- ----- -----
Total................$157,091,000 100.0% 12,057 100.0%
========== ===== ===== =====
</TABLE>
As of September 30, 1998 and December 31, 1997, the weighted
average interest rate of the Land Loans included in the Company's Serviced
Portfolio was 12.1%. The weighted average remaining maturity was 12.0 and 12.1
years, respectively, at September 30, 1998 and December 31, 1997. The following
table sets forth as of September 30, 1998 the distribution of interest rates
payable on the Land Loans:
<TABLE>
<S> <C> <C>
Percentage of
Principal Principal
Interest Rate Amount Amount
Less than 12.0%........................$ 55,256,000 35.2%
12.0%-13.9%..............................77,018,000 49.0
14.0% and greater........................24,817,000 15.8
---------- -----
Total.............................$157,091,000 100.0%
============ =====
</TABLE>
As of September 30, 1998 and December 31, 1997, the Company's Land Loan
borrowers resided in 50 states, the District of Columbia and nine and two
territories or foreign countries, respectively.
b. VOI Loans
The Company purchases VOI Loans from various resort developers. The Company
generally targets small to medium size resorts with completed amenities and
established property owners associations. These resorts participate in programs
that permit purchasers of VOIs to exchange their timeshare intervals for
timeshare intervals in other resorts around the world. During the nine months
ended September 30, 1998, the Company acquired approximately $1,712,000 of VOI
Loans. As of September 30, 1998 and December 31, 1997, the five largest
developers accounted for approximately 35.9% and 36.6%, respectively, of the
principal amount of the VOI Loans in the Serviced Portfolio. No single developer
accounted for more than 9.5% at September 30, 1998 or at December 31, 1997.
As of September 30, 1998 and December 31, 1997, 5.0% and 9.6%, respectively,
of the Serviced Portfolio consisted of VOI Loans. The average principal balance
of such VOI Loans was approximately $3,500 and $3,600, respectively. The
following table sets forth as of September 30, 1998 the distribution of VOI
Loans:
<TABLE>
<S> <C> <C> <C> <C>
Percentage Percentage
of Number of of
Principal Balance Principal Principal Loans Number of
Amount Amount Loans
---------- ------- ------ ---------
Less than $4,000...... $ 8,026,000 38.4% 3,863 63.9%
$4,000-$5,999......... 7,190,000 34.4 1,446 23.9
$6,000 and greater.... 5,668,000 27.2 737 12.2
--------- ----- ---- ----
Total............ $20,884,000 100.0% 6,046 100.0%
=========== ===== ===== =====
</TABLE>
As of September 30, 1998 and December 31, 1997, the weighted average
interest rate of the VOI Loans included in the Company's Serviced Portfolio was
14.6% and the weighted average remaining maturity was 3.7 years. The following
table sets forth as of September 30, 1998 the distribution of interest rates
payable on the VOI Loans:
<TABLE>
<S> <C> <C>
Percentage of
Principal Principal
Interest Rate Amount Amount
- ------------- ------ ----------
Less than 14.0%.................... $ 8,853,000 42.4%
14.0%-15.9%.......................... 5,058,000 24.2
16.0% and greater.................... 6,973,000 33.4
--------- -----
Total......................... $20,884,000 100.0%
=========== =====
</TABLE>
As of September 30, 1998 and December 31, 1997, the Company's VOI
borrowers resided in 50 states, the District of Columbia and four territories or
foreign countries.
(2) Hypothecation Loans
The Company extends Hypothecation Loans to land dealers and resort
developers and other businesses secured by receivables. The Company has expanded
its marketing of Hypothecation Loans to include loans to other finance companies
secured by other types of collateral. These loans may be larger than the
Company's average Hypothecation Loans and may provide the Company with an option
to take an equity position in the borrower. During the nine months ended
September 30, 1998, the Company extended or acquired approximately $124.5
million of Hypothecation Loans, of which $20.4 million, or 16.4%, were secured
by Land Loans, $62.6 million, or 50.3%, were secured by VOI Loans and $41.5
million, or 33.3%, were secured by other types of collateral such as tax lien
certificates, accounts receivable and mortgages.
The Company typically extends Hypothecation Loans based on advance rates of
75% to 90% of the eligible receivables which serve as collateral. The Company's
Hypothecation Loans are typically made at variable rates based on the prime rate
of interest plus 2% to 4%. As of September 30, 1998 and December 31, 1997, the
Company had $142.0 million and $81.9 million of Hypothecation Loans outstanding,
none of which were 30 days or more past due. During the three months ended March
31, 1998, the Company acquired a $17.0 million participation interest in a
Hypothecation Loan from another financial institution. As planned, in May of
1998, the Company purchased the underlying receivables, which the Company has
reclassified as Other Loans. The proceeds of the receivables purchased were
applied to pay off the Company's participation interest. At September 30, 1998,
Hypothecation Loans ranged in size from $4,400 to $18.2 million with an average
principal balance of $1,480,000. At December 31, 1997, Hypothecation Loans
ranged in size from $7,800 to $8.7 million with an average balance of
$1,204,000. The five largest Hypothecation Loans represented 13.2% and 10.7% of
the Serviced Portfolio at September 30, 1998 and December 31, 1997,
respectively.
(3) A&D Loans
The Company also makes A&D Loans to dealers and developers for the
acquisition and development of rural and timeshare resorts in order to finance
additional receivables generated by the A&D Loans. During the nine months ended
September 30, 1998, the Company made $31.1 million of A&D Loans to land dealers
and resort developers, of which $12.2 million, or 39.2%, were secured by land,
$18.9 million, or 60.8%, were secured by resorts under development.
The Company generally makes A&D Loans to land dealers and resort developers
based on loan to value ratios of 60% to 80% at variable rates based on the prime
rate plus 2% to 4%. As of September 30, 1998 and December 31, 1997, the Company
had $50.3 million and $41.7 million, respectively, of A&D Loans outstanding,
none of which were 30 days or more past due. At September 30, 1998 and December
31, 1997, A&D Loans were secured by timeshare resort developments and rural land
subdivisions in 19 states and one territory and 18 states and one territory,
respectively. A&D Loans ranged in size from $1,700 to $8.8 million with an
average principal balance of $661,000 at September 30, 1998. A&D Loans ranged in
size from $7,800 to $7.3 million with an average principal balance of $622,000
at December 31, 1997. The five largest A&D Loans represented 4.8% and 6.1%, of
the Serviced Portfolio at September 30, 1998 and December 31, 1997,
respectively.
(4) Other Loans
At September 30, 1998, Other Loans consisted primarily of consumer home
equity, mortgage and construction loans, builder construction loans and other
secured commercial loans. Historically, the Company has made or acquired certain
other secured and unsecured loans to identify additional lending opportunities
or lines of business for possible future expansion as it did with VOI Loans and
Hypothecation Loans. In May of 1998, the Company purchased 232 builder
construction loans totaling $32.7 million, a portion of which had previously
been collateral for the Hypothecation Loan in which the Company owned a
participation interest. At September 30, 1998, the Company had 187 of the
builder construction loans totaling $32.2 million. The Company had $47.2 million
and $8.5 million of Other Loans, 1.21% and 1.97% of which were 90 days or more
past due at September 30, 1998 and December 31, 1997, respectively. At September
30, 1998, Other Loans ranged in size from less than $500 to $868,600 with an
average principal balance of $63,500. At December 31, 1997, Other Loans ranged
in size from less than $500 to $151,000 with an average principal balance of
$13,800. The five largest Other Loans represent 0.9% and 0.2% of the Serviced
Portfolio at September 30, 1998 and December 31, 1997, respectively.
Loan Underwriting
The Company has established loan underwriting criteria and procedures
designed to reduce credit losses on its Serviced Portfolio. The loan
underwriting process includes reviewing each borrower's credit history. In
addition, the Company's underwriting staff routinely conducts telephone
interviews with a sample of borrowers. The primary focus of the Company's
underwriting is to assess the likelihood that the borrower will repay the loan
as agreed by examining the borrower's credit history through credit reporting
bureaus.
The Company's loan policy is to purchase Land and VOI Loans from $3,000 to
$50,000. On a case by case basis, the Company will also consider purchasing such
loans in excess of $50,000. As of September 30, 1998, the Company had 158 Land
Loans exceeding $50,000 representing 0.8% of the number of such loans in the
Serviced Portfolio, for a total of $11.3 million. There were no VOI Loans
exceeding $50,000 as of September 30, 1998. The Company will originate
Hypothecation Loans up to $15 million and A&D Loans up to $10 million. From time
to time, the Company may have an opportunity to originate larger Hypothecation
Loans or A&D Loans in which case the Company would seek to participate such
loans with other financial institutions. Construction Loans greater than
$200,000 and any other loans greater than $100,000 must be approved by the
Credit Committee which is comprised of the Chief Executive Officer, Executive
Vice President, Chief Financial Officer and two Senior Vice Presidents.
Collections and Delinquencies
Management believes that the relatively low delinquency rate for the
Serviced Portfolio is attributable primarily to the application of its
underwriting criteria, as well as to dealer guarantees and reserves withheld
from dealers and developers. No assurance can be given that these delinquency
rates can be maintained in the future.
Collection efforts are managed and delinquency information is analyzed at
the Company's headquarters. Unless circumstances otherwise dictate, collections
are generally made by mail and telephone. Collection efforts begin when an
account is seven days past due, at which time the Company sends out a late
notice. When an account is fifteen days past due, the Company attempts to
contact the borrower to determine the reason for the delinquency and to attempt
to cause the account to become current. If the status of the account continues
to deteriorate, an analysis of that delinquency is undertaken by the collection
manager to determine the appropriate action. When the loan is 90 days past due
in accordance with its original terms and it is determined that the amounts
cannot be collected from the dealer or developer guarantees or reserves, the
loan is generally placed on a nonaccrual status and the collection manager
determines the action to be taken. The determination of how to work out a
delinquent loan is based upon many factors, including the borrower's payment
history and the reason for the current inability to make timely payments. When a
guaranteed loan becomes 60 days (90 days in some cases) past due, in addition to
the Company's collection procedures, the Company generally obtains the
assistance of the dealer or developer in collecting the loan.
The Company extends a limited number of its loans for reasons the Company
considers acceptable such as temporary loss of employment or serious illness. In
order to qualify for a one to three month extension, the customer must make
three timely payments without any intervention from the Company. For extensions
of four to six months, the customer must make four to six timely payments,
respectively, without any intervention from the Company. The Company will not
extend a loan more than two times for an aggregate six months over the life of
the loan. The Company has extended approximately 1.0% of its loans through
September 30, 1998. The Company does not generally modify any other loan terms
such as interest rates or payment amounts.
Regulations and practices regarding the rights of the mortgagor in default
vary greatly from state to state. To the extent permitted by applicable law, the
Company collects late charges and return-check fees and records these items as
additional revenue. Only if a delinquency cannot otherwise be cured will the
Company decide that foreclosure is the appropriate course of action. If the
Company determines that purchasing a property securing a mortgage loan will
minimize the loss associated with such defaulted loan, the Company may accept a
deed in lieu of foreclosure, take legal action to collect on the underlying note
or bid at the foreclosure sale for such property.
Serviced Portfolio
The following table shows the Company's delinquencies and delinquency rates,
net of dealer/developer reserves and guarantees for the Serviced Portfolio:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Nine
Months
Ended
Year Ended December 31, Sept. 30,
1997 1996 1995 1994 1993 1998
Serviced
Portfolio......$304,102,000 $242,445,000 $176,650,000 $105,013,000 $84,360,000 $417,455,000
Delinquent
loans(1)....... 3,642,000 3,255,000 3,062,000 981,000 511,000 4,373,000
Delinquency
as a
Percentage of
Serviced
Portfolio...... 1.20% 1.34% 1.73% .93% .61% 1.05%
- ----------
</TABLE>
(1)Delinquent loans are those which are 30 days or more past due which are not
covered by dealer/developer reserves or guarantees and not included in other
real estate owned.
Land Loans
The following table shows the Company's delinquencies and delinquency rates,
net of dealer/developer reserves and guarantees for Land Loans in the Serviced
Portfolio:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Nine
Months
Ended
Year Ended December 31, Sept. 30,
1997 1996 1995 1994 1993 1998
--------- --------- ---------- ------- ------- -------
Land Loans in
Serviced
Portfolio.....$142,828,000 $119,370,000 $97,266,000 $90,502,000 $77,258,000 $157,091,000
Delinquent Land
Loans(1)..... 2,453,000 1,920,000 1,059,000 981,000 511,000 3,056,000
Delinquency as
a
Percentage of
Land Loans in
Serviced
Portfolio...... 1.72% 1.61% 1.09% 1.08% .66% 1.95%
- ----------
</TABLE>
(1)Delinquent loans are those which are 30 days or more past due which are not
covered by dealer/developer reserves or guarantees and not included in other
real estate owned.
VOI Loans
The following table shows the Company's delinquencies and delinquency rates,
net of dealer/developer reserves and guarantees for VOI Loans in the Serviced
Portfolio:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Nine
Months
Ended
Year Ended December 31, Sept. 30,
1997 1996 1995 1994 1993 1998
----- ----- ----- ----- ----- ---------
VOI Loans in
Serviced
Portfolio.... $29,232,000 $43,284,000 $46,700,000 $2,851,000 $1,434,000 $20,884,000
Delinquent VOI
Loans(1)..... 739,000 1,316,000 1,958,000 -- -- 394,000
Delinquency as a
percentage of
VOI
Loans in
Serviced
Portfolio.... 2.53% 3.04% 4.19% -- -- 1.89%
- ----------
</TABLE>
(1)Delinquent loans are those which are 30 days or more past due which are not
covered by dealer/developer reserves or guarantees and not included in other
real estate owned.
Hypothecation, A&D and Other Loans
The Company did not have any delinquent Hypothecation Loans or A&D Loans for
the years ended December 31, 1993 through December 31, 1997 or for the nine
months ended Sept. 30, 1998. The Company did not have significant amounts of
delinquent Other Loans for the years ended December 31, 1993 through December
31, 1996. At December 31, 1997, there were $8.5 million of Other Loans of which
$450,000 or 5.3% were 30 days or more past due and not covered by
dealer/developer reserves or guarantees and not included in other real estate
owned. At September 30, 1998, there were $47.2 million of Other Loans of which
$924,000 or 2.0% were 30 days or more past due and not covered by
dealer/developer reserves or guarantees and not included in other real estate
owned.
Allowance for Loan Losses, Net Charge-offs and Dealer Reserves
The following is an analysis of the total allowances for all loan losses:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Nine
Months
Ended
Year Ended December 31, Sept. 30,
1997 1996 1995 1994 1993 1998
------ ------ ------ ------ ------ ------
Allowance,
beginning of
year.............$4,528,000 $3,715,000 $1,264,000 $1,064,000 $ 498,000 $5,877,000
Provision for
loan losses........ 1,400,000 1,954,000 890,000 559,000 620,000 1,170,000
Net charge-offs of
uncollectible
accounts...........(2,010,000) (1,965,000 (946,000) (359,000) (493,000)(1,505,000)
Allocation of
purchase
adjustment(1).... 1,959,000 824,000 2,507,000 --- 439,000 964,000
Allowance, end of
year...............$5,877,000 $4,528,000 $3,715,000 $1,264,000 $1,064,000 $6,506,000
- ----------
</TABLE>
(1)Represents allocation of purchase adjustment related to purchase of certain
nonguaranteed loans.
The following is an analysis of net charge-offs by major loan and collateral
types experienced by the Company:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Nine
Months
Ended
Year Ended December 31, Sept.30,
1997 1996 1995 1994 1993 1998
------ ------- ------- ------- ------- -------
Land Loans............. $986,000 $ 669,000 $546,000 $359,000 $493,000 $861,000
VOI Loans.............. 939,000 1,284,000 45,000 -- -- 460,000
Hypothecation Loans.... -- -- -- -- -- --
A&D Loans.............. (2,000) (8,000) 352,000 -- -- --
Other Loans............ 87,000 20,000 3,000 -- -- 184,000
Total net charge-offs.$2,010,000$ 1,965,000 $946,000 $359,000 $493,000 $1,505,000
Net charge-offs as a
percentage
of the average
Serviced Portfolio..... .74% .94% .67% .38% .69% .56%
</TABLE>
As part of the Company's financing of Land Loans and VOI Loans, the Company
enters into arrangements with most land dealers and resort developers whereby
the Company establishes reserves to protect the Company from potential losses
associated with such loans. The Company retains a portion of the amount payable
to a dealer when purchasing a Land Loan or a VOI Loan and uses the amount
retained to absorb loan losses. The Company negotiates the amount of the
reserves with the land dealers and resort developers based upon various
criteria, two of which are the financial strength of the land dealer or resort
developer and the credit risk associated with the loans being purchased. Dealer
reserves for Land Loans were $6,420,000, $7,555,000 and $8,321,000 at December
31, 1995, 1996 and 1997, respectively, and $8,269,000 at September 30, 1998.
Developer reserves for VOI Loans amounted to $3,224,000, $3,072,000 and
$2,299,000 at December 31, 1995, 1996 and 1997, respectively, and $1,759,000 at
September 30, 1998. Most dealers and developers provide personal and, when
relevant, corporate guarantees to further protect the Company from loss.
Loan Servicing and Sales
The Company retains the right to service all the loans it purchases or
originates. Servicing includes collecting payments from borrowers, remitting
payments to investors who have purchased the loans, accounting for principal and
interest, contacting delinquent borrowers and supervising foreclosure and
bankruptcies in the event of unremedied defaults. Substantially all servicing
results from the origination and purchase of loans by the Company, and the
Company has not historically purchased loan servicing rights except in
connection with the purchase of loans. Servicing rates generally approximate .5%
to 2% of the principal balance of a loan.
Historically, the Company subcontracted the servicing of its loans to an
unaffiliated third party. In July 1998, the Company resumed certain customer
service and collection functions. The unaffiliated third party will continue to
provide certain data processing and payment processing functions. The Company
retains responsibility for servicing all loans as a master servicer.
In 1990, the Company began privately placing issues of pass-through
certificates evidencing an undivided beneficial ownership interest in pools of
mortgage loans which have been transferred to trusts. The principal and part of
the interest payments on the loans transferred to the trust are collected by the
Company, as the servicer of the loan pool, remitted to the trust for the benefit
of the investors, and then distributed by the trust to the investors in the
pass-through certificates.
As of September 30,1998, the Company had sold or securitized a total of
approximately $451.6 million in loans. In certain of the Company's issues of
pass-through certificates, credit enhancement was achieved by dividing the issue
into a senior portion which was sold to the investors and a subordinated portion
which was retained by the Company. In certain other of the Company's private
placements, credit enhancement was achieved through cash collateral. If
borrowers default in the payment of principal or interest on the loans
underlying these issues of pass-through certificates, losses would be absorbed
first by the subordinated portion or cash collateral account retained by the
Company and might, therefore, have to be charged against the allowance for loan
losses to the extent dealer guarantees and reserves are not available.
The Company also has a $150.0 million revolving line of credit and sale
facility for its land loans as part of an asset backed commercial paper facility
with a multi-seller commercial paper conduit. The facility expires in June 2001.
As of September 30, 1998, the outstanding balance of the sold or pledged loans
securing this facility was $131.4 million. The Company has an additional
revolving line of credit and sale facility of $25.0 million with another
multi-seller commercial paper conduit. The facility expires in March 2000. As of
September 30, 1998, the outstanding aggregate balance of the sold loans under
the facility was $11.0 million.
Marketing and Advertising
The Company markets its program to rural land dealers and resort developers
through brokers, referrals, dealer and developer solicitation, and targeted
direct mail. The Company employs three marketing executives based in Lakewood,
Colorado, five marketing executives based in Williamstown, Massachusetts, one
marketing executive in Atlanta, Georgia and two marketing executives based in
Hoover, Alabama. In the last five years the Company has closed loans with over
300 different dealers and developers.
Management believes that the Company benefits from name recognition as a
result of its referral, advertising and other marketing efforts. Referrals have
been the strongest source of new business for the Company and are generated in
the states in which the Company operates by dealers, brokers, attorneys and
financial institutions. Management and marketing representatives also conduct
seminars for dealers and brokers and attend trade shows to improve awareness and
understanding of the Company's programs.
Regulation
The Company is licensed as a lender, mortgage banker or mortgage broker in
22 of the states in which it operates, and in those states its operations are
subject to supervision by state authorities (typically state banking or consumer
credit authorities). Expansion into other states may be dependent upon a finding
of financial responsibility, character and fitness of the Company and various
other matters. The Company is generally subject to state regulations,
examination and reporting requirements, and licenses are revocable for cause.
The Company is subject to state usury laws in all of the states in which it
operates.
The consumer loans purchased or financed by the Company are subject to the
Truth-in-Lending Act. The Truth-in-Lending Act contains disclosure requirements
designed to provide consumers with uniform, understandable information with
respect to the terms and conditions of loans and credit transactions in order to
give them the ability to compare credit terms. Failure to comply with the
requirements of the Truth-in-Lending Act may give rise to a limited right of
rescission on the part of the borrower. The Company believes that its purchase
or financing activities are in substantial compliance in all material respects
with the Truth-in-Lending Act.
Origination of the loans also requires compliance with the Equal Credit
Opportunity Act of 1974, as amended ("ECOA"), which prohibits creditors from
discriminating against applicants on the basis of race, color, sex, age or
marital status. Regulation B promulgated under ECOA restricts creditors from
obtaining certain types of information from loan applicants. It also requires
certain disclosures by the lender regarding consumer rights and requires lenders
to advise applicants of the reasons for any credit denial. In instances where
the applicant is denied credit or the interest rate charged increases as a
result of information obtained from a consumer credit agency, another statute,
the Fair Credit Reporting Act of 1970, as amended, requires the lenders to
supply the applicant with a name and address of the reporting agency.
Competition
The finance business is highly competitive, with competition occurring
primarily on the basis of customer service and the term and interest rate of the
loans. Traditional competitors in the finance business include commercial banks,
credit unions, thrift institutions, industrial banks and other finance
companies, many of which have considerably greater financial, technical and
marketing resources than the Company. There can be no assurance that the Company
will not face increased competition from existing or new financial institutions
or finance companies. In addition, the Company may enter new lines of business
that may be highly competitive and may have competitors with greater financial
resources than the Company.
The Company believes that it competes on the basis of providing competitive
rates and prompt, efficient and complete service, and by emphasizing customer
service on a timely basis to attract borrowers whose needs are not met by
traditional financial institutions.
Employees
As of September 30, 1998, the Company had 103 full-time equivalent
employees. None of the Company's employees is covered by a collective bargaining
agreement. The Company considers its relations with its employees to be good.
Facilities
The Company owns a leasehold interest in approximately 26,000 square feet of
office space in Williamstown, Massachusetts, which is used as the Company's
headquarters. The initial ten year lease term expires in May 2007 and is
renewable at the Company's option for two additional ten year periods. The
initial land lease provides for an annual rental of $20,000. The Company also
occupies an aggregate of approximately 5,100 square feet of office space in
Lakewood, Colorado, pursuant to a lease expiring in January 2001, with an option
to renew until 2004, providing for an annual rental of approximately $56,000,
including utilities and exterior maintenance expenses. A subsidiary of the
Company occupies an aggregate of approximately 6,100 square feet of office space
in Hoover, Alabama, pursuant to a lease expiring in December 1999, providing for
an annual rental of approximately $60,000.
Item 6. Exhibits
The following exhibits are filed herewith:
10.178 Amendment No. 1 to Indenture of Trust dated
September 1, 1998, dated as of June 1, 1998,
between Litchfield Hypothecation Corp. 1998-A and
The Chase Manhattan Bank.
10.179Participation Agreement dated as of September 9, 1998,
between the Company and The Brattleboro Savings & Loan.
10.180Note Purchase Agreement dated as of September 17, 1998
among the Company, Litchfield Hypothecation Corporation and
BankBoston.
10.181 Limited Guarantee dated as of September 17, 1998, between
the Company and BankBoston.
11.1 Statement re: computation of earnings per share
27.1 Financial Data Schedule
<PAGE>
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LITCHFIELD FINANCIAL CORPORATION
DATE: November 12, 1998 /s/ Richard A. Stratton
-----------------------
RICHARD A. STRATTON
Chief Executive Officer,
President and Director
DATE: November 12, 1998 /s/ Ronald E. Rabidou
---------------------
RONALD E. RABIDOU
Chief Financial Officer
Exhibit 10.178
AMENDMENT NO. 1 TO INDENTURE OF TRUST (this "Amendment"), dated as of
September 1, 1998, by and between LITCHFIELD HYPOTHECATION CORP. 1998-A, a
corporation organized under the laws of the State of Delaware (the "Issuer"),
and THE CHASE MANHATTAN BANK, a New York banking corporation, as trustee
(together with its permitted successors in the trusts hereunder, the "Trustee").
W I T N E S S E T H:
WHEREAS, the Issuer and the Trustee are parties to an Indenture of
Trust (the "Indenture"), dated as of June 1, 1998 providing for the issuance by
the Issuer from time to time of its Hypothecation Loan Collateralized Notes in
an aggregate outstanding principal amount not to exceed $30,000,000
(collectively, the "Notes");
WHEREAS, pursuant to the Indenture , the Issuer has pledged and assigned all of
the Issuer's right, title and interest in and to the Trust Estate to the
Trustee as security for the Notes;
WHEREAS, on the Closing Date, the Issuer issued Series A Notes in an
initial aggregate principal amount of $10,027,636.73 which Series A Notes were
authenticated and delivered by the Trustee to the Purchaser;
WHEREAS, the Issuer desires to issue additional Series A Notes in an
initial aggregate principal amount of $2,121,981.93 (the "Additional Series A
Notes") and to authorize the Trustee to authenticate and deliver the Additional
Series A Notes to the Purchaser;
WHEREAS, as security for the Additional Series A Notes and all other Notes
now or from time to time hereafter outstanding, the Issuer desires to pledge and
assign the additional loans specified on Schedule A hereto (the "Additional
Loans") and the Loan Collateral and related assets (but excluding Unassigned
Rights) relating to the Additional Loans to the Trustee as additional assets
comprising the Trust Estate;
WHEREAS, the Purchaser and Litchfield Financial Corporation, as the
Holders of 100% of the aggregate outstanding principal amount of the Notes on
the date hereof have consented to the execution and delivery of this Amendment
by the parties hereto;
NOW, THEREFORE, in consideration of the premises and mutual
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Issuer and the
Trustee agree as follows:
1. Amendments. (a) Schedule 1 to the Indenture is hereby
amended and restated in its entirety by the revised Schedule 1
attached hereto as Exhibit A, and all references to Schedule 1 in
the Indenture and Appendix A incorporated by reference therein
shall refer to Schedule 1 as so amended and restated.
(b) The Indenture is further amended to provide that each and every
Additional Loan shall be deemed a "Loan" for all purposes of the Indenture and
Appendix A incorporated by reference therein and all references to a "Loan" and
the "Loans" in the Indenture and Appendix A incorporated by reference therein
shall include each Additional Loan.
(c) Appendix A as incorporated by reference into the
Indenture is hereby amended by the addition of the term "Second
Closing Date" as follows: "Second Closing Date" shall mean
September 17, 1998."
(d) Clause (iii) of the definition of "List of Loans" in Appendix A as
incorporated by reference into the Indenture is hereby amended by the addition
of the following at the end thereof : "(or , with respect to Loans contributed
to the Trust Estate after the Closing Date, the first day of the month in which
such Loans are contributed to the Trust Estate)."
(e) Section 2.1 of the Indenture is hereby amended by the addition of the
following sentence at the end thereof: "The Trustee is hereby authorized to
authenticate and deliver to the Purchaser on the Second Closing Date Series A
Notes in the initial principal amount of $2,121,981.93.
(f) Clause (b)(i) of Section 2.9 of the Indenture is hereby amended to
read as follows: "June 29, 1998 in the case of the Series A Notes issued and
authenticated on the Closing Date and September 9, 1998 in the case of the
Series A Notes issued and authenticated on the Second Closing Date.
2. Further Agreements. The parties each agree to execute
and deliver to the other such reasonable and appropriate
additional documents, instruments or agreements as may be
necessary or appropriate to effectuate the purposes of this
Amendment.
3. Costs and Expenses. The Issuer shall reimburse the
Trustee for the reasonable costs and expenses, including costs
and expenses of counsel, incurred by Trustee in connection with
this Amendment.
4. Indenture in Full Force and Effect. The amendments set forth herein are
limited precisely as written and shall not be deemed to (i) modify any other
term or condition of the Indenture or (ii) prejudice any right the Noteholders
may have now or in the future under or in connection with the Notes, the
Indenture or any related document or agreement. Except as expressly amended
hereby, the Indenture shall remain unchanged and in full force and effect.
5. Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction hereof.
6. Successors and Assigns. All covenants and agreements in
this Amendment by the Issuer shall bind its successors and
assigns, whether so expressed or not.
7. Severability. In case any provision in this Amendment
shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
8. Governing Law. This Amendment shall be construed in
accordance with and governed by the laws of the State of New York, without
regard to the conflict-of-law provisions thereof.
9. Counterparts. This Amendment may be executed in any
number of counterparts, each of which so executed shall be deemed
to be an original, but all such counterparts shall together
constitute but one and the same instrument.
IN WITNESS WHEREOF, the Issuer and the Trustee have caused
this Amendment to be duly
executed by their duly authorized officers all as of the day and
year first above written.
THE CHASE MANHATTAN BANK,
as Trustee
By: Cynthia A. Kerpen
Title: Assistant Vice President
Title: ________________________________________
LITCHFIELD HYPOTHECATION CORP.
1998-A
By: Heather A. Sica
Title: Executive Vice President
Exhibit 10.179
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT is made effective as of the 9th day of
September, 1998 by and between LITCHFIELD FINANCIAL CORPORATION, a Massachusetts
corporation with a usual place of business at 430 Main Street, Williamstown,
Massachusetts 01267 ("Lender") and THE BRATTLEBORO SAVINGS & LOAN, F.A., a
Vermont banking institution with a usual place of business at 221 Main Street,
Brattleboro, Vermont 05302 ("Participant").
BACKGROUND
I. Lender has originated and now holds the hypothecation loans
specified on Schedule A hereto (the "Hypothecation Loans") and the
acquisition and development loans specified on Schedule B hereto ( the
"A&D Loans," and collectively with the Hypothecation Loans, the
"Loans").
II. Lender is willing to sell to Participant and Participant is willing to
purchase from Lender a participation interest in the Loans, on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, Lender and Participant hereby agree as follows:
1. Definitions. When used in this Agreement, the
following terms shall have the following meanings:
"Borrowers" shall mean each of the obligors under the
Loans.
"Closing Date" shall mean September 9, 1998.
"Collateral" shall mean any and all real and/or personal property,
pledged, assigned or delivered to Lender as security for any obligation under
the Loans or pursuant to any of the Loan Documents.
"Cut-off Date" shall mean August 27, 1998.
"Guarantors" shall mean any guarantor of any obligation
pursuant to any of the Loan Documents.
"Interest Period" shall mean the number of days between the due date of
the immediately preceding payment (or, in the case of the first payment received
subsequent to the Cut-off Date, the Cut-off Date) and the due date of the
current payment.
"LIBOR" shall mean the rate published in The Wall Street Journal
under "Money Rates" as the average of the interbank offered rates for U.S.
Dollar deposits in the London interbank market for a term of one month, based on
quotations at 5 major banks.
"Loan Documents" shall mean the documents evidencing or
securing the Loans.
"Participant's Interest Rate" shall mean (i) with respect to the
Hypothecation Loans, a per annum rate equal to LIBOR plus 2.10% and (ii) with
respect to the A&D Loans a per annum rate equal to the Prime Rate plus 5.0%.
"Participant's Interest Share" shall mean (i) with respect to the
Hypothecation Loans, an undivided one hundred percent (100%) interest in each
interest payment collected under or in connection with the Loan subsequent to
the Cut-off Date and (ii) with respect to the A&D Loans, an undivided eighty
percent (80%) interest in each interest payment collected under or in connection
with the Loan subsequent to the Cut-off Date, in each case to the extent that
(a) such payment represents interest accrued subsequent to the Cut-off Date; and
(b) Participant's share of such payment will not exceed interest calculated (1)
at Participant's Interest Rate; (2) for the applicable Interest Period; (3) on
Participant's Principal Balance outstanding at the beginning of the applicable
Interest Period.
"Participant's Principal Balance" shall mean (i) with respect to the
Hypothecation Loans an aggregate of $1,402,981.68 as of the Cut-off Date and
(ii) with respect to the A&D Loans an aggregate of $472,220.86 as of the Cut-off
Date, in each case as the same may be reduced from time to time by payment of
Participant's Principal Share, as hereinafter defined.
"Participant's Principal Share" shall mean (i) with respect to the
Hypothecation Loans, one hundred percent (100%) of all principal payments
collected under or in connection with the Loan subsequent to the Cut-off Date,
until Participant's Principal Balance is paid in full and (ii) with respect to
the A&D Loans, eighty percent (80%) of all principal payments collected under or
in connection with the Loan subsequent to the Cut-off Date, until Participant's
Principal Balance is paid in full.
"Participant's Share" shall mean the sum of
Participant's Principal Share plus Participant's Interest Share as such terms
are defined above.
"Prime Rate" shall mean that rate of interest which is reported from
time to time by the Wall Street Journal, Eastern Edition, as the nation's
average "prime interest" rate on corporate loans at large U.S. money center
commercial banks. If more than one rate is published by the Wall Street Journal
as the "prime rate," the highest of the published rates shall be used. Should
the Wall Street Journal cease reporting said rate of interest, then the Prime
Rate shall be that rate of interest designated by Citibank, N.A. or its
successors as its "prime rate" of interest.
2. Participation.
2.1 Sale of Participation in Loans - Generally. Lender agrees to sell
to Participant and Participant agrees to purchase from Lender on the date
hereof, Participant's Share in the Loans, the Loan Documents, and the Collateral
(singly and collectively, the "Participation") on the terms and conditions
provided in this Agreement.
2.2 Purchase Price. As consideration for the Participation,
Participant shall pay to Lender on the Closing Date an amount equal to the One
Million Eight Hundred Eighty Thousand Eight Hundred Seventy Five Dollars and
ninety-one Cents ($1,880,875.91), representing the Participant's Principal
Balance plus accrued interest thereon to the Closing Date;
2.3 Method of Payment. The Purchase Price shall be paid by
Participant to Lender by delivery of available funds by check or wire transfer
on the Closing Date.
2.4 NO EXTENSION OF CREDIT. THE PARTICIPATION CONSTITUTES A SALE TO
PARTICIPANT OF LEGAL AND EQUITABLE OWNERSHIP OF PARTICIPANT'S SHARE OF THE
LOANS, THE LOAN DOCUMENTS AND THE COLLATERAL AND SHALL IN NO WAY BE CONSTRUED AS
AN EXTENSION OF CREDIT BY PARTICIPANT TO LENDER. THIS AGREEMENT IS NOT INTENDED
TO REPRESENT AND SHALL NOT CONSTITUTE A SECURITY. THIS AGREEMENT SHALL NOT BE
DEEMED TO CREATE A JOINT VENTURE OR PARTNERSHIP BETWEEN LENDER AND PARTICIPANT.
2.5 Recourse. Lender hereby guarantees to Participant payment of (i)
100% of the Participant's Share in the A&D Loans and (ii) the Participant's
Share in respect of the Hypo Loans up to an amount not to exceed 5% of the
original Participant's Principal Balance of the Hypo Loans. Except as set forth
in the preceding sentence, this Participation is a full-risk participation and
Participant agrees to look only to payments received from the Borrowers,
Guarantors or from the Collateral for repayment of Participant's Share.
3. Absence of Priority. Neither Lender nor
Participant shall have any priority of ownership or interest in
the Loans, the Loan Documents or any Collateral over the other
party hereto.
4. Collection of Payments; Transfer to Participant.
4.1 Collection by Lender. Lender shall collect all payments of interest,
principal and other sums due at any time on or in connection with the Loans and
the Loan Documents. Lender or Lender's agent will hold the Loan Documents, and
will receive all payments made by the Borrowers, the Guarantors or by others on
account of principal, interest, and other sums due under the Loan Documents,
holding the Participant's Share thereof as agent for Participant. Participant
shall have the right to an accounting for all monies and property received by
Lender in connection with the Loans.
4.2 Transmissions to Participant. With respect to items of principal,
interest and reimbursement of expenses (for which Participant has paid its share
to Lender, in proportion to Participant's Share) paid by the Borrowers, the
Guarantors or by other parties or otherwise collected by Lender on or in
connection with the Loans, Lender shall, not later than the 28th calendar day of
each month, or the next successive business day if such day is not a business
day, pay to Participant the Participant's Share thereof.
4.3 Receipt of Payments. Notwithstanding any contrary provision
hereof, Lender shall be obligated to remit to Participant only if and to the
extent Lender actually receives repayments on account of the Loans from the
Borrowers, the Collateral or any Guarantor.
5. Agency. Subject to the other terms and conditions of this
Agreement, Participant hereby authorizes Lender to act as Participant's agent to
the extent provided in this Agreement and to exercise such other powers as are
reasonably incidental thereto, including the receipt of all payments of
principal, interest, fees and expense reimbursements on or in connection with
the Loans and the Loan Documents, with full power and authority as agent and
attorney-in-fact for Participant to institute and maintain against any Borrower,
Guarantor or other person or entity liable in connection with the Loans,
actions, suits or proceedings for the protection, collection and enforcement of
the Loan Documents and realization upon any Collateral and to take such other
actions for the protection, collection and enforcement of the Loan Documents and
realization upon any Collateral as may be advisable, in Lender's discretion. To
the extent practical, Lender shall keep Participant informed of any such
actions, suits, or proceedings instituted by Lender. Participant shall have the
right at any time to give Lender input as to counsel selection and litigation
management, which input Lender shall, to the extent practical, consider in its
decision making processes.
6. Standards of Care and Loan Administration. Lender agrees to
service the Loans in accordance with Lender's usual practices in the ordinary
course of its business and to exercise the same diligence and care in
administering the Loans and the Collateral as Lender customarily exercises in
similar Loans in which no participation has been granted. Lender and Participant
may consult with legal counsel and other experts selected by each of them with
due care and shall not be liable for actions taken or omitted to be taken in
good faith by Lender or Participant respectively in accordance with the advice
of such experts. Neither Lender nor Participant shall incur any liability under
this Agreement or otherwise by acting upon any notice, consent, instrument,
letter, telecopy or other document which such party in good faith reasonably
believes to be genuine and signed by the proper party. Nothing in this
Agreement, expressed or implied, is intended or shall be construed to constitute
a fiduciary relationship between Lender and Participant. Lender may subcontract
the servicing of the Loans.
7. Lender Representations and Warranties.
7.1 Affirmative Representations and Warranties.
Lender represents and warrants to Participant that:
(a) Lender has the entire unencumbered
ownership interest in the Loans and all necessary authority to
sell the Participation to Participant;
(b) Lender's execution and delivery of this
Agreement have been duly authorized.
7.2 No Further Warranties. Lender makes no further representations
or warranties, express or implied, including without limitation any
representation or warranty as to financial condition or creditworthiness of any
Borrower or Guarantor, the accuracy, sufficiency or current status of any
information concerning the financial condition of any Borrower or Guarantor, the
collectability of the Loans, enforceability of the Loan Documents, continued
solvency of any Borrower or Guarantor or the continued existence, sufficiency or
value of any Collateral.
7.3 Survival of Representations and Warranties. The representations
and warranties of Lender contained in this Section 7 shall survive the
termination of this Agreement and are binding on any successor or assign of
Lender.
8. Participant Representations and Warranties.
(a) Participant's execution and delivery of this Agreement has
been duly authorized, and Participant has full power and authority to purchase
the Participation;
(b) Participant's decision to purchase the Participation has
been based solely upon its own independent evaluation of the Loans, the
Borrowers' and Guarantors' creditworthiness and the value and lien status of the
Collateral; and
(c) Participant shall not, without the prior written consent of
Lender, which consent shall not be unreasonably withheld or delayed, assign or
convey in whole or in part Participant's interest in the Participation or this
Agreement, or grant any sub-participation therein;
(d) Participant has received copies, had an
opportunity to review and approve the terms of the Loan Documents;
The representations and warranties of Participant contained in
this Section 8 shall survive the termination of this Agreement and are binding
on any successor or assign of Participant.
9. Books and Records. Lender will at all times keep and maintain
proper books of account and records reflecting the interest of the Participant
in the Loans, which books of account and records shall be accessible for
inspection by Participant at reasonable times during normal business hours,
subject to regulatory requirements regarding Lender's obligation to maintain
information as confidential.
10. Information to Participant. Upon Participant's request, Lender
shall provide Participant with copies of all financial information relating to
the Borrowers or the Guarantors which is received by Lender. Upon request from
time to time by Participant, Lender shall provide to Participant such other
information in Lender's possession as Participant may reasonably request;
provided, however, Lender shall not be obligated to provide Participant with any
confidential information.
11. Notice of Event of Default; Exercise of Remedies,
Foreclosure, etc.
11.1 Notice of Event of Default. In the event that Lender acquires
actual knowledge of the occurrence of any Event of Default under the terms of
the Loan Documents, Lender will notify Participant thereof. Thereafter, Lender
shall provide Participant with prior written notice of any actions proposed to
be taken by Lender with respect thereto unless the giving of such notice is
impractical for reasons of safety or preservation of Collateral.
11.2 Exercise of Remedies. Upon the giving of any notice required
under Section 11.1 above, Lender may take such action or actions (including
without limitation, the institution of litigation, the commencement of
foreclosure proceedings or the granting of any extension of a Loan for purposes
of "working out" the Loan), assert such rights, exercise such remedies and/or
waive such Event(s) of Default or refrain from taking such actions with respect
thereto as Lender and Participant shall agree upon. In the event that Lender and
Participant do not agree within five (5) business days after Participant's
receipt of notice of the occurrence of such an Event of Default or proposed
action or omission, Lender shall take such action or actions, assert such
rights, exercise such remedies and/or waive such Event(s) of Default or refrain
from taking such actions with respect thereon as Lender shall, in good faith,
deem appropriate under the circumstances. In the event that Participant requests
Lender to take particular action or actions, assert any rights or remedy or
waive or refrain from taking any action, Lender shall have no liability if
Lender complies with such request and Participant will indemnify and hold Lender
harmless from all loss and liability in connection therewith.
11.3Transfer of Collateral Proceeds to Participant. If Lender shall foreclose,
sell or otherwise exercise rights with respect to any of the Collateral, Lender
shall render an accounting to Participant for monies received and monies
expended in regard to the sale or foreclosure of such Collateral, including
without limitation expenses of foreclosure. The difference between said monies
received and said monies expended may be a positive number (the "Excess") or a
negative number (the "Deficiency"). If the Collateral is sold to a third party
by Lender or through a judicial sale, then, upon receipt from such third party
of the proceeds from such event, Lender will remit Participant's Share of the
net amount received to Participant, plus Participant's Share of the Excess or
less Participant's Share of the Deficiency, as the case may be.
12. Expenses. All out-of-pocket costs and expenses incurred by Lender
in connection with the Loan Documents, the Loans or the transactions
contemplated thereunder (including, without limitation, legal fees and expenses
to preserve and protect the Collateral, to collect the Loans, to enforce
remedies under the Loan Documents or to preserve and defend Lender's rights and
remedies, which are not reimbursed by Borrowers or Guarantors shall be
reimbursed by Participant according to Participant's Share, upon demand from
Lender. Lender may deduct such costs and expenses from any sums to which
Participant is entitled under this Agreement. Participant shall have the right
to an accounting for all such costs and expenses.
13. Defaults.
13.1Default bv Participant. In the event that Participant fails to make
any payment to Lender in accordance with this Agreement, Lender may elect, at
its sole discretion, to apply all proceeds and payments received from the
Borrowers, Guarantors or other parties or otherwise collected by Lender on or in
connection with the Loans, first to pay or reimburse Lender for all sums which
Participant should have paid to Lender under this Agreement. In addition, until
such default is cured, Participant shall have no right to consent to or approve
any action or inaction by Lender under this Agreement or any of the Loan
Documents.
13.2Default by Lender. In the event that Lender fails to fulfill any
of its material duties under this Agreement or fails in a material way to act in
accordance with the terms and conditions of this Agreement and fails to cure any
such failure within thirty (30) days after written notice of such failure from
Participant, Participant shall thereafter be entitled to have the Loans serviced
by a third party reasonably acceptable to Lender. Notwithstanding the foregoing,
Participant shall not have such right if: (i) Lender cannot reasonably cure any
such failure within such thirty (30) day period; and (ii) Lender is diligently
pursuing cure of such failure.
14. No Amendment of Terms. Lender shall not amend the interest rate,
repayment terms, advance rate or any other material term or condition of any
Loan or the Loan Documents, in each instance, without the prior written consent
of Participant, which consent shall not be unreasonably withheld or delayed.
Such consent shall be deemed to have been granted if Lender has notified
Participant in writing of a proposed course of action and Participant has not
objected in writing to such course of action within five (5) business days.
Nothing contained in this Section 14 shall interfere with Lender's rights under
Section 11 above.
15. Excess Recovery. If Lender or Participant shall obtain any
payment on the Loans in excess of its share of such payments as set forth
herein, the party obtaining such payment shall thereupon remit such excess
payments to the other party.
16. Preferential Payments, etc. Each party agrees that if and to the
extent that any amount received from any Borrower, Guarantor or any other
obligor, or from the Collateral is subsequently invalidated, declared to be
fraudulent or preferential, set aside or judicially required to be repaid to a
trustee, receiver or any other person under any applicable creditors' remedy
proceeding, including without limitation any bankruptcy proceeding, the other
party hereto shall reimburse the party from which said amount was recovered.
17. Liability of Lender. Lender shall not be liable for any action
taken or omitted to be taken by it under or in connection with this Agreement,
or any of the Loan Documents, except for willful breach of the terms of this
Agreement or its willful misconduct or gross negligence. Any liability of Lender
to Participant shall be for actual damages only and shall not include
consequential, special, punitive or other damages.
18. Other Loans with Borrowers/Guarantors; Application
of Payments.
18.1 Other Loans from Lender, Subordintion of Collateral. Lender may
in the future make new, additional loans to the same Borrowers (such future
loans are hereinafter referred to as "Other Loans"). These Other Loans may in
the future be secured by collateral assigned from time to time by collateral
documents executed and delivered to Lender in connection with the Other Loans
(collectively, the "Other Loans Collateral"). This Other Loans Collateral may
include some or all of the Collateral.
Lender specifically agrees that all payments
and proceeds related to the Collateral will be applied first to the Borrowers'
and Guarantors' obligations with the respect to the Loans and will not be
applied to any obligations with respect to the Other Loans until all of the
Borrowers' and Guarantors' obligations under the Loans have been satisfied in
full.
18.2 Application of Payments. Participant agrees that Lender shall
have no obligation to attempt to collect payments under the Loans in preference
or priority over the collection of payments under any Other Loans by Lender to
any Borrower or Guarantor.
18.3Other. Lender and its affiliates may generally engage in any
kind of business with any Borrower or Guarantor or any affiliates or subsidiary
of any Borrower or Guarantor, all without any duty to account therefor to
Participant. For so long as the Loan Documents remain in effect, Participant
agrees not to engage in any business dealings with any Borrower or Guarantor
except its indirect dealings through Lender in connection with this Agreement,
unless otherwise agreed in writing by Lender.
19. Miscellaneous.
19.1 Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of the parties. No rights are
intended to be created under this Agreement for the benefit of any Borrower,
Guarantor or other third party beneficiary.
19.2Notices. Each notice from Lender or Participant to the other shall be
deemed sufficient if in writing and sent by first-class United States mail,
proper postage prepaid, properly addressed as set forth below or addressed to
such other address as the addressee may hereafter designate by notice given in
accordance with this Section 19.2 to the other party hereto; provided, however,
that Lender may give Participant notice of the occurrence of any Event of
Default under the Loan Documents or the request for approval or consent by
Participant by private carrier, hand delivery, telecopy or telephone. Notices
and demands given by first-class United States mail and in accordance with the
foregoing shall be deemed given on the second banking day after the date of
mailing. Notices given in any other manner shall be deemed given upon actual
receipt.
19.3Applicable Law. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Massachusetts, without regard to its rules or
principles regarding conflicts of law or any rule or canon of construction which
interprets agreements against the draftsman.
19.4Amendments. This Agreement may not be amended, modified, or
terminated except in an agreement in writing signed by Lender and Participant
(or their permitted successors or assigns).
19.5Captions. The captions in this Agreement are for
convenience only and do not define, limit or describe the scope
of the provisions hereof.
19.6Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes any and all prior agreements,
representations, arrangements and undertakings relating to the subject matter
hereof.
19.7 Severability. In the event that any terms or provisions of this
Agreement or the application thereof to any person or circumstance shall, to any
extent, be held invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to person or circumstances other than
those to which it is held invalid or unenforceable, shall be valid and
enforceable to the fullest extent permitted by law.
19.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed to be
an original without the production of any other counterpart and all of which
taken together shall constitute but one and the same instrument.
19.9 Facsimile Signatures. The parties hereto are authorized to
accept and rely on as original signatures, facsimile signatures of or on behalf
of the parties hereto on this Agreement or any other documents delivered in
connection with this Agreement.
IN WITNESS WHEREOF, the parties have caused this Participation Agreement
to be executed on their behalf by their duly authorized officers as of the day
and year first above written.
THE BRATTLEBORO SAVINGS & LOAN, F.A.
/s/ Daniel M. Fyffe
By:
Title:
LITCHFIELD FINANCIAL CORPORATION
/s/ James Shippee
By:
Title:
Exhibit 10.180
LITCHFIELD HYPOTHECATION CORP. 1998-A,
LITCHFIELD FINANCIAL CORPORATION
AND
BANKBOSTON, N.A.
NOTE PURCHASE AGREEMENT
Dated: September 17, 1998
TABLE OF CONTENTS
The Notes.......................................................-1-
Purchase and Sale...............................................-1-
The Closing; Delivery of the Notes..............................-1-
Conditions of the Purchaser's Obligation........................-2-
Representations and Warranties..................................-2-
The Purchaser's Representations.................................-5-
Notices.........................................................-7-
Miscellaneous...................................................-7-
No Recourse.....................................................-8-
Schedule I Purchaser's Remittance Instructions
<PAGE>
FORM 10-Q
LITCHFIELD HYPOTHECATION CORP. 1998-A
NOTE PURCHASE AGREEMENT
September 17, 1998
LITCHFIELD HYPOTHECATION CORP., a Delaware corporation, and its
successors and assigns (the "Issuer"), and LITCHFIELD FINANCIAL CORPORATION, a
Massachusetts corporation (the "Seller"), hereby agree with BANKBOSTON, N.A.
(the "Purchaser"), as follows:
1. The Notes. The Issuer has authorized the execution and delivery to
The Chase Manhattan Bank, as trustee (the "Trustee"), of an Indenture of Trust,
dated as of June 1, 1998, as amended by Amendment No 1. thereto dated as
September 1, 1998 (collectively, the "Indenture"), providing for the issuance
and sale by the Issuer of its Hypothecation Loan Collateralized Notes, in one or
more series, secured by the Trust Estate granted to the Trustee by the Issuer
pursuant to the Indenture, which includes, among other assets, a pool of certain
hypothecation Loans owned by the Issuer and serviced by Litchfield Financial
Corporation, a Massachusetts corporation (in such capacity, the "Servicer").
Unless otherwise specifically defined herein, all capitalized terms shall have
the meanings ascribed to them in the Indenture.
2. Purchase and Sale. In reliance upon the representations and
warranties contained herein and subject to the terms and conditions set forth
herein, (i) the Issuer agrees to sell to the Purchaser, and the Purchaser agrees
to purchase from the Issuer, $2,121,981.93 principal amount of Hypothecation
Loan Collateralized Notes, Series A and (ii) the Seller agrees to sell to the
Purchaser, and the Purchaser agrees to purchase from the Seller, $3,657,405.25
principal amount of Hypothecation Loan Collateralized Notes, Series C (the
foregoing notes are referred to herein collectively as the "Notes") at an
aggregate price (the "Purchase Price") equal to the aggregate outstanding
principal amount of the Notes on the Closing Date (as hereinafter defined). The
Purchase Price shall be allocated among the Seller and the Issuer in proportion
to the principal amount of Notes sold by each. The Purchase Price shall be
payable to or upon the instructions of the Issuer and the Seller on the Closing
Date by wire transfer in immediately available Federal funds.
3. The Closing; Delivery of the Notes. The closing of the purchase
and sale of the Notes pursuant hereto (the "Closing") shall be held on September
17, 1998 (the "Closing Date"). The Closing shall take place by mail or at such
place as the parties hereto shall designate. At the Closing, the Issuer and the
Seller, respectively, will deliver to the Purchaser, against payment of the
Purchase Price therefor, one Series A Note in the denomination of $ 2,121,981.93
and one Series C Note in the denomination of $3,657,405.25 registered in the
Purchaser's name, or in the name of its nominee; provided however, that if the
Purchaser requests the Issuer or the Seller in writing not less than one
Business Day prior to the Closing Date to deliver to the Purchaser Notes in
other denominations (authorized pursuant to the Indenture) that equal in the
aggregate the denominations specified above, the Seller and the Issuer shall
comply with such request.
4. Conditions of the Purchaser's Obligation. The obligation of the
Purchaser set forth in Section 2 to purchase the Notes on the Closing Date shall
be subject to the accuracy as of the date hereof and as of the Closing Date of
(i) the representations and warranties of the Issuer set forth in Section 5
hereof, (ii) the representations and warranties of the Seller in the Purchase
and Sale Agreement and in Section 5 hereof, and (iii) the representations and
warranties of the Servicer in the Servicing Agreement, and shall also be subject
to the following additional conditions:
(a) Each of this Purchase Agreement, the Notes, the Indenture, the
Servicing Agreement, and the Purchase and Sale Agreement (collectively,
the "Agreements") shall have been duly authorized, executed and delivered
by each of the parties thereto and be in full force and effect; and
(b) The Purchaser shall have received copies of all documents and
other information as it may reasonably request, in form and substance
reasonably satisfactory to it, with respect to such transactions and the
taking of all proceedings in connection therewith.
5. Representations and Warranties. (a) The Issuer
represents and warrants to the Purchaser as of the date hereof as
follows:
(i) Each of the Agreements to which the Issuer is a party has been
duly authorized, executed and delivered by the Issuer and, assuming due
execution and delivery by the other parties thereto, constitutes a legal,
valid and binding agreement of the Issuer enforceable against the Issuer
in accordance with its terms, subject to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law). The Notes have
been validly issued and are entitled to the benefits of the Indenture and
constitute valid instruments enforceable in accordance with their terms
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally, and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
(ii) Neither the issuance or sale of the Notes, nor the consummation
of any other of the transactions contemplated in any of the Agreements to
which the Issuer is a party, nor the execution, delivery or performance of
the terms of any of the Agreements to which the Issuer is a party, has or
will result in the breach of any term or provision of the certificate of
incorporation or by-laws of the Issuer, or conflict with, result in a
breach or violation on the part of the Issuer of or the acceleration of
indebtedness under or constitute a default under, the terms of any
indenture or other agreement or instrument to which the Issuer is a party
or by which it is bound, or any statute or regulation applicable to the
Issuer or any order applicable to the Issuer of any court, regulatory
body, administrative agency or governmental body having jurisdiction over
the Issuer.
(iii) No consent, approval, authorization of, registration or filing
with, or notice to, any governmental or regulatory authority, agency,
department, commission, board, bureau, body or instrumentality is required
on the part of the Issuer for the execution and delivery or by the Issuer
with any of the Agreements to which the Issuer is a party or the Notes, or
the issuance of the Notes, or the consummation by the Issuer of any
transaction contemplated under any of the Agreements to which the Issuer
is a party, or such consent, approval or authorization has been obtained
or such registration, filing or notice has been made (or, with respect to
assignments of mortgages and financing statements, will be made by the
Issuer as contemplated by the Indenture).
(iv) There is no action, suit or proceeding against, or investigation
of, the Issuer pending or, to the best of its knowledge, threatened,
before any court, administrative agency or other tribunal which, either
individually or in the aggregate, (A) may result in any material adverse
change in the financial condition, properties, or assets of the Issuer or
in any material and adverse impairment of the right or ability of the
Issuer to perform its obligations under the Agreements, or (B) asserts the
invalidity of any of the Agreements to which either the Issuer is a party
or the Notes or (C) seeks to prevent the consummation of any of the
transactions contemplated by any of the Agreements to which the Issuer is
a party.
(v) Based in part on the representations and warranties contained in
Section 6 hereof, the Issuer is not, and the sale of the Notes in the
manner contemplated by this Purchase Agreement will not cause the Issuer
to be, subject to registration or regulation as an investment company or
affiliate of any investment company under the Investment Company Act of
1940, as amended.
(vi) Each Loan included in the Trust Estate securing the Notes has
been delivered to the Trustee or its collateral agent, together with an
assignment thereof by the Issuer, which immediately prior to such
assignment will own full legal and equitable title to each Loan, free and
clear of any lien, charge, encumbrance or participation or ownership
interest in favor of any other Person. Upon endorsement and delivery to
the Trustee or its collateral agent of the executed original promissory
notes and execution and delivery of the Indenture, all of the Issuer's
right, title and interest in and to the Loans will be validly and
effectively transferred to the Indenture Trustee as collateral security
for the benefit of the Holders of the Notes.
(vii) On the Closing Date after giving effect to the sale of the
Notes to the Purchaser hereunder, the aggregate principal amount of all
Hypothecation Loan Collateralized Notes outstanding shall be $15,053,212.26, of
which $11,342,594.75 aggregate principal amount shall be Series A Notes owned of
record by the Purchaser, $ 53,212.26 aggregate principal amount shall be Series
B Variable Funding Notes owned of record by the Seller and $3,657,405.25
aggregate principal amount shall be Series C Notes owned of record by the
Purchaser.
(b) The Seller represents and warrants to the Purchaser as of the
date hereof as follows:
(i) Each of the Agreements to which the Seller is a party has been
duly authorized, executed and delivered by the Seller and, assuming due
execution and delivery by the other parties thereto, constitutes a legal,
valid and binding agreement of the Seller enforceable against the Seller
in accordance with its terms, subject to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally, and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
(ii) Neither the sale of the Notes, nor the consummation of any other
of the transactions contemplated in any of the Agreements to which the
Seller is a party, nor the execution, delivery or performance of the terms
of any of the Agreements to which the Seller is a party, has or will
result in the breach of any term or provision of the certificate of
incorporation or by-laws of the Seller, or conflict with, result in a
breach or violation on the part of the Seller of or the acceleration of
indebtedness under or constitute a default under, the terms of any
indenture or other agreement or instrument to which the Seller is a party
or by which it is bound, or any statute or regulation applicable to the
Seller or any order applicable to the Seller of any court, regulatory
body, administrative agency or governmental body having jurisdiction over
the Seller.
(iii)No consent, approval, authorization of, registration or filing
with, or notice to, any governmental or regulatory authority, agency,
department, commission, board, bureau, body or instrumentality is required
on the part of the Seller for the execution and delivery or by the Seller
with any of the Agreements to which the Seller is a party, or the sale of
the Notes, or the consummation by the Seller of any transaction
contemplated under any of the Agreements to which the Seller is a party,
or such consent, approval or authorization has been obtained or such
registration, filing or notice has been made (or, with respect to
assignments of mortgages and financing statements, will be made by the
Seller as contemplated by the Indenture).
(iv) There is no action, suit or proceeding against, or investigation
of, the Seller pending or, to the best of its knowledge, threatened,
before any court, administrative agency or other tribunal which, either
individually or in the aggregate, (A) may result in any material adverse
change in the financial condition, properties, or assets of the Seller or
in any material and adverse impairment of the right or ability of the
Seller to perform its obligations under the Agreements, or (B) asserts the
invalidity of any of the Agreements to which either the Seller is a party
or the Notes or (C) seeks to prevent the consummation of any of the
transactions contemplated by any of the Agreements to which either the
Seller is a party.
(v) Neither the Seller nor any Affiliate of the Seller nor any Person
authorized or employed by the Seller will, directly or indirectly, offer
or sell any Note or similar security in a manner which would render the
sale of the Notes pursuant to this Purchase Agreement a violation of
Section 5 of the 1933 Act, or require registration pursuant thereto. Based
in part on the representations and warranties contained in Section 6
hereof, the offering and sale of the Notes by the Seller to Purchaser at
closing are exempt from the registration requirements of the 1933 Act and
the Indenture is not required to be qualified under the Trust Indenture
Act of 1939, as amended.
The Issuer and the Seller agree that the representations and warranties
set forth in this Section 5 shall be fully assignable to the initial party to
whom the Purchaser may sell the Notes.
6. The Purchaser's Representations. The Purchaser
represents to the Issuer as follows:
(a) The Purchaser is acquiring the Notes for its own account. The
Purchaser understands that the Notes are not being registered under the
Securities Act of 1933, as amended (the "1933 Act"), or any State
securities or "Blue Sky" law and are being sold to the Purchaser in
reliance upon the Purchaser's representations contained herein in a
transaction that is exempt from the registration requirements of the 1933
Act and any applicable State law. The Purchaser agrees that the Notes may
not be Transferred unless subsequently registered under the 1933 Act and
any applicable State securities or "Blue Sky" law or unless exemptions
from the registration requirements of the 1933 Act and applicable State
laws are available. Subject to the express provisions of this Purchase
Agreement and the Indenture, the disposition of the Notes shall at all
times be within the control of the owner thereof. Notwithstanding anything
to the contrary, express or implied, in this Agreement, the Indenture or
otherwise, the Purchaser understands that none of the Trust, the Note
Registrar or the Indenture Trustee is obligated to register the Notes
under the 1933 Act or any other securities law and that any Transfer in
violation of the provisions of the Indenture shall be void ab initio. The
foregoing shall in no way limit the ability or the right of the Purchaser
to sell participation interests in any Notes owned by the Purchaser.
(b) The Purchaser is either (i) an "accredited investor" as defined
in rule 501(a) under the 1933 Act or (ii) a Qualified Institutional Buyer
as defined in Rule 144A under the 1933 Act.
(c) The Purchaser is authorized to enter into this Purchase Agreement
and to purchase the Notes. This Purchase Agreement has been duly
authorized executed and delivered by the Purchaser and constitutes the
Purchaser's legal, valid and binding agreement enforceable against the
Purchaser in accordance with its terms, subject to applicable bankruptcy,
insolvency, and similar laws affecting creditors' rights generally, and
subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law).
(d) The Purchaser has sufficient knowledge and experience in
financial and business matters as to be capable of evaluating the merits
and risks of an investment in the Notes and the Purchaser is able to bear
the economic risk of investment in the Notes. The Purchaser acknowledges
that in connection with the making of its investment decision, the
Purchaser has been afforded the opportunity to ask questions of, and
receive answers regarding, and to conduct its investigation of, the
Issuer, the Loans and the Loan Collateral, the Trust Estate, the Notes and
the Servicer as is sufficient and necessary for the Purchaser to make an
informed investment decision with respect to the Notes.
(e) No placement agent, broker, finder or investment banker has been
employed by or has acted for the Seller or the Purchaser in connection
with the transactions with the Purchaser contemplated in this Purchase
Agreement or otherwise in connection with the Notes; and the Purchaser is
solely responsible for, and the Purchaser shall indemnify the Seller for
the fees, expenses or commissions of any placement agent, broker, finder
or investment banker and any other person or entity claiming to have acted
in such capacity for or under the authority of the Purchaser.
(f) The Purchaser agrees to treat, and to take no action inconsistent
with the treatment of, the Notes as debt of the Issuer for tax purposes.
7. Notices. All notices and other communications hereunder shall be
in writing and shall be sent by first class registered or certified mail, return
receipt requested, or by facsimile transmission, provided such transmission is
confirmed by overnight mail delivered by a nationally recognized overnight
delivery service, addressed (a) if to the Purchaser, BankBoston, N.A.,15
Westminster Street, Providence, Rhode Island 02903, Attention: Thomas Morris,
and (b) if to the Issuer or the Seller, c/o Litchfield Financial Corporation,
430 Main Street, Williamstown, Massachusetts 01267, Attention: Executive Vice
President, or to such other address as the Issuer or the Seller shall have
furnished to the Purchaser in writing. Any notice so given by registered or
certified mail shall be deemed to have been given five days after being
deposited in a depository of the United States mails. Any notice given by means
of a nationally recognized overnight delivery service shall be deemed to have
been given upon receipt thereof.
8. Miscellaneous. (a) This Purchase Agreement shall be
construed and enforced in accordance with and governed by the law of
the State of New York.
(b) Any action or proceeding relating in any way to this Purchase
Agreement may be brought and enforced in the courts of the State of New York or
of the United States for the Southern District of New York and each of the
Issuer, the Seller and the Purchaser irrevocably submits to the jurisdiction of
each such court (and any appellate court from any thereof) in respect of any
such action or proceeding.
Each of the Issuer, the Seller and the Purchaser irrevocably waives,
to the fullest extent permitted by applicable law, any objection that it may now
or hereafter have to the laying of venue of any such action or proceeding in any
state court of the State of New York or the United States District Court for the
Southern District of New York, and any claim that any such action or proceeding
brought in any such court has been brought in an inconvenient forum.
(c) This Agreement supersedes all prior agreements and understandings
relating to the subject matter hereof.
(d) The headings in this Purchase Agreement are for the purposes of
reference only and shall not limit or define the meaning hereof.
(e) This Purchase Agreement shall be binding upon the respective
successors and assigns of the parties hereto and shall inure to the benefit of
and be enforceable by any registered owner or owners at the time of each Note
then issued, or any part thereof. This Purchase Agreement may be assigned by the
Purchaser to an eligible purchaser of the Notes in connection with a permitted
transfer of the Notes in accordance with the Indenture.
(f) This Purchase Agreement may be amended, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such amendment, waiver, discharge or termination is sought.
(g) This Purchase Agreement may be executed simultaneously in several
counterparts, or by different parties in separate counterparts, each of which
counterparts shall be an original, but all of which shall constitute one
instrument.
9. No Recourse. It is expressly understood and agreed by the parties
hereto that (a) the representations, undertakings and agreements herein made on
the part of the Issuer are made and intended not as personal representations,
undertakings and agreements by the Seller but are made and intended for the
purpose of binding only the Issuer, (b) nothing herein contained shall be
construed as creating any liability on the Seller to perform any covenant either
expressed or implied contained herein, all such liability, if any, being
expressly waived by the parties hereto, and (c) under no circumstances shall the
Seller be personally liable for the payment of any indebtedness or expenses of
the Issuer or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Issuer under this
Agreement; it being understood that the foregoing shall in no way limit the
obligations of the Seller under the Guarantee or the Purchase and Sale
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be duly executed on the date first written above.
LITCHFIELD HYPOTHECATION CORP. 1998-A
By: Heather A. Sica
Name: Heather A. Sica
Title: Executive Vice President
LITCHFIELD FINANCIAL CORPORATION
By: Heather A. Sica
Name: Heather A. Sica
Title: Executive Vice President
BANKBOSTON, N.A.
By: Thomas J. Morris
Name: Thomas J. Morris
Title: Vice President
SCHEDULE I
Principal Amount
Name, Address and Payment Amount of Notes
Provisions of Purchaser To Be Purchased
BankBoston, N.A. $2,121,981.93
Series A
$3,657,405.25 Series C
(a) All payments on account of the Notes shall be made in immediately
available funds at the opening of business on the due date by
electronic funds transfer, properly identified, to the following
account:
Bank: BankBoston, N.A.
ABA #:011-000-390
Account #:26815897
Attn: Litchfield Hypothecation Corp. 1998-A
Exhibit 10.181
LIMITED GUARANTEE
LIMITED GUARANTEE dated as of September 17, 1998 by LITCHFIELD
FINANCIAL CORPORATION, a Massachusetts corporation (the "Guarantor"), in favor
of BankBoston, N.A., a national banking association with an address at 15
Westminster Street, Providence, Rhode Island 02903 ("BankBoston"), as a
Noteholder under the Indenture hereinafter referred to.
WHEREAS, Litchfield Hypothecation Corp. 1998-A, a Delaware
corporation (the "Issuer") and a wholly-owned subsidiary of the Guarantor, is a
party to an Indenture of Trust dated as of June 1, 1998, as amended by Amendment
No. 1 thereto dated as of September 1, 1998 (the "Indenture") (capitalized terms
used but not defined herein shall have the meanings attributed thereto in the
Indenture or in Appendix A thereto) with The Chase Manhattan Bank (the
"Trustee") pursuant to which on the date hereof the Issuer has issued those
certain Series A Notes in the original principal amount of $2,121,981.93 and
(the "Guaranteed Series A Notes"); and
WHEREAS, the Guarantor is the owner of those certain Series C Notes
in the original principal amount of $3,657,405.25 issued by the Issuer as of
September 1, 1998 pursuant to the Indenture (the "Guaranteed Series C Notes,"
and collectively with the Guaranteed Series A Notes, the "Guaranteed Notes");
and
WHEREAS, the Issuer, the Guarantor and BankBoston are parties to a
Note Purchase Agreement, dated the date hereof, pursuant to which and subject to
the terms and conditions contained therein, BankBoston shall purchase the
Guaranteed Series A Notes from the Issuer and the Guaranteed Series C Notes from
the Guarantor; and
WHEREAS, it is a condition to the purchase by BankBoston of the
Guaranteed Notes that the Guarantor issue a guarantee in the form hereof of
certain of the obligations of the Issuer under the Guaranteed Notes.
NOW, THEREFORE, in consideration of the premises and in order to
induce BankBoston to purchase the Guaranteed Notes, the Guarantor hereby agrees
as follows:
Section 1. Guarantee. The Guarantor hereby irrevocably and
unconditionally guarantees the punctual payment when due, whether at stated
maturity, after maturity, by acceleration or otherwise, of principal of and
interest on the Guaranteed Notes(the "Guaranteed Obligations") in an aggregate
amount not to exceed $288,969.40 (the "Guaranteed Amount"). The Guarantor hereby
agrees that it shall make the payment of a Guaranteed Obligation upon receipt of
written demand therefor from BankBoston (a "Demand Notice") which Demand Notice
shall specify that an Event of Default has occurred and is continuing under
either or both of Sections 7.1(a) and 7.1(b) of the Indenture due to the failure
of the Issuer to make the applicable payment of principal and/or interest due
and owing to BankBoston under the Guaranteed Notes and the Indenture. The
obligation of the Guarantor hereunder shall in no event exceed the Guaranteed
Amount. The Guaranteed Amount shall be reduced by (i) the amount of any payments
made by Guarantor hereunder or (ii) the amount of any unreimbursed Servicer
Advances pursuant to the Indenture.
Notwithstanding the limitation contained in the preceding sentence,
the Guarantor shall also pay all costs and expenses, including attorneys' fees,
costs relating to all costs and expenses arising out of or with respect to the
validity, enforceability, collection, defense, administration or preservation of
this Guarantee.
GUARANTOR ACKNOWLEDGES AND AGREES THAT ANY REPURCHASE OF THE
HYPOTHECATION LOANS BY THE GUARANTOR PURSUANT TO THE TERMS OF THE INDENTURE OR
ANY OTHER DOCUMENT PROVIDING GUARANTOR WITH SUCH OPTION OR OBLIGATION OR THE
PAYMENT OR PERFORMANCE BY GUARANTOR OF ANY OTHER OBLIGATION OF ISSUER UNDER THE
INDENTURE OR THE GUARANTEED NOTES SHALL NOT REDUCE THE OBLIGATIONS OF GUARANTOR
TO BANKBOSTON UNDER THIS GUARANTEE AND BANKBOSTON'S CONSENT TO SUCH REPURCHASE
SHALL NOT CONSTITUTE A WAIVER OF BANKBOSTON'S RIGHTS HEREUNDER.
Section 2. Waiver. The Guarantor hereby absolutely, unconditionally
and irrevocably waives, to the fullest extent permitted by law, (i) promptness,
diligence, notice of acceptance and any other notice with respect to this
Guarantee,(ii) any requirement that BankBoston protect, secure, perfect or
insure any security interest or lien or any property subject thereto or exhaust
any right or take any action against the Issuer or any other person or any
collateral, (iii) any and all right to assert any defense, set-off, counterclaim
or cross-claim of any nature whatsoever with respect to this Guarantee, the
obligations of the Guarantor hereunder or the obligations of any other person or
party (including, without limitation, the Issuer) relating to this Guarantee or
the obligations of the Guarantor hereunder or otherwise with respect to the
Guaranteed Obligations in any action or proceeding brought by BankBoston to
collect the Guaranteed Obligations or any portion thereof or to enforce the
obligations of the Guarantor under this Guarantee, and (iv) any other action,
event or precondition to the enforcement of this Guarantee or the performance by
the Guarantor of the obligations hereunder.
Section 3. Guarantee Absolute. (a) The Guarantor guarantees that, to
the fullest extent permitted by law, the Guaranteed Obligations will be paid or
performed strictly in accordance with their terms, regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of BankBoston with respect thereto.
(b) No invalidity, irregularity, voidability, voidness or
unenforceability of the Indenture or the Guaranteed Notes or of all or any part
of the Guaranteed Obligations or of any security therefor, shall affect, impair
or be a defense to this Guarantee.
(c) The liability of the Guarantor under this Guarantee shall be
absolute and unconditional irrespective of:
(i)any change in the manner, place or terms of payment or performance,
and/or any change or extension of the time of payment or performance of,
renewal or alteration of, any Guaranteed Obligation, any security
therefor, or any liability incurred directly or indirectly in respect
thereof, or any other amendment or waiver of or any consent to departure
from the Indenture or the Guaranteed Notes, including any increase in the
Guaranteed Obligations resulting from the extension of additional credit
to the Issuer;
(ii) any sale, exchange, release, surrender, realization upon any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, all or any of the Guaranteed Obligations, and/or any offset
thereagainst, or failure to perfect, or continue the perfection of, any
lien in any such property, or delay in the perfection of any such lien, or
any amendment or waiver of or consent to departure from any other
guarantee for all or any of the Guaranteed Obligations;
(iii) any exercise or failure to exercise any rights against the Issuer
or others (including the Guarantor);
(iv) any settlement or compromise of any Guaranteed Obligation, any security
therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and any subordination
of the payment of all or any part thereof to the payment of any Guaranteed
Obligations (whether due or not) of the Issuer to creditors of the Issuer
other than the Guarantor;
(v) any manner of application of any collateral, or proceeds
thereof, to all or any of the Guaranteed Obligations, or any manner of
sale or other disposition of any collateral for all or any of the
Guaranteed Obligations or any other assets of the Issuer or any of its
subsidiaries; or
(vi) any change, restructuring or termination of the existence of the
Issuer.
(d) BankBoston may at any time and from time to time (whether or
not after revocation or termination of this Guarantee) without the consent of,
or notice (except as shall be required by applicable statute and cannot be
waived) to, the Guarantor, and without incurring responsibility to the Guarantor
or impairing or releasing the obligations of the Guarantor hereunder, apply any
sums by whomsoever paid or howsoever realized to any Guaranteed Obligation
regardless of what Guaranteed Obligations remain unpaid.
(e) This Guarantee shall continue to be effective or be
reinstated, as the case may be, if claim is ever made upon BankBoston for
repayment or recovery of any amount or amounts received by BankBoston in payment
or on account of any of the Guaranteed Obligations and BankBoston repays all or
part of said amount by reason of any judgment, decree or order of any court or
administrative body having jurisdiction over BankBoston, or any settlement or
compromise of any such claim effected by BankBoston with any such claimant
(including the Issuer), then and in such event the Guarantor agrees that any
such judgment, decree, order, settlement or compromise shall be binding upon the
Guarantor, notwithstanding any revocation hereof or the cancellation of the
Guaranteed Notes, and the Guarantor shall be and remain liable to BankBoston
hereunder for the amount so repaid or recovered to the same extent as if such
amount had never originally been received by BankBoston.
Section 4. Continuing Guarantee. This Guarantee is a continuing one
and shall (i) remain in full force and effect until the indefeasible payment and
satisfaction in full of the Guaranteed Obligations, (ii) be binding upon the
Guarantor, its successors and assigns, and (iii) inure to the benefit of, and be
enforceable by, BankBoston and its successors, transferees and assigns. All
obligations to which this Guarantee applies or may apply under the terms hereof
shall be conclusively presumed to have been created in reliance hereon.
Section 5. Representations, Warranties and Covenants.
The Guarantor hereby represents, warrants and covenants to and with
BankBoston that:
(a) The Guarantor has the corporate power to execute
and deliver this Guarantee and to incur
and perform its obligations hereunder;
(b) The Guarantor has duly taken all necessary
corporate action to authorize the execution,
delivery and performance of this Guarantee and to incur and perform
its obligations hereunder;
(c) No consent, approval, authorization or other
action by, and no notice to or of, or declaration
or filing with, any governmental or other public body, or any other person, is
required for the due authorization, execution, delivery and performance by the
Guarantor of this Guarantee or the consummation of the transactions contemplated
hereby; and
(d) The Guarantor shall provide to BankBoston (i) within 60 days
of the end of each fiscal quarter, the report on form 10-Q of the Guarantor and
(ii) within 135 days of the end of each fiscal year of the Guarantor, the report
on form 10-K of the Guarantor.
Section 6. Terms. (a) The words "include," "includes"
and "including" shall be deemed to be followed by the phrase
"without limitation".
(b) All references herein to Sections and subsections shall be
deemed to be references to Sections and subsections of this Guarantee unless the
context shall otherwise require.
Section 7. Amendments and Modification. No provision hereof shall be
modified, altered or limited except by written instrument expressly referring to
this Guarantee and to such provision, and executed by the party to be charged.
Section 8. Waiver of Subrogation Rights. Guarantor hereby waives
until the Guaranteed Obligations are paid in full any right of indemnity,
reimbursement, contribution, or subrogation arising as a result of payment by
Guarantor hereunder, and will not prove any claim in competition with BankBoston
in respect of any payment hereunder in bankruptcy or insolvency proceedings of
any nature. Guarantor will not claim any set-off or counterclaim against Issuer
in respect of any liability of Guarantor to Issuer. Guarantor waives any benefit
of and any right to participate in any collateral which may be held by
BankBoston .
Section 9. Statute of Limitations. Any acknowledgment or new promise,
whether by payment of principal or interest or otherwise and whether by the
Issuer or others (including the Guarantor), with respect to any of the
Guaranteed Obligations shall, if the statute of limitations in favor of the
Guarantor against BankBoston shall have commenced to run, toll the running of
such statute of limitations and, if the period of such statute of limitations
shall have expired, prevent the operation of such statute of limitations.
Section 10. Rights and Remedies Not Waived. No act, omission or delay
by BankBoston shall constitute a waiver of its rights and remedies hereunder or
otherwise. No single or partial waiver by BankBoston of any default hereunder or
right or remedy which it may have shall operate as a waiver of any other
default, right or remedy or of the same default, right or remedy on a future
occasion.
Section 11. Admissibility of Guarantee. The Guarantor agrees that any
copy of this Guarantee signed by the Guarantor and transmitted by telecopier for
delivery to BankBoston shall be admissible in evidence as the original itself in
any judicial or administrative proceeding, whether or not the original is in
existence.
Section 12. Notices. All notices, requests and demands to or upon
BankBoston or the Guarantor under this Agreement shall be in writing and given
as provided in the Indenture (with respect to the Guarantor, to the address of
the Issuer as set forth in the Indenture and with respect to BankBoston, at its
address set forth above).
<PAGE>
Section 13. Counterparts. This Guarantee may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original
and all of which shall together constitute one and the same agreement.
Section 14. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL; ETC. (a)
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTEE MAY BE BROUGHT IN
THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS GUARANTEE,
THE GUARANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS. THE GUARANTOR HEREBY IRREVOCABLY WAIVES, IN CONNECTION WITH ANY SUCH
ACTION OR PROCEEDING, (i) TRIAL BY JURY, (ii) TO THE EXTENT IT MAY EFFECTIVELY
DO SO UNDER APPLICABLE LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH
RESPECTIVE JURISDICTIONS AND (iii) THE RIGHT TO INTERPOSE ANY SET-OFF,
COUNTERCLAIM OR CROSS-CLAIM (UNLESS SUCH SET-OFF, COUNTERCLAIM OR CROSS-CLAIM
COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE
INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION).
GUARANTOR ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS GUARANTEE
IS A PART IS A COMMERCIAL TRANSACTION, AND HEREBY VOLUNTARILY WAIVES GUARANTOR'S
RIGHTS TO NOTICE AND HEARING UNDER ANY APPLICABLE STATE OR FEDERAL LAW WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH BANKBOSTON MAY DESIRE TO USE.
(b) The Guarantor irrevocably consents to the service of process
of any of the aforementioned courts in any such action or proceeding by the
mailing of copies thereof by certified mail, postage prepaid, to the Guarantor
at its address determined pursuant to Section 12 hereof.
(c) Nothing herein shall affect the right of BankBoston to serve
process in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Guarantor in any other jurisdiction.
(d) The Guarantor hereby waives presentment, notice of dishonor
and protests of all instruments included in or evidencing any of the Guaranteed
Obligations, and any and all other notices and demands whatsoever (except as
expressly provided herein).
Section 15. GOVERNING LAW. THIS GUARANTEE AND THE
GUARANTEED OBLIGATIONS SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED AND TO BE
PERFORMED IN SUCH STATE, WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
<PAGE>
Section 16. Captions; Separability. (a) The captions of
the Sections and subsections of this Guarantee have been inserted
for convenience only and shall not in any way affect the meaning or
construction of any provision of this Guarantee.
(b) If any term of this Guarantee shall be held to be invalid,
illegal or unenforceable, the validity of all other terms hereof shall in no way
be affected thereby.
Section 17. Acknowledgment of Receipt. The Guarantor
acknowledges receipt of a copy of this Guarantee.
Section 18. This Guarantee shall inure to the benefit of and be
enforceable by BankBoston , its successors, transferees and assigns, and it
shall be binding upon Guarantor and the successors and assigns of Guarantor.
IN WITNESS WHEREOF, the Guarantor has duly executed or caused this
Guarantee to be duly executed as of the date first above set forth.
LITCHFIELD FINANCIAL CORPORATION
By: Heather A. Sica
Name: Heather A. Sica
Title: Executive Vice President
Exhibit 11.1
Litchfield Financial Corporation
Computation of Earnings Per Share
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Basic:
Weighted average number of
common shares outstanding....... 6,835,775 5,629,644 6,083,183 5,545,497
Income before
extraordinary item..............$2,767,000 $2,161,000 $6,626,000 $5,186,000
Extraordinary item (net of
applicable tax benefit of $48,000).(77,000) --- (77,000) ---
--------- --------- ---------- ----------
Net income........................$2,690,000 $2,161,000 $6,549,000 $5,186,000
========== ========== ========== ==========
Income before extraordinary
item per common share......... $ .40 $ .38 $ 1.09 $ .94
Extraordinary item (net of
applicable tax benefit of $48,000).. (.01) --- (.01) ---
--------- --------- ------------ --------
Net income per common share.........$ .39 $ .38 $ 1.08 $ .94
========= ========= ============ ========
Diluted:
Weighted average number of
common shares outstanding....... 6,835,775 5,629,644 6,083,183 5,545,497
Weighted average number of
common stock equivalents
outstanding:
Stock options............ 323,106 351,054 349,238 331,154
-------- ---------- -------- --------
Weighted average common and
common equivalent shares
outstanding.............. 7,158,882 5,980,698 6,432,422 5,876,651
========== ========== ========= =========
Income before
extraordinary item............... $2,767,000 $2,161,000 $6,626,000 $5,186,000
Extraordinary item (net of
applicable tax benefit of $48,000).. (77,000) --- (77,000) ---
---------- ---------- --------- ---------
Net income.................. $2,690,000 $2,161,000 $6,549,000 $5,186,000
========== ========== ========= =========
Income before
extraordinary item
per common share.......... $ .39 $ .36 $ 1.03 $ .88
Extraordinary item (net of
applicable tax benefit of $48,000).. (.01) --- (.01) ---
---------- ---------- ---------- --------
Net income per common share...... $ .38 $ .36 $ 1.02 $ .88
=========== ========== ========== =========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 43,673 43,673
<SECURITIES> 28,954 28,954
<RECEIVABLES> 166,825 166,825
<ALLOWANCES> 6,506 6,506
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 252,594 252,594
<CURRENT-LIABILITIES> 0 0
<BONDS> 105,056 105,056
<COMMON> 68 68
0 0
0 0
<OTHER-SE> 79,719 79,719
<TOTAL-LIABILITY-AND-EQUITY> 252,594 252,594
<SALES> 0 0
<TOTAL-REVENUES> 10,465 28,391
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 360 1,170
<INTEREST-EXPENSE> 3,423 10,115
<INCOME-PRETAX> 4,499 10,774
<INCOME-TAX> 1,732 4,148
<INCOME-CONTINUING> 2,767 6,626
<DISCONTINUED> 0 0
<EXTRAORDINARY> (77) (77)
<CHANGES> 0 0
<NET-INCOME> 2,690 6,549
<EPS-PRIMARY> .39 1.08
<EPS-DILUTED> .38 1.02
</TABLE>