<PAGE>
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _____________ to _____________
OPPORTUNITY MANAGEMENT COMPANY, INC.
(Exact name of registrant as specified in its charter)
Washington 33-68700-S 91-1427776
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
12904 East Nora, Suite A
Spokane, Washington 99216
(Address of principal executive offices)
Registrant's telephone number, including area code: (509) 928-6545
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the issuer (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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $1,116,078. The
aggregate market value of the voting stock held by non-affiliates at March 1,
1998, based on an assumed value of $5.00 per share, was $10,226,497. The
number of shares of common stock outstanding at such date was 2,244,012
shares.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
SAFE HARBOR STATEMENT
Page
PART I
Item 1: Description of Business . . . . . . . . . . . . . . . . . . . 1
Item 2: Description of Property . . . . . . . . . . . . . . . . . . .10
Item 3: Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .10
Item 4: Submission of Matters to a Vote of Security Holders . . . . .11
PART II
Item 5: Market for Common Equity and Related Stockholder Matters. . .12
Item 6: Management's Discussion and Analysis or Plan of Operation . .13
Item 7: Financial Statements. . . . . . . . . . . . . . . . . . . . .18
Item 8: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . . . . .19
PART III
Item 9: Directors and Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act. .20
Item 10: Executive Compensation. . . . . . . . . . . . . . . . . . . .22
Item 11: Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . .22
Item 12: Certain Relationships and Related Transactions. . . . . . . .23
Item 13: Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . .24
SIGNATURES
(i)
<PAGE>
<PAGE>
Safe Harbor Statement
Except for the historical information contained herein, certain of the matters
discussed in this annual report are "forward-looking statements" as defined in
the Private Securities Litigation Reform Act of 1995, which involve risks and
uncertainties. Potential risks and uncertainties include, without limitation,
the likelihood that the Company could experience continued high loan default
rates, which would have the effect of further reducing portfolio yields and
amounts distributable to the Company's shareholders in the form of dividends;
continued reliance on CLS Mortgage, Inc. ("CLS") for loans and the provision
of management and related services, for which the Company will pay fees and
costs possibly in excess of amounts it would otherwise pay or incur for
similar services provided by a nonaffiliated entity or entities; the
concentration of loans in Eastern Washington and Northern Idaho, and the
possible widespread decrease in the value of the real property securing such
loans as the result of adverse changes in the economy of the region; the
effect of interest rates on loan yields generally; losses occasioned by damage
or destruction to the property securing the Company's loans; liabilities
associated with violations of state usury laws and other laws and regulations
of jurisdictions in which the Company does business; and other factors that
may affect future results, as described below.
The Company purchases high-risk loans made by CLS to borrowers who typically
do not qualify for financing from conventional lending sources. Virtually all
of these loans are secured by liens on real property having appraised or tax
assessed values substantially in excess of the loan amounts. In determining
whether to purchase a loan, the Company is primarily motivated by the value of
such property, and, to a lesser extent, by other factors indicative of the
borrower's ability to repay the loan. High rates of delinquency are typical
in a loan portfolio of this composition and such rates can be expected to
continue in the future. The Company anticipates that, at any given time, 20%
to 30% or even more of the loans in the portfolio will be delinquent by at
least 90 days and will be determined to be non-earning loans. (For the year
ended December 31, 1997, for example, approximately 21% of the Company's
portfolio was comprised of non-earning loans.) The Company also anticipates
that, at any given time, it will hold properties obtained through foreclosure
or by other means for resale, and that it will incur substantial costs in
holding these properties and readying them for resale. (For the year ended
December 31, 1997, for example, the book value of properties held for sale was
$2,208,231.) Other real estate owned ("OREO"), non-earning loans and costs
have reduced the amount of dividends payable to the Company's shareholders and
will reduce the amount of future dividends if the Company is unable to take
corrective measures to improve the quality of its loan portfolio.
The Company presently acquires substantially all of its loans from CLS, which
is affiliated with the Company; most of these loans are in turn serviced by
CLS Escrow, Inc. ("CLS Escrow"), which is affiliated with CLS and the Company.
CLS also provides the Company with management and related administrative,
accounting, computer and other services necessary to the Company's operations.
The Company pays significant fees and costs to CLS and CLS Escrow for these
(ii)
<PAGE>
<PAGE>
loans and services. These fees and costs are not the result of arms-length
negotiation between the Company, on the one hand, and CLS and CLS Escrow, on
the other hand, and possibly exceed amounts the Company would otherwise pay or
incur were the same or similar services provided by nonaffiliated entities.
Other conflicts of interest are inherent in the manner in which loans
purchased by the Company are selected.
Most of the loans in the Company's portfolio are secured by real property (or,
to a lesser extent, personal property) located in Eastern Washington and
Northern Idaho. Unfavorable economic conditions affecting the region would
likely result in increased loan delinquencies and a widespread decline in the
market values of the property given as security for these loans. Were this to
occur, the Company may not be able to recover the outstanding amounts of its
loans through foreclosure or other collection proceedings, in which event
substantial losses would occur.
The results of operations for financial institutions such as the Company and
CLS may be materially and adversely affected by changes in prevailing economic
conditions, rapid changes in interest rates, and the monetary and fiscal
policies of the federal government. Accordingly, there can be no assurance
that the positive trends or developments discussed in this report will
continue or that negative trends or developments will not have a material
adverse effect on the Company.
The Company's initial loan purchases were funded from the sale of shares of
its common stock. Thereafter, such purchases have been funded from repayments
of principal on outstanding loans in its portfolio, the sale proceeds of OREO
and, to a lesser extent, from reinvested dividends paid to the Company's
shareholders. The Company has not funded its operations from borrowings and
as a result has not incurred interest rate risks commensurate with those of
conventional lending institutions. This could change, however, in the event
the Company borrows funds for operations. The Company has no present plans to
borrow money and probably will not undertake to borrow money until efforts to
improve the quality and yield of its loan portfolio have been successfully
undertaken. Pending such improvement, and in the absence of additional
funding from other sources such as the sale of additional shares of common
stock, the size of the Company's loan portfolio can be expected to remain
fairly constant.
Although it is the Company's policy to purchase only those loans that are
secured by real property that is insured against damage or destruction, such
insurance cannot always be obtained. Further, even if insurance is obtained,
it may prove insufficient in amount, or may have even lapsed and not been
renewed subsequent to the date the Company acquired the loan. Because the
Company focuses its collection efforts on the property given as security for
the loan, as opposed to the borrower, any loss in value attributable to
uninsured or under insured damage or destruction to such property would have a
material adverse effect on the Company.
(iii)
<PAGE>
<PAGE>
The Company and CLS are subject to extensive federal and state regulation and
supervision, including possible limitations, at least in Washington, on the
rate of interest CLS can charge with respect to certain types of loans.
Current, proposed and future legislation and regulations have had, will
continue to have or may have a significant impact on the Company's and CLS's
mortgage financing businesses.
The Company and CLS are subject to increasing competition from existing and
new lenders entering their market areas. Most of these lenders compete with
the Company and CLS on the basis of interest rates. Although not anticipated,
CLS may be compelled to lower its interest rates in order to originate a
sufficient volume of loans for sale to the Company and other purchasers. Any
such reduction could have the effect of lowering the yield on the Company's
loan portfolio and the amounts paid to its shareholders as dividends.
[The balance of this page has been intentionally left blank.]
(iv)
<PAGE>
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS.
OVERVIEW OF THE COMPANY
Opportunity Management Company, Inc. (the "Company") is engaged in the
business of purchasing and holding high-risk loans made primarily to borrowers
located in Eastern Washington and Northern Idaho, with the objective of
earning current income for its shareholders. The Company was organized as a
Washington corporation in 1988 and commenced operations in May of 1989.
The Company has elected to be treated for federal income tax purposes as a
real estate investment trust ("REIT"), meaning that it is allowed to deduct
the dividends paid to its shareholders as an expense and, in effect, is not
obligated to pay federal income taxes. Dividends that are distributed to the
shareholders are considered ordinary income to such shareholders for federal
income tax purposes, however gains on the sale of real property acquired
through foreclosure, are treated as capital gains. The Company must continue
to meet certain conditions on an annual basis in order to retain its tax
status as a REIT.
Since its inception, the Company has acquired substantially all of its loans
from CLS Mortgage, Inc. ("CLS"), which is affiliated with the Company. CLS
originates a variety of conforming and nonconforming loans, including loans to
borrowers who generally do not qualify for credit from commercial banks,
savings and loan associations, credit unions and other financial institutions.
During the years ended December 31, 1997, 1996 and 1995, approximately 80%,
80% and 60%, respectively, of loans originated by CLS were conforming loans
meeting institutional underwriting guidelines. Virtually all of these
conforming loans are sold by CLS to other financial institutions.
The remaining loans originated by CLS during these years were nonconforming
loans made to borrowers who typically do not qualify for financing from
conventional lending sources. Because of the higher levels of risk associated
with these loans, such borrowers are charged rates of interest which exceed
the rates charged by other financial institutions to their more creditworthy
borrowers. These loans typically bear interest at rates ranging from 7.5% per
annum to 18% per annum, and are generally amortizable over 15 to 30 years.
Some programs have balloon payment provisions requiring full payment in five
to ten years. All of such loans are secured by real property and, in some
instances, also by personal property. In determining which loans to purchase
from CLS, the Company has been primarily motivated by the value of such
property, and to a lesser extent, by other factors indicative of the
borrower's ability to repay the loan. During 1996, the Company reevaluated
its selection criteria and began placing more emphasis on the borrower's
creditworthiness and ability to repay the loan; this practice is expected to
continue in the future, as part of the Company's overall effort to decrease
the level of non-earning loans in the portfolio. CLS sells these loans to the
Company and other purchasers either as whole loans (being loans in which the
purchaser is assigned the promissory note issued by the borrower, together
<PAGE>
<PAGE>
with the mortgage or deed of trust and other collateral securing the
obligations evidenced by the note) or undivided, participatory interests in
such loans.
The Company purchases all of its loans from CLS without discount. CLS is also
paid loan placement fees in connection with such purchases, in amounts ranging
from 2% to 12% of the face value of the loan. Such fees are paid by the
borrower, but are included in the principal amount of the loan. This
arrangement allows CLS to account for the full value of the placement fee as
revenue when the loan is sold to the Company. All loans purchased by the
Company from CLS are without recourse, meaning that, in the event of default,
the Company cannot pursue any collection or other remedies against CLS, but
must, instead, pursue such remedies against the borrower or, as is more
likely, against the real or other property given as security for the loan.
The Company also contracts with CLS for the provision of management and
related administrative, accounting, computer and other services necessary to
the Company's operations, and with CLS Escrow, Inc. ("CLS Escrow") for the
provision of escrow and other loan services. CLS Escrow is affiliated with
CLS and is also an indirect affiliate of the Company. The Company's
management contract with CLS is renewable annually and provides for the
payment to CLS of monthly fees of up to one-twelfth of 2% of the assets under
management or, alternatively, one-twelfth of 2% of the number of outstanding
shares of common stock of the Company at month end, provided such amount does
not exceed the asset-based amount. The Company has historically paid CLS one-
twelfth of 1.5% of the number of outstanding shares of common stock pursuant
to this agreement. Amounts paid to CLS Escrow for loan servicing have
equalled approximately 0.01% of the principal amount of the loans.
The Company's initial loan purchases were funded from the sale of shares of
its common stock. Thereafter, such purchases have been funded from repayments
of principal on outstanding loans in its portfolio and, to a lesser extent,
from reinvested dividends paid to the Company's shareholders. The Company has
historically offered and sold its common stock to the public at the price of
$5.00 per share pursuant to a registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), and a related prospectus. During
the years ended December 31, 1997, 1996 and 1995, 20,000, 122,553 shares, and
326,756 shares of common stock were purchased in such offering, yielding net
proceeds to the Company of approximately $100,000, $600,000, and $1.5 million,
respectively, after deduction of offering expenses. During the years ended
December 31, 1997, 1996 and 1995, approximately 97%, 67%, and 28%,
respectively, of these shares were purchased by existing shareholders of the
Company who elected to reinvest cash dividends declared and paid by the
Company in such years pursuant to an informal dividend reinvestment plan
maintained by the Company, and the remainder of such shares were purchased by
existing or new investors using other funds.
The Company terminated the dividend reinvestment program in July 1997 and
simultaneously filed a post-effective amendment to its Securities Act
<PAGE>
<PAGE>
registration statement, withdrawing from registration those shares of common
stock that remained unsold. Since then, the Company has been considering
adopting an open market purchase program having many of the same objectives as
the dividend reinvestment program. Whether or not the Company adopts such a
program will depend on a number of factors, including the liquidity needs of
its shareholders and the likelihood of establishing a secondary trading market
for its common stock. The Company's stock is not currently listed, traded or
quoted on any secondary securities market or system, and no application for
listing or trading privileges has yet been filed. The Company expects to make
a decision regarding secondary market trading and an open market purchase
program sometime in 1998.
It is the Company's policy to declare and pay dividends on its common stock no
less often than quarterly, at rates determined by the interest income and gain
from the sale of real property received during the prior quarter. In order to
maintain its status as a REIT, the Company must distribute at least 95% of its
taxable income in each year.
The Company may seek to borrow funds from one or more financial institutions
to augment the funding of loan purchases beginning in 1998. Whether and to
what extent the Company engages in such borrowing will depend on a number of
factors, including its ability to improve the quality and yield of its loan
portfolio, then prevailing interest rates and the effect, if any, of such
rates on the Company's income. It is unlikely the Company will rely
materially on borrowed money to fund loan purchases, particularly if such
borrowings materially reduce dividends otherwise payable to the Company's
shareholders. In such event, the Company may seek other financing
alternatives, including, possibly, the offer and sale of additional shares of
its common stock.
The Company's executive offices are located at 12904 East Nora, Suite A,
Spokane, Washington 99216, which are also the executive offices of CLS. CLS
also maintains a loan production office in Kennewick, Washington.
OPERATING STRATEGIES
The Company's objectives are to acquire and maintain a portfolio of loans
collateralized by real property sufficient to generate dividends to its
shareholders at annualized rates ranging from 8% to 12%. In order to meet
these objectives, the Company and CLS have adopted operating strategies
designed to (i) reduce the level of non-earning loans in the Company's loan
portfolio, (ii) increase the volume of loans CLS originates and makes
available to the Company and others for purchase, (iii) more efficiently
manage the operations of the Company and CLS and (iv) sell OREO's, thereby
reducing the level of non-earning real estate owned in the Company's
portfolio.
REDUCTION IN LEVEL OF NON-EARNING LOANS. Non-earning loans, which are defined
as loans which are 90 days or more delinquent, constituted 20.9%, 33.5% and
30.0% of the Company's loan portfolio at December 31, 1997, 1996 and 1995,
<PAGE>
<PAGE>
respectively. As a consequence of the substantially increased level of non-
earning loans during 1996 and 1995, the Company's portfolio yield
significantly decreased. For the years ended December 31, 1997 and 1996, the
yields on average loans in the loan portfolio were 12.1% and 12.5%,
respectively, as compared to a yield of 13.5% for the year ended December 31,
1995.
The Company believes the increase in non-earning loans in 1996 and 1995 is
attributable to several factors, including a relatively high concentration of
portfolio loans secured by developed properties; these loans were originated
during the period from 1990 through 1994, when the Spokane, Washington and
Coeur d'Alene, Idaho housing markets were robust, but declined in performance
as those markets softened beginning in 1995. For purposes of these
limitations, "undeveloped property" is unimproved property that has not been
zoned as commercial or residential property; "developed property" is property
that has been zoned for commercial or residential use, but is currently
unimproved.
The Company also believes the decrease in non-earning loans in 1997 is
primarily attributable to an increase in the concentration of single-family
residential and commercial loans and a reduction concentration of loans
secured by developed and undeveloped land. In addition, CLS has adopted
stricter, more conservative appraisal practices that have also contributed to
the decrease. It has also implemented internal policies designed to ensure
that no more than 20% of the loan portfolio is comprised of loans secured by
developed properties, and that no more than 10% of the portfolio is comprised
of loans secured by undeveloped properties. Beginning in the fourth quarter
of 1996, CLS has employed a full-time collection manager to oversee the sale
or other disposition of real estate acquired by CLS and the Company through
foreclosure or other means.
CLS's and the Company's goals with respect to the Company's loan portfolio are
to reduce the level of non-earning loans to 20% or less and to increase the
annual yield to at least 8%.
INCREASE IN VOLUME OF ORIGINATED LOANS. CLS currently maintains loan
origination offices in Spokane and Kennewick, Washington, and employs
approximately twelve full-time sales representatives. CLS also maintains
relationships with in excess of 34 nonaffiliated mortgage brokers who refer
loans for purchase or funding.
Despite these advantages, CLS expects to continue to encounter significant
competition for loans from existing and new lenders in its market area. In
order to compete favorably for these loans, CLS intends to hire more
experienced loan officers, expand its advertising to include more television
advertising and internet advertising, and conduct special marketing programs.
These efforts will be designed to promote CLS's lending abilities to a broader
audience of prospective borrowers, and to ensure a higher quality of
borrowers. CLS also intends to continue offering fixed rate loans to its
borrowers, as opposed to variable rate loans such as those offered by many of
<PAGE>
<PAGE>
its competitors. CLS believes it can compete favorably with these other
lenders, even though the fixed rates of interest it charges may be higher than
the starting rates charged under the variable loans.
MORE EFFICIENT MANAGEMENT OF OPERATIONS. CLS recognizes that efficient
management of its and the Company's operations, and their respective loan
portfolios, is dependent upon the receipt of adequate and timely information.
To this end, CLS is carefully considering investing in new computer hardware
and software to enable it to better manage its operations. CLS believes that
these advances will allow it to monitor the composition of its and the
Company's loan portfolios more carefully, and thereby enhance its efforts to
improve the quality and yield of these portfolios.
SELL OTHER REAL ESTATE OWNED. All real properties owned by the Company are
presently for sale. Most properties are listed with multiple listing
services. No assurance can be made properties will sell timely.
INVESTMENT POLICY
As noted elsewhere in this report, the Company's principal investment
objective is to acquire and maintain a portfolio of loans collateralized by
real property sufficient to generate dividends to its shareholders at
annualized rates ranging from 8% to 12%. In order to achieve this objective,
the Company purchases loans that are considered high risk and are secured by
real property having appraised values significantly in excess of the loan
amounts. The loans available for purchase from CLS Mortgage vary in size from
$5,000 in principal amount to $450,000 in principal amount, and bear interest
at rates ranging from 12% per annum to 18% per annum. The loans are generally
amortizable over 15 to 30 years, although most have balloon payment provisions
requiring full payment in five to ten years.
The Company's investment guidelines are administered by the board of directors
and may be changed only with the approval of a majority of those directors of
the Company who are not also executive officers or employees of the Company or
any of its affiliates. The more salient of these provisions are set forth
below.
The Company is precluded from investing more than 10% of its assets in any
single loan or in loans secured by undeveloped real property, and is similarly
precluded from investing more than 20% of its assets in loans secured by
developed property.
In addition, the board of directors of the Company has established maximum
loan-to-value ratios which it applies in considering which loans the Company
will purchase. For loans secured by undeveloped property, the loan-to-value
ratio must be less than or equal to 40%; for loans secured by developed
property or by agricultural property, the loan-to-value ratio must be less
than or equal to 50%; for loans secured by commercial property or by
residential property that is considered substandard under conventional lending
guidelines, the loan-to-value ratio must be less than or equal to 60%; and for
loans secured by residential property that is considered standard or above
<PAGE>
<PAGE>
standard under conventional lending guidelines, the loan-to-value ratio must
be less than or equal to 70%. The loan-to-value ratio represents the original
principal balance of the loan plus the value of any prior liens or security
interests in such collateral, divided by the original value of the collateral.
Generally, all loan acquisitions are required to be approved by at least three
members of the board of directors of the Company (two of whom must not also be
executive officers or employees of the Company) and at least one executive
officer. The board of directors attempts to meet on a quarterly basis for
such purpose.
SECURITY FOR LOANS; COMPOSITION OF LOAN PORTFOLIO
Most of the loans acquired by the Company are secured by first liens on real
property evidenced by deeds of trust or mortgages, or by assignments of
recorded real estate purchase contracts. Where appropriate, the Company may
also occasionally purchase loans secured by second mortgages and by liens on
personal property such as mobile homes. The real property underlying such
liens is located primarily in Eastern Washington and Northern Idaho.
At December 31, 1997, 1996 and 1995, 88%, 85% and 81%, respectively, of the
loans held by the Company were secured by first liens on real property. At
such dates, loans secured by real property categorized as single and multi-
family residential real property comprised 46.9%, 42.9% 43.7% of the Company's
total loans.
The following table sets forth, for the periods indicated, the categories of
real property securing loans held by the Company, and the aggregate principal
amounts of such loans and the percentage that each category bears to the total
loans of the Company outstanding.
<TABLE>
<CAPTION>
Amount and Percentage of Total Loans
December 31
Type of Real Property ----------------------------------------------------
Security Loans 1997 1996 1995
- --------------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Commercial $1,741,417 20.1% $1,934,661 20.1% $1,684,851 17.7%
Single and multi-family
residential 2,382,735 27.5% 2,371,002 24.6% 2,049,210 21.5%
Rural single and multi-
family residential 1,678,901 19.4% 1,760,819 18.3% 2,106,955 22.2%
Manufactured homes on
real property 874,791 10.1% 1,002,629 10.4% 1,150,649 12.1%
Agricultural 72,984 0.8% 9,758 .1% 9,758 .1%
Developed land 1,415,820 16.3% 1,952,558 20.2% 1,789,376 18.8%
Undeveloped land 505,867 5.8% 605,878 6.3% 719,728 7.6%
---------- ------ ---------- ------ ---------- ------
$8,672,515 100.0% $9,637,305 100.0% $9,510,527 100.0%
========== ====== ========== ====== ========== ======
</TABLE>
<PAGE>
<PAGE>
At December 31, 1997, approximately 70% of the aggregate principal amount in
the Company's loan portfolio was secured by real property located in
Washington, and approximately 29% of such amount was secured by real property
located in Idaho. The balance of such amount was secured by real property
located in Oregon and Montana.
SOURCES OF LOANS; PURCHASE PRICE AND TERMS; LOAN SERVICING; DELINQUENCIES AND
COLLECTIONS
OVERVIEW. The Company has purchased substantially all of its loans since
inception from CLS, which is affiliated indirectly with the Company. CLS'
mortgage lending activities consist of originating, selling and servicing
loans that are primarily secured by real property. These loans are then sold
to purchasers, including the Company, either as whole loans (being loans in
which the purchaser is assigned the promissory note issued by the borrower,
together with the mortgage or deed of trust and other collateral securing the
obligations evidenced by the note) or undivided participatory interests in
such loans. Purchasers who acquire undivided participatory interests in loans
are required to enter into a participation agreement with respect to the
acquired loan; the participation agreement creates a joint venture among such
purchasers and obligates such purchasers, among other things, to bear all of
the costs and expenses incurred in connection with any collection or
foreclosure proceedings initiated with respect to the loan, and to otherwise
manage, hold or dispose of property acquired through such proceedings.
Loans purchased by the Company typically range in size from $30,000 in
principal amount to $200,000 in principal amount, and bear interest at rates
ranging from 12% per annum to 18% per annum. The loans are generally
amortizable over 15 to 30 years, although most have balloon payment provisions
requiring full payment in five to ten years.
LOAN ORIGINATION. CLS' administrative, underwriting and servicing operations
together with a loan production staff are based in Spokane, Washington. In
addition, CLS maintains a loan production office in Kennewick, Washington.
CLS originates a variety of conforming and nonconforming loans, including
loans to borrowers who generally do not qualify for credit from commercial
banks, savings and loan associations, credit unions and other financial
institutions. During the years ended December 31, 1997, 1996 and 1995,
approximately 80%, 80%, and 60%, respectively, of loans originated by CLS were
conforming loans meeting institutional underwriting guidelines. Virtually all
of these conforming loans are sold by CLS to other financial institutions.
The remaining loans originated by CLS during these years were nonconforming
loans made to borrowers who, for a variety of reasons, generally do not
qualify for credit from commercial banks, savings and loan associations,
credit unions and other financial institutions. Because of the higher levels
of risk associated with such loans, borrowers are required to pay rates of
interest in excess of the rates quoted by such financial institutions to
other, more creditworthy consumers.
<PAGE>
<PAGE>
Loans purchased by the are secured by real property and, in some instances,
also by personal property. In determining which loans to purchase from CLS,
the Company has been primarily motivated by the value of such property, and,
to a lesser extent, by other factors indicative of the borrower's ability to
repay the loan. During 1996, the Company reevaluated its selection criteria
and began placing more emphasis on the borrower's creditworthiness and ability
to repay the loan; this practice is expected to continue in the future, as
part of the Company's overall effort to decrease the level of non-earning
loans in the portfolio. In determining whether to make a loan, CLS relies on
credit reports prepared by a local credit reporting service and also elicits
information concerning a borrower's income and employment status; CLS
generally does not attempt to verify the accuracy or completeness of such
information, however, relying, instead, on the borrower's written
representations as to such matters in the loan application.
CLS' primary criteria for underwriting loans, however, is the loan-to-value
ratio, or, stated differently, the extent to which the current value of the
real property to be given as security for the loan exceeds the principal
amount of the loan. CLS presently does not make loans to applicants unless
the proposed loan-to-value ratio, determined by independent appraisal or by
reference to the most recent tax assessment valuation, meets established
guidelines. Such appraisals are obtained from independent fee appraisers at
the applicant's expense.
In addition to the foregoing, all loans originated by CLS require the receipt
of a policy of title insurance covering the real property given as security
for the loan, and on the receipt of satisfactory evidence of property
insurance in an amount equal to the lesser of the principal balance of the
loan or the replacement cost of any improvements, and naming CLS as a co-
insured. CLS's rights under these policies are assigned to the Company in
connection with the purchase of loans.
LOAN SERVICING. Most of the loans originated by CLS, including those sold to
the Company, are serviced by CLS Escrow, Inc., which is affiliated with CLS
and the Company; those loans that are not serviced by CLS Escrow are serviced
by an independent escrow service. Loan servicing includes matters associated
with the closing of the loan itself, including the recording of appropriate
security instruments, the retention of closing documents, the maintenance of
records of payment under the loan documents, notification of the borrower in
the event of delinquency and, if necessary, the retention of counsel to pursue
collection or foreclosure remedies available to CLS.
DELINQUENCIES AND COLLECTIONS. Given the high-risk nature of the
nonconforming loans it originates, it is CLS' policy to monitor loan
compliance very carefully. Written notice is sent whenever an account is more
than five to six days past due to attempt to cause the borrower to bring the
account current; this is followed by a phone call six to seven days later if
the delinquency in the account has not been cured. If the status of the
account continues to deteriorate, an analysis is undertaken to determine the
appropriate action to be taken. When a borrower is experiencing difficulty in
making timely payments, CLS may temporarily adjust the borrower's payment<PAGE>
<PAGE>
schedule. The determination of how best to work out a delinquent loan is
based on a number of factors, including the borrower's payment history and the
reasons for the current delinquency.
Unless circumstances dictate otherwise, it is CLS's policy to commence formal
collection efforts whenever an account is more than 30 days past due.
Regulations and practices regarding the liquidation of properties (namely,
foreclosure) and the rights of the holder of the mortgage, deed or trust or
other lien vary from state to state. Only if a delinquency cannot otherwise
be cured will CLS determine that liquidation is the appropriate course of
action. Normally, CLS determines that purchasing a property securing a loan
will minimize the loss associated with the defaulted loan, the Company will
then bid at the foreclosure sale for such property or accept a deed in lieu of
foreclosure.
The Company anticipates that, at any given time, approximately 20% to 30% of
the loans in the loan portfolio will be at least 90 days delinquent. At
December 31, 1997, 1996 and 1995, 20.9%, 33.5%, and 30.0%, respectively, of
the principal balance of loans in the portfolio were delinquent in payment by
90 days or more and were therefore accounted for as non-earning loans. As is
previously noted in this report, as a consequence of the substantially
increased level of non-earning loans during 1996 and 1995, yields
significantly decreased. For the years ended December 31, 1997 and 1996, the
yields on average loans in the loan portfolio were 12.1% and 12.5%,
respectively, as compared to a yield of 13.5% during the year ended December
31, 1995. During the years ended December 31, 1997 and 1996, the yields on
commercial loans in the portfolio dropped to 12.0% and 11.7%, respectively,
from 13.6% in 1995. The yields on residential loans dropped to 12.2% and
13.2% in 1997 and 1996, respectively, from 13.4% in 1995.
The following table illustrates, for the periods indicated, the Company's loan
delinquency and loan and other real estate owned ("OREO") charge-off
experience, and its gains on OREO.
<TABLE>
<CAPTION>
As of and for the years
ended December 31,
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
30-59 days past due 13.7% 18.5% 17.7%
60-89 days past due 11.6% 6.8% 7.5%
90+ days past due 20.9% 33.5% 30.0%
Loans and OREO charged-off
against allowance, net $58,646 $55,163 $ 9,721
Loans and OREO charged-off
against allowance, net, as
a percentage of average
total loans and OREO 0.54% 0.52% 0.10%
Gains on sale of OREO $20,961 $20,313 $23,196
</TABLE>
<PAGE>
<PAGE>
OTHER REAL ESTATE OWNED. OREO includes property acquired by the Company in
foreclosure proceedings or by acceptance of a deed in lieu of foreclosure, and
property purchased by the Company for resale. These properties are recorded
at the lower of the loan balances at the date they are categorized as OREO or
their fair market determined by independent appraisals or current listings
less the costs of disposal.
The following table sets forth, for the periods indicated, the categories of
OREO owned by the Company, the aggregate amounts of OREO within each category,
and the percentage that the aggregate OREO in each category bears to the total
OREO of the Company.
<TABLE>
<CAPTION>
Amount and Percentage of OREO
December 31
Type of Real Property ----------------------------------------------------
Comprising OREO 1997 1996 1995
- --------------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 212,010 9.6% $ 127,442 10.4% $ 127,650 13.8%
Single and multi-family
residential 167,904 7.6% 104,850 8.6% 45,501 4.9%
Rural single and multi-
family residential 443,176 20.1% 209,506 17.2% 157,629 17.1%
Manufactured homes on
real property 112,305 5.1% 60,144 4.9% 0 0%
Agricultural 9,775 0.4% 0 0% 0 0%
Developed land 1,160,421 52.5% 718,198 58.9% 591,746 64.2%
Undeveloped land 102,740 4.7% 0 0% 0 0%
---------- ------ ---------- ------ ---------- ------
$2,208,331 100.0% $1,220,140 100.0% $ 992,526 100.0%
========== ====== ========== ====== ========== ======
</TABLE>
ANALYSIS OF ALLOWANCE FOR LOAN AND REAL ESTATE LOSSES. The allowance for loan
and real estate losses represents management's recognition of the risks of
extending credit and its evaluation of the quality of the loan portfolios of
the Company. The allowance is maintained at levels considered adequate by
management to provide for anticipated loan losses, and is based on
management's assessment of various factors affecting the loan and real estate
portfolio, including delinquent and impaired loans, underlying collateral
values and real estate less disposal costs of real estate, business conditions
and historical loss experience. The allowance is increased by provisions
charged to operations and is reduced by loans and real estate charged off, net
of any recoveries. However, gains on the sale of real estate are recorded
directly to income. The provision for loan and real estate losses of the
Company, both absolutely and as a percentage of total loans and real estate,
increased in 1997 relative to 1996, and the loan loss allowance, both
<PAGE>
<PAGE>
absolutely and as a percentage of total loans, was higher at December 31, 1997
as compared to 1996. The increase in the provision for loan and real estate
losses and the loan loss allowance during the year is attributable to the
significant increase in real estate held for sale and deterioration in certain
property values during the year.
ACQUISITION OF LOANS BY THE COMPANY
PURCHASE PRICE AND TERMS. As is previously noted in this report, the Company
has purchased all of its loans from CLS since inception. The Company is not
precluded from purchasing loans from other sources, however, and may consider
doing so in the future, particularly if the volume of loans originated by CLS
is insufficient to meet the Company's demands.
The Company purchases these loans from CLS without discount. CLS is also paid
loan placement fees in connection with such purchases, in amounts ranging from
2% to 12% of the face value of the loan. Such fees are paid by the borrower,
but are included in the principal amount of the loan. This arrangement allows
CLS to account for the full value of the placement fee as revenue when the
loan is sold to the Company. All loans purchased by the Company from CLS are
without recourse, meaning that, in the event of default, the Company cannot
pursue any collection or other remedies against CLS, but must, instead, pursue
such remedies against the borrower or, as is more likely, against the real or
other property given as security for the loan.
In addition, CLS Escrow receives closing and escrow fees equal to
approximately 1% of the principal amount of the loan. During the year ended
December 31, 1997, the loan placement fees and closing and escrow fees
received by CLS and CLS Escrow, respectively, averaged approximately 9% and 1%
of the principal amounts of the loans purchased by the Company. During the
year ended December 31, 1997, CLS received loan placement fees of $420,333 and
CLS Escrow received closing and escrow fees of $58,808. These fees constitute
approximately 20% and 16% of the total revenues earned by CLS and CLS Escrow,
respectively, during the most recent fiscal year. These fees are paid
irrespective of the future performance of the loans acquired by the Company.
Because of this fee structure, CLS may be deemed to have an incentive to
encourage the acquisition of shorter term loans by the Company and to
generally advocate a more rapid turn over of the Company's loan portfolio.
PROVISION OF MANAGEMENT SERVICES TO THE COMPANY
The Company has no employees. Instead, the Company contracts with CLS for the
provision of management and related administrative, accounting, computer and
other services necessary to the Company's operations. The Company's
management contract with CLS is renewable annually and provides for the
payment to CLS of monthly fees of up to one-twelfth of 2.0% of the assets
under management or, alternatively one-twelfth of 2.0% of the number of
outstanding shares of common stock of the Company at month end, provided such
amount does not exceed the asset-based amount. The Company has historically
<PAGE>
<PAGE>
paid CLS one-twelfth of 1.5% of the number of outstanding shares of common
stock pursuant to this agreement. During the year ended December 31, 1997,
such management fees aggregated $166,551.
CONFLICTS OF INTEREST
The principal executive officers of the Company are also the principal
executive officers of CLS and CLS Escrow. CLS is responsible for acquiring
loans for the Company and for managing the Company's day-to-day operations,
pursuant to the terms of a management contract with the Company. CLS also
sells loans which it has originated to investors other than the Company, and
may hold loans for its own account.
Despite the fact that CLS and the Company may be deemed to have a common
interest, CLS may not always offer the most profitable or most desirable loans
to the Company for purchase. Additionally, CLS may limit the Company's
percentage interest in any participatory loans, the effect of which could
hamper the Company's ability to control actions taken with respect to the
loan.
In order to minimize the conflicts of interest inherent in the selection of
loans to be offered for sale to the Company and those to other investors to
whom CLS also owes fiduciary duties, CLS has adopted the following policies:
CLS will initially determine whether a given loan is consistent with the
Company's investment policy guidelines, prior to purchasing any such loan on
the Company's behalf; loans purchased by the Company from CLS that conform to
these investment policy guidelines require no additional approval; however,
loans purchased by the Company from CLS that do not meet these guidelines are
required to be approved by the board of directors of the Company at the next
regularly scheduled quarterly meeting of the board, and if the board of
directors determines that the loan is not acceptable, the Company can require
CLS to reverse the transaction and buy the loan back from the Company at its
original cost, together with any associated fees and costs paid by the
Company. These policies apply both to whole loans and loan participation
interests purchased by the Company.
SUPERVISION AND REGULATION OF THE COMPANY'S BUSINESS
OVERVIEW OF APPLICABLE REGULATIONS. The Company's operations are subject to
extensive local, state and federal regulations including, but not limited to,
the following federal statutes and regulations promulgated thereunder: The
Home Ownership and Equity Protection Act ("HOEPA"), Title 1 of the Consumer
Credit Protection Act of 1968, as amended (including certain provisions
thereof commonly known as the "Truth in Lending Act" or "TILA"), the Equal
Credit Opportunity Act of 1975, as amended (the "ECOA"), the Fair Credit
Reporting Act of 1970, as amended (the "FCRA") and the Fair Debt Collection
Practices Act, as amended, and the Real Estate Settlement Procedures Act (the
"RESPA"). In addition, the Company is subject to state laws and regulations,
known as usury laws, with respect to the amount of interest and other charges
it can collect on loans.
<PAGE>
<PAGE>
Mortgage lending laws generally require licensing of the lender, limitations
on the amount, duration and charges for various categories of loans, adequate
disclosure of certain contract terms and limitations on certain collection
practices and creditor remedies. Most states, including Washington, have
usury laws which limit interest rates. In addition, state regulatory
authorities may conduct audits of the books, records and practices of the
Company's operations. The Company is currently licensed to do business in
Washington, Idaho and Oregon, and believes that it is in compliance in all
material respects with these regulations.
HOME OWNERSHIP AND EQUITY PROTECTION ACT. HOEPA, which became effective in
October of 1995, defines certain loans, including some of the loans originated
by CLS and subsequently purchased by the Company, as "high-cost mortgages."
Certain borrowing terms and conditions associated with mortgage financing are
prohibited by HOEPA. These include: Prepayment penalties; balloon payments
that become due in less than five years; automatic increases in the rate of
interest following an event of default; negative amortization of the principal
amount of any loan; the hold back of certain amounts of loan proceeds as
monthly payments; and the charging of points on refinancings conducted through
the same or affiliated lenders. HOEPA also increases civil liability for
violation of its provisions and enables a high-cost mortgage borrower to bring
claims against both the originator of the loan (such as CLS) and any person to
whom the loan is assigned (such as the Company). The Company believes that
most, if not all, of the loans that it holds do not contain terms or
conditions precluded by HOEPA, and that the impact of HOEPA on its operations
is not material. The provisions of HOEPA are significant, however, and
require ongoing analysis.
TILA, REGULATION Z, ECOA, FCRA AND RESPA. CLS's origination activities are
subject to TILA and Regulation Z promulgated thereunder. TILA 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. TILA also guarantees consumers a three-day right to cancel certain
credit transactions, including any refinanced mortgage or junior mortgage loan
on a consumer's primary residence. CLS believes that it is in compliance in
all material respects with TILA.
CLS is also required to comply with ECOA which, in part, 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 who are turned down for credit of the
reasons therefor. In instances where a loan applicant is denied credit or the
rate or charge for a loan is increased as the result of information obtained
from a consumer credit agency, another statute, the FCRA, requires the lender
to supply the applicant with a name and address of the reporting agency.
Under RESPA and Regulation X thereunder, disclosures to certain borrowers are
required to be made with prescribed time frames. Good-faith estimates of
applicable closing costs are provided where required.
<PAGE>
<PAGE>
STATE USURY LAWS. All of the loans held by the Company are made to high-risk
borrowers and are secured by real property located primarily in Washington and
Idaho. Idaho has not adopted usury laws regulating the maximum rate of
interest that may be charged by lenders such as CLS or the Company. The only
restrictions currently prescribed by Idaho law relate to oral agreements to
loan money; these restrictions are not applicable to loan transactions
evidenced by written agreements, such as those originated by CLS.
Washington has adopted fairly stringent usury laws, however, the violation of
which can subject a usurious lender to significant liability.
RELIANCE ON THE BUSINESS PURPOSE EXCEPTION. Under Washington law, the highest
rate of interest that generally may be charged by a lender of consumer debt is
the greater of (i) 12% per annum or (ii) a per annum rate determined by adding
four percentage points to the coupon equivalent yield from the most recent
auction of 26-week treasury bills. (As of the date of this report, the
highest rate of interest allowable in Washington for consumer debt would be
12%; the coupon equivalent yield from the first auction of 26-week treasury
bills in January of 1998 was 5.13%.) These limitations do not apply, however,
to loans that are made for a commercial, business, investment or agricultural
purpose; such loans are expressly excluded under the usury statute.
CLS and the Company believe those loans made by CLS which are primarily for a
business purpose pose relatively little risk of liability under the usury
statute. Nonetheless, the penalties for violation of the Washington usury
statute are significant. If the borrower establishes either a claim or
defense of usury in a lawsuit, then the creditor (in this case, the Company)
is entitled to receive only an amount equal to the principal of the loan less
the amount of interest accruing thereon at the rate contracted for. If
interest has been paid on the loan, the creditor is entitled to receive only
an amount equal to the principal of the loan less twice the amount of interest
paid thereon, and less the amount of all accrued and unpaid interest. The
borrower is also entitled to recover his costs and reasonable attorney fees.
In addition, because a violation of Washington's usury statute is also a
violation of the state's consumer protection act, treble damages may be
assessed.
RELIANCE ON MONETARY CONTROL ACT PREEMPTION. CLS and the Company also believe
that loans originated by CLS and purchased by the Company are "federally
related mortgage loans" within the meaning of Federal Depository Institution
Deregulation and Monetary Control Act of 1980 (the "Monetary Control Act"),
and that the Monetary Control Act by its terms preempts state usury
restrictions. The Monetary Control Act provides, generally, that the laws of
any state expressly limiting the rate or amount of interest shall not apply to
any loan or mortgage which is (i) secured by a first lien on residential real
property or by a lien on a residential manufactured home; (ii) made after
March 31, 1980; and (iii) a federal related mortgage loan as defined in the
Act.
<PAGE>
<PAGE>
There are no actions, investigations or proceedings pending or, to the best
knowledge of management, threatened against the Company or CLS challenging the
rate of interest charged by CLS on mortgage loans.
COMPETITION
CLS and the Company compete primarily with other mortgage brokerage companies
and with finance companies such as Associates Financial Services, The Money
Store, Beneficial Financial Services and ITT Financial Services, all of which
exist in CLS's and the Company's service areas, in originating and purchasing
loans. To a lesser extent, they also compete with commercial banks, savings
and loan associations, mutual savings banks and credit unions. Most of these
competitors have greater financial resources than either CLS or the Company.
The mortgage brokerage and finance companies with whom CLS and the Company
compete have yield expectations similar to those of CLS and the Company; the
competition for high-risk loans sufficient to generate yields meeting these
expectations is therefore substantial.
EMPLOYEES
As previously noted in this report, the Company has no employees. Instead, it
relies on CLS and CLS Escrow for the provision of management and related
administrative, accounting, computer, escrow, collection and other services
necessary to the Company's operations. As of December 31, 1997, CLS and CLS
Escrow had 34 full-time employees, of which 27 were employed by CLS and six
were employed by CLS Escrow. Twenty-two of these employees were employed in
administrative capacities at such date, and twelve were employed as sales
representatives. None of CLS's or CLS Escrow's employees are covered by a
collective bargaining agreement. CLS's and CLS Escrow's managements believe
relations with their employees are good.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company does not own or lease any property other than the OREO described
in Item 1 of this report. As is disclosed in Item 1 of this report, the
Company has no employees. Instead, the Company contracts with CLS for the
provision of management and related administrative, accounting, computer and
other services necessary to the Company's operations. Such services are
conducted from facilities owned by CLS.
ITEM 3. LEGAL PROCEEDINGS
Because of the nature of its business, the Company is subject to numerous
claims and legal actions in the ordinary course of its business involving the
collection of delinquent accounts and the validity of liens. While it is
impossible to estimate with certainty the ultimate legal and financial
liability with respect to such claims, the Company believes that, in the
aggregate, such liabilities would not have a material adverse effect on the
financial condition or results of operations of the Company.
<PAGE>
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of 1997.
[The balance of this page has been intentionally left blank.]
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION. The common stock of the Company is not listed for trading
on any secondary market or exchange, nor are prices therefor quoted on any
such market or exchange. Since 1988, however, the Company has attempted to
assist those of its shareholders who are seeking to sell their common stock by
providing such holders with a list of the current shareholders and the names
of those shareholders who have expressed an interest in acquiring additional
common stock. The Company's participation in such transactions is limited to
the foregoing, and neither the Company nor any of its affiliates receive a fee
or other remuneration in connection therewith.
HOLDERS. The number of holders of common stock of record on March 1, 1998 was
approximately 430.
DIVIDENDS. The following table sets forth information concerning dividends
declared and paid by the Company for the years ended December 31, 1997 and
1996.
<TABLE>
<CAPTION>
1997
Amount Per Share(1)
<S> <C> <C>
First Quarter $147,023 $0.066
Second Quarter $169,830 $0.076
Third Quarter $175,071 $0.078
Fourth Quarter $164,639 $0.073
1996
Amount Per Share(1)
Special Dividend for 1995 $ 27,921 $0.013
First Quarter $268,943 $0.125
Second Quarter $236,643 $0.108
Third Quarter $194,744 $0.088
Fourth Quarter $232,890 $0.105
__________________________
</TABLE>
(1) Per share amounts represent dividends as a percentage of shares
outstanding at the beginning of the quarter.
The Company has adopted a dividend policy which is periodically reviewed and
revised by the board of directors. The goals of such policy is to pay cash
<PAGE>
<PAGE>
dividends equal to the net income of the Company, and to distribute at least
95% of its taxable income in each year in order to maintain its status as a
REIT.
The payment of dividends on the common stock is subject to statutory
limitations. Under Washington general corporate law as it applies to the
Company, no cash dividend may be declared or paid, if, after giving effect to
the dividend, the Company is insolvent or the liabilities of the Company
exceed its assets.
DIVIDEND REINVESTMENT PLAN. As previously noted in this report, the Company
maintained an informal dividend reinvestment program which afforded
shareholders the opportunity to apply cash dividends to purchase additional
shares of the Company's common stock at the price of $5.00 per share. That
program was terminated in July 1997.
Since then, management of the Company has been considering adopting an open
market dividend reinvestment plan, provided an active secondary trading market
for the Company's common stock can be established. Under an open market plan,
shares of the Company's common stock acquired for the benefit of those
shareholders who have elected to participate in the plan would be purchased in
secondary market transactions, at then prevailing market prices, as opposed to
being purchased directly from the Company. Adoption of the plan would give
participants in the plan the ability to acquire common stock of the Company at
market prices, as opposed to a price arbitrarily determined by the Company.
Whether or not the Company adopts such a program will depend on a number of
factors, including the liquidity needs of its shareholders and the likelihood
of establishing a secondary trading market for its common stock. The
Company's stock is not currently listed, traded or quoted on any secondary
securities market or system, and no application for listing or trading
privileges has yet been filed. The Company expects to make a decision
regarding secondary market trading and an open market purchase program
sometime in 1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
SELECTED FINANCIAL DATA
The selected financial data for each of the three years ended December 31,
1997, 1996 and 1995 has been derived from the financial statements appearing
elsewhere in this report, which have been audited by McFarland & Alton, P.S.,
Spokane, Washington. The selected financial data should be read in
conjunction with, and is qualified by, such financial statements and the notes
thereto.
<PAGE>
<PAGE>
Year Ended December 31,
---------------------------------
1997 1996 1995
---- ---- ----
[S] [C] [C] [C]
INCOME STATEMENT DATA
Interest income. . . . . . . . . . . . .$1,115,433 $1,208,815 $1,188,915
Loan and real estate loss provision. . . (85,000) (105,000) (48,000)
Non-interest income. . . . . . . . . . . 645 10,074 2,603
Non-interest expense . . . . . . . . . . (396,830) (319,439) (211,513)
Gain on sale of real estate. . . . . . . 20,961 20,313 23,196
Net income . . . . . . . . . . . . . . . 655,209 814,763 955,201
PER SHARE DATA
Basic earnings per share . . . . . . . . $0.29 $0.37 $0.50
Book value per common share. . . . . . . $4.87 $4.87 $4.93
BALANCE SHEET DATA
Loans, earning . . . . . . . . . . . . .$6,858,156 $6,412,272 $6,652,683
Loans, nonearning. . . . . . . . . . . . 1,814,359 3,225,033 2,857,844
Real estate held for sale. . . . . . . . 2,208,331 1,220,140 922,526
Allowance for loan and real estate
losses. . . . . . . . . . . . . . . . . (182,745) (156,391) (106,554)
Net loans and real estate held for
sale. . . . . . . . . . . . . . . . . .10,698,101 10,701,054 10,326,499
Total assets . . . . . . . . . . . . . .11,132,523 11,003,097 10,054,708
Shareholders' equity . . . . . . . . . .10,936,623 10,841,836 10,372,488
[Table continued on following page.]
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
SELECTED RATIOS
Yield on average residential loans . . . . . . . 12.50% 13.21% 13.40%
Yield on average commercial loans. . . . . . . . 11.62% 11.68% 13.63%
Yield on average total assets. . . . . . . . . . 10.08% 11.33% 12.21%
Return on average total assets . . . . . . . . . 5.92% 7.58% 9.79%
Return on average total shareholders' equity . . 6.02% 7.68% 9.93%
Ratio of net income to total revenues. . . . . . 58.71% 65.75% 78.64%
ASSET QUALITY RATIOS
Allowance for losses to ending total loans
and OREO. . . . . . . . . . . . . . . . . . . . 1.68% 1.44% 1.02%
Allowance for losses to non-earning loans. . . . 10.07% 4.85% 3.63%
Non-earning loans to ending total assets . . . . 16.30% 29.31% 27.21%
Non-earning loans to total loans . . . . . . . . 20.92% 33.46% 30.05%
Non-earning loans and OREO as a percentage of
total loans and OREOs . . . . . . . . . . . . . 36.97% 40.94% 36.23%
Net charge-offs to average loans and OREO. . . . 0.54% 0.52% 0.10%
CAPITAL RATIOS
Average shareholders' equity to average assets . 98.39% 98.64% 98.56%
</TABLE>
RESULTS OF OPERATIONS
OVERVIEW. 1997 was not a particularly good year for the Company. Non-earning
assets stabilized in 1997. Non-earning loans together with OREO as a
percentage of total assets for the years ending 1997, 1996 and 1995 were
36.1%, 40.4% and 36.0%, respectively. Non interest expense increased from
$211,513 in 1995, to $319,439 in 1996, to $396,830 in 1997. Interest income
decreased from $1,208,815 in 1996 to $1,115,433 in 1997. As a consequence of
increased expenses and decreased income, net income declined to $655,209 in
1997, a reduction of $159,554 or approximately 20%.
Management of the Company and CLS expect overall financial conditions to
improve in 1998, due to several internal measures designed to improve the
quality of the loans CLS originates and sells to the Company. One of these
measures has been to change the mix of loans comprising the portfolio.
Management expects to increase the concentration of single-family residential
loans in the portfolio, increase the concentration of loans secured by
improved commercial real estate and thereby reduce the concentration of loans
secured by developed and undeveloped property, which, at least historically,
have contributed significantly to the decline in yield. In addition, CLS has
<PAGE>
<PAGE>
adopted stricter, more conservative appraisal practices. It has also
implemented internal policies designed to ensure that no more than 20% of the
loan portfolio is comprised of loans secured by developed properties, and that
no more than 10% of the portfolio is comprised of loans secured by undeveloped
properties. Finally, CLS has employed a full-time collection manager to
oversee the sale or other disposition of real estate acquired by CLS and the
Company through foreclosure or other means.
CLS's and the Company's goals have been to reduce the level of non-earning
loans to 20% or less and to increase the annual yield to at least 10%.
Although non-earning loans decreased from 29.3% to 16.3% of total assets for
the years ending 1996 and 1997, OREO's increased from 11.1% to 19.8% of total
assets for the years ending 1996 and 1997. As a consequence, non-earning
loans and OREO as a percentage of total loans and OREO's have actually
decreased from 40.9% to 37.0% for the year ending 1997. Because non-earning
loans together with OREO's have not significantly decreased, earnings have
continued to fall short of management's goals. Before earnings can improve,
OREO's must be sold and the percentage of OREO's to total assets must decrease
significantly.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
GENERAL. The Company's net income decreased 19.6%, to $655,209, for the year
ended December 31, 1997, from $814,763 for the year ended December 31, 1996.
This decrease was primarily as a result of an increase in expenses and a
decrease in interest income.
Return on average assets and equity were 5.92% and 6.02%, respectively, for
fiscal 1997, as compared to 7.58% and 7.68%, respectively, for fiscal 1996.
Total assets increased 1.2%, to $11,132,523, for the year ended December 31,
1997, from $11,003,097 for the year ended December 31, 1996. Total loans
decreased $964,790 during the year. The decrease in loans resulted from an
increase in OREO's during the year. As foreclosures on non-earning loans were
finalized, non-earning loans decreased $1,410,674 from $3,225,033 for the year
ended December 31, 1996 to $1,814,359 for the year ended December 31, 1997.
OREO's increased $908,191 from $1,220,140 to $2,208,331 for the years ended
December 31, 1996 and 1997, respectively.
INTEREST INCOME. The Company's interest income decreased 8.4%, to $1,115,433,
for the year ended December 31, 1996, from $1,208,815 in the prior year.
TOTAL EXPENSES. Management fees, provision for loan and real estate losses,
accounting and auditing expenses, and legal expenses had no significant
increase or improved from 1996 to 1997. OREO expenses increased 124.6%, from
$33,509 to $67,894, net of rental income, for the years ended 1996 and 1997.
Foreclosure expenses increased 95.1% from $42,892 to $83,662 for the years
ended 1996 and 1997. As a result of increased OREO and foreclosure expenses,
total expenses increased 13.5% from $424,439 for the year ended December 31,
1996 to $481,830 for the year ended December 31, 1997.
<PAGE>
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
GENERAL. The Company's net income decreased 14.70%, to $814,763, for the year
ended December 31, 1996, from $955,201 for the year ended December 31, 1995.
This decrease was primarily as a result of an increase in the provision for
loan and real estate owned losses, and higher levels of legal expenses
directly associated with foreclosure and collection activities. These
expenses increased as a result of higher levels of non-earning assets during
1996.
Return on average assets and equity were 7.58% and 7.68%, respectively, for
fiscal 1996, as compared to 9.79% and 9.93%, respectively, for fiscal 1995.
Total assets increased 4.74%, to $11,003,097, for the year ended December 31,
1996, from $10,504,708 for the year ended December 31, 1995. Total loans
increased $126,778 during the year. The increase in loans resulted from an
increase in funds available for the purchase of loans during the year, which
funds were primarily derived from principal repayments and the issuance of
common stock.
NET INTEREST INCOME. The Company's interest income decreased 1.67%, to
$1,208,815, for the year ended December 31, 1996, from $1,188,915 in the prior
year. The decrease in interest income was primarily attributable to the
increase in non-earning loans during the year.
TOTAL EXPENSES. Total expenses increased 63.6%, to $424,439, in fiscal 1996,
as compared to $259,513 in fiscal 1995. The increase in total expenses is
attributable to increased funding of the allowance for loan losses during the
year, and collection expenses related to defaulted loans. Management fees
paid to CLS during the year ended December 31, 1996 were $163,445, as compared
to $144,142 in 1995. These fees are the largest expense item of the Company
and are based on the number of outstanding shares of common stock of the
Company in each year.
LIQUIDITY AND CAPITAL RESOURCES.
Management believes that the Company's cash flow will be sufficient to support
its existing operations for the foreseeable future. If the Company needs
additional liquidity, it would be required to borrow or issue additional
securities. The Company's ability to service borrowing is dependent upon its
interest income.
The Company's total shareholders' equity increased to $10,936,623 at
December 31, 1997, from $10,841,836 at December 31, 1996. At December 31,
1997, shareholders' equity was 98.39% of total assets, compared to 98.64% at
December 31, 1996. At December 31, 1997, the Company held cash of $335,610.
EFFECTS OF INFLATION AND CHANGING PRICES. The primary impact of inflation on
the Company's operations is increased asset yields, deposit costs and
operating overhead. Unlike most industrial companies, virtually all of the
assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates generally have a more significant impact on a
<PAGE>
<PAGE>
financial institution's performance than the effects of general levels of
inflation. Although interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services, increases
in inflation generally have resulted in increased interest rates. The effects
of inflation can magnify the growth of assets, and if significant, would
require that equity capital increase at a faster rate than would otherwise be
necessary.
THE YEAR 2000 ISSUE. The Company has conducted a comprehensive review of its
computer systems to identify those that could be affected by the "Year 2000"
issue, and is developing an implementation plan to resolve the issue. Briefly
stated, the Year 2000 issue is the result of computer programs written to
identify a particular year in two digits as opposed to four; the problem
arises with respect to time-sensitive programs that may confuse the year 2000
with 1900, or for that matter, any year ending in "00". This could lead to
major system failures or miscalculations. The Company presently believes that
it can modify its existing software and, in some instances, convert to new
software, thereby avoiding any significant operational problems. The cost of
these modifications and conversions is not expected to be material.
PLAN OF OPERATION.
As is set forth more fully in Item 1 of this report, the Company's plan of
operation during the ensuing twelve-month period is to acquire and maintain a
portfolio of loans collateralized by real property sufficient to generate
dividends to its shareholders at annualized rates ranging from 8% to 12%. In
order to meet these objectives, the Company and CLS have adopted operating
strategies designed to (i) reduce the level of non-earning loans in the
Company's loan portfolio, (ii) increase the volume of loans CLS originates and
makes available to the Company and others for purchase, (iii) more efficiently
manage the operations of the Company and CLS, and (iv) sell OREO's thereby
reducing the level of non-earning real estate owned in the Company's
portfolio. Reference is made to Item 1 for more complete information
concerning these strategies and the Company's and CLS's plans for implementing
them.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements of the Company for the years ended December 31, 1997
and 1996 included elsewhere in this report have been audited by McFarland &
Alton, P.S., Spokane, Washington. An index to such financial statements
appears at page 22 of this report.
<PAGE>
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the years ended December 31, 1997, 1996 and 1995, there were no
disagreements with McFarland & Alton, P.S. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to the satisfaction of such firm, would have
caused them to make reference to the subject matter of such disagreement in
their reports on such financial statements.
[The balance of this page has been intentionally left blank.]
<PAGE>
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICER, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The names, ages, business experience for at least the past five years and
positions of the directors and executive officers of the Company as of March
1, 1998 are as follows. The Company's board of directors consists of seven
directors. All directors serve until the next annual meeting of the Company's
stockholders or until their successors are elected and qualified. Executive
officers of the Company are appointed by the board of directors. H. E.
Brazington is the father of Stanley E. Brazington. There are no other family
relationships between any director, executive officer or person nominated or
chosen by the Company to become a director or executive officer.
<TABLE>
<CAPTION>
NAME AND AGE OF
DIRECTOR OR EXECUTIVE POSITION WITH
OFFICER THE COMPANY PRINCIPAL OCCUPATION
- --------------------- -------------------------- -------------------------
<S> <C> <C>
H. E. Brazington President, Chief Executive Executive Officer of the
Age: 62 Officer and Director Company, CLS Mortgage,
Inc. and CLS Escrow, Inc.
Stanley E. Brazington Secretary and Principal Executive Officer of the
Age: 40 Financial and Accounting Company, CLS Mortgage,
Officer Inc. and CLS Escrow, Inc.
Robert C. Brown Director Retired
Age: 67
Dr. Vaughn Ransom Director Retired
Age: 73
Vern W. Haworth Director Retired
Age: 78
Douglas M. O'Coyne Director Principal in the law firm
Age: 46 of O'Coyne & Phillips,
P.S., Spokane, Washington
Elden Sorensen Director Retired
Age: 63
Dr. David W. Hanson Director Dentist
Age: 58
C. Patrick Craigen Director Retired
Age: 79
</TABLE>
<PAGE>
<PAGE>
BIOGRAPHICAL INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS.
H. E. BRAZINGTON is the President and Chief Executive Officer of the Company
and a member of its board of directors, positions he has held since 1988. Mr.
Brazington is also the President, a Director and a majority shareholder of CLS
Mortgage, Inc. which he founded and has managed since 1974, and the Vice
President, a Director and principal shareholder of CLS Escrow, Inc. Mr.
Brazington attended Washington State College in 1955 and 1956.
STANLEY E. BRAZINGTON is the Secretary of the Company and a member of the
board of directors, positions he has held since 1988. He is also the Vice
President and a member of the board of directors of CLS Mortgage, Inc. Mr.
Brazington graduated from Eastern Washington University in 1982, with a
bachelor of arts degree in business administration.
ROBERT C. BROWN has been a member of the board of directors since January of
1997. Mr. Brown retired in 1991 but has been active since 1995 in managing a
fishing manufacturing business he owns. Prior to his retirement, Mr. Brown
was employed by E-Z Loader Boat Trailers, Inc. of Spokane as its credit
manager and international sales manager.
DR. VAUGHN RANSOM has been a member of the board of directors since 1988.
Prior to 1992, when he sold his practice, he was a self-employed dentist in
Spokane County.
VERN W. HAWORTH has been a member of the board of directors since 1988. He
has been retired since 1986. Prior to his retirement, he was employed by
Wendle Ford in Spokane.
DOUGLAS M. O'COYNE has been a member of the board of the directors since 1988,
and from 1988 until January of 1997, was also counsel to the Company. He is
the principal in the law firm of O'Coyne & Phillips, P.S. in Spokane,
Washington and was formerly a partner of the law firm of Deglow, Peterson,
O'Coyne, and Phillips, P.S., also located in Spokane. Mr. O'Coyne is also the
president and sole shareholder of Crown Financial Networks, Inc., which is
engaged in the same business as CLS and the Company.
ELDEN SORENSEN has been a member of the board of directors since 1989. He has
been retired from active business activities since 1985, but is the President
of Second Wind Engineering, Inc., which designs and builds street rods. Prior
to 1985, Mr. Sorensen owned a retail sportswear store. He graduated from
Reedly College in 1955 with a bachelor of arts degree in business
administration.
DR. DAVID W. HANSON has been a member of the board of directors since 1994.
He has been practicing dentistry in Spokane County for over 20 years. Dr.
Hanson is a 1965 graduate of the University of Washington, with a degree in
dentistry.
<PAGE>
<PAGE>
C. PATRICK CRAIGEN has been a member of the board of directors since 1989. He
has been retired since 1989, but prior to then spent 45 years in the banking
industry, most recently with First National Bank where he was employed for 35
years. Mr. Craigen graduated from the Pacific Coast School of Banking at the
University of Washington in 1960.
ITEM 10. EXECUTIVE COMPENSATION.
As is disclosed elsewhere in this report, the Company has no employees and
pays no compensation to its executive officers or to those of its directors
who are also executive officers or employees. Directors who are not otherwise
affiliated with the Company receive $200 for each board meeting attended.
The Company contracts with CLS for the provision of management and related
administrative, accounting, computer and other services necessary to the
Company's operations. The compensation paid to CLS for such management and
related services is disclosed in this report, in, Item 1, in the subsection
entitled "Acquisition of Loans by the Company" and "Provision of Management
Services to the Company," and in Item 13.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of March 1, 1998, the names of, and number
of shares of common stock of the Company beneficially owned by, persons known
to the Company to own more than five percent (5%) of the Company's common
stock; the names of, and number of shares beneficially owned by each director
and executive officer of the Company; and the number of shares beneficially
owned by, of all directors and executive officers as a group. At such date,
the number of shares of common stock of the Company outstanding was 2,244,012
shares.
<TABLE>
<CAPTION>
Amount and
Nature of Beneficial
Ownership (all direct Percent
Name of Owner unless otherwise noted) of Class
- ---------------------------- ----------------------- --------
<S> <C> <C>
H. E. Brazington (1), (2) 77,653 3.48%
Stanley E. Brazington(1) 280 0.01%
Robert C. Brown (1), (3) 1,524 0.07%
Dr. Vaughn Ransom (1), (4) 20,882 0.82%
[Table continued on following page.]
<PAGE>
<PAGE>
Amount and
Nature of Beneficial
Ownership (all direct Percent
Name of Owner unless otherwise noted) of Class
- ---------------------------- ----------------------- --------
Vern W. Haworth (1), (5) 8,694 0.39%
Douglas M. O'Coyne (1), (6) 19,746 0.88%
Elden Sorensen (1) 14,841 0.67%
Dr. David W. Hanson (1), (7) 40,673 1.75%
C. Patrick Craigen (8) 14,420 0.65%
All Directors and Executive Officers
as a Group (9 persons) (9) 198,713 8.70%
____________________
</TABLE>
(1) Director of the Company.
(2) Includes 12,974 shares held by Mr. Brazington's brother and 40,506
shares held by Mr. Brazington's children. Excludes Stan Brazington as
he is a board member and listed separately.
(3) Includes 804 shares held by Mr. Brown's spouse.
(4) Includes 10,765 shares held in trust for Mr. Ransom's benefit under the
Vaughn R. Ransom DDS PS Profit Sharing Plan and Trust.
(5) Includes 694 shares held jointly by Mr. Haworth and his grandchildren.
(6) Includes 11,398 shares held by Mr. O'Coyne's minor children, 5,427
shares held by Mr. O'Coyne's spouse, and 200 shares held by Crown
Financial Networks, Inc., a corporation controlled by Mr. O'Coyne.
(7) Includes 34,477 shares held in trust for Mr. Hanson's benefit under the
David W. Hanson, DDS PS Profit Sharing Plan and Trust.
(8) Includes 2,420 shares held jointly by Mr. Craigen and his children.
(9) See footnotes (2) through (7), above.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
PAYMENT OF MANAGEMENT FEES. During the years ended December 31, 1997, 1996
and 1995, the Company paid management fees of $166,551, $163,445, and $144,142
to CLS, respectively. Such fees were determined by multiplying the
outstanding common stock of the Company in each year by a factor of 1.5%.
(The management agreement between the Company and CLS provides that the
Company can base such fees on a factor of 2.0%, but the Company has
historically elected to use the lower factor.) The board of directors of the
Company approves the management agreement annually.
PAYMENT OF LOAN ACQUISITION FEES. During the years ended December 31, 1997,
1996 and 1995, the Company paid loan acquisition fees of $420,333, $355,209,
and $406,888 to CLS, respectively.
<PAGE>
<PAGE>
PAYMENT OF ESCROW AND LATE FEES. CLS Escrow is paid escrow set up fees and
continuing annual escrow fees by the borrowers, and retains all late fees that
are paid by the borrowers whose accounts are delinquent. The amounts of these
fees were not determinable for the periods covered by this report. CLS Escrow
does not charge the Company for collection services or for escrow fees.
However, in the event collection procedures are initiated with respect to a
loan, the Company bears all of the associated fees and costs.
PAYMENT OF LEGAL FEES TO AFFILIATE AND ACCOUNTS RECEIVABLE. A law firm with
which Douglas M. O'Coyne is affiliated rendered legal services to the Company
in each of the years ended December 31, 1997, 1996 and 1995. Such firm also
represented CLS during such years. The Company paid Mr. O'Coyne's firm
$48,643, $42,489, and $50,212 during 1997, 1996 and 1995, respectively. In
addition, during 1995 the Company loaned money to a borrower who, in turn,
remitted $51,598 of the loan proceeds to Mr. O'Coyne's firm for legal fees
incurred over a three-year period beginning in 1992. Included in other assets
is a $8,360 receivable from a company owned in majority by a
stockholder/director (owning .88% of the outstanding stock at December 31,
1997) of the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS. The following exhibits filed as part of this report. Exhibits
previously filed are incorporated by reference, as noted.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1 Articles of Incorporation of the Company, as amended.
Filed as Exhibit 3 to the Registrant's Registration
Statement on Form SB-2, dated October 3, 1993, and
incorporated by reference herein.
3.2 Bylaws of the Company, as amended, filed as Exhibit 3 to
the Registrant's Registration Statement on Form SB-2,
dated October 3, 1993, and incorporated by reference
herein.
27.1 Financial data schedule. Filed herewith.
</TABLE>
FORM 8-K. No reports on Form 8-K were filed by the registrant during the
fourth quarter of 1997.
<PAGE>
<PAGE>
Independent Auditor's Report
Board of Directors and Stockholders
Opportunity Management Company, Inc.
Spokane, Washington
We have audited the accompanying statements of condition of Opportunity
Management Company, Inc. as of December 31, 1997 and 1996, and the related
statements of income, changes in stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of
Opportunity Management Company, Inc.'s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Opportunity Management
Company, Inc. as of December 31, 1997 and 1996, and the results of its
operations, changes in stockholders' equity, and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
As described in Notes 1 and 2 to the financial statements, the Company changed
its method of accounting for earnings per share effective for the year ended
December 31, 1997, to conform with Statement of Financial Accounting Standards
No. 128.
Spokane, Washington
February 20, 1998
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
STATEMENTS OF CONDITION
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
------------------------------
1997 1996
------------------------------
<S> <C> <C>
Loans receivable, earning $ 6,858,156 $ 6,412,272
Loans receivable, nonearning 1,814,359 3,225,033
------------- -------------
8,672,515 9,637,305
Real estate held for sale 2,208,331 1,220,140
------------- -------------
10,880,846 10,857,445
Allowance for losses (182,745) (156,391)
------------- -------------
NET LOANS AND REAL ESTATE (Notes 2,3 and 5) 10,698,101 10,701,054
Cash and cash equivalents 335,610 217,152
Accrued interest receivable 76,499 83,032
Other assets (Note 5) 22,313 1,859
------------- -------------
TOTAL ASSETS $ 11,132,523 $ 11,003,097
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued expenses $ 31,937 $ 25,968
Accrued cash dividends payable to
stockholders 163,963 135,293
------------- -------------
TOTAL LIABILITIES 195,900 161,261
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY
Common stock - $5 par value, 5,400,000
shares authorized; 1997, 2,244,504
shares; 1996, 2,225,547 shares, issued
and outstanding 11,141,446 11,046,659
Undistributed income (expense) (204,823) (204,823)
------------- -------------
10,936,623 10,841,836
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,132,523 $ 11,003,097
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
---------------------------
1997 1996
---------------------------
<S> <C> <C>
REVENUES
Interest income on residential loans $ 614,431 $ 689,559
Interest income on commercial loans 492,702 508,327
Interest income on bank accounts 8,300 10,929
Other income 645 10,074
----------- -----------
TOTAL REVENUES 1,116,078 1,218,889
----------- -----------
EXPENSES
Management fees - related party (Note 5) 166,551 163,445
Provision for loan and real estate
losses (Notes 2 and 3) 85,000 105,000
Foreclosure expenses (Note 3) 83,662 42,892
Real estate expenses, net of rental income 67,894 33,509
Accounting and auditing expenses 36,123 31,087
Legal expenses (Note 5) 23,396 31,500
Business and occupational taxes 8,554 11,022
Director compensation 5,600 -
Amortization of organizational costs - 4,124
Other expense 5,050 1,860
----------- -----------
TOTAL EXPENSES 481,830 424,439
----------- -----------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE 634,248 794,450
Gain on sale of real estate (Note 4) 20,961 20,313
----------- -----------
NET INCOME $ 655,209 $ 814,763
=========== ===========
Basic earnings per share $ 0.29 $ 0.37
=========== ===========
Weighted average shares outstanding 2,236,796 2,199,791
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Undistributed Total
--------------------- Income Stockholders'
Shares Amount (Expense) Equity
------ ------ ------------ -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 2,102,994 $10,433,894 $( 61,406) $10,372,488
Net Income - - 814,763 814,763
Issuance of common stock 40,028 200,140 - 200,140
Dividends reinvested in stock 85,525 412,625 (412,625) -
Cash dividends - - (545,555) (545,555)
--------- ----------- ---------- ------------
Balance, December 31, 1996 2,225,547 $11,046,659 $(204,823) $10,841,836
Net Income - - 655,209 655,209
Stock repurchased (1,761) (8,806) - (8,806)
Issuance of common stock 658 3,291 - 3,291
Dividends reinvested in stock 20,060 100,302 (100,302) -
Cash dividends - - (554,907) (554,907)
--------- ----------- ---------- ------------
Balance, December 31, 1997 2,244,504 $11,141,446 $(204,823) $10,936,623
========= =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
-------------------------
1997 1996
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 655,209 $ 814,763
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of organizational costs - 4,124
Provision for loan and real estate losses 85,000 105,000
Amortization of discounts on loans (17,901) (9,805)
Gains on sale of real estate (20,961) (20,313)
(Increase) decrease in:
Accrued interest receivable 6,533 1,074
Other assets (20,454) (1,859)
Increase (decrease) in:
Accrued expenses 5,959 (1,687)
------------ ------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 693,385 891,297
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of new loans (4,840,413) (4,796,982)
Principal reductions and maturities of loans 4,577,679 4,307,608
Proceeds from sale of real estate owned 316,697 155,709
Purchases of real estate owned - (20,148)
Advances of costs associated of other real estate (96,461) (92,664)
------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES ( 42,498) (446,477)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of stock 3,291 200,140
Stock repurchased (8,806) -
Cash dividends paid to stockholders (526,914) (517,788)
------------ ------------
CASH FLOWS USED BY FINANCING ACTIVITIES (532,429) (317,648)
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 118,458 127,172
Cash and cash equivalents, beginning of year $ 217,152 $ 89,980
------------ ------------
Cash and cash equivalents, end of year 335,610 217,152
============ ============
</TABLE>
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
----------------------------
1997 1996
----------------------------
<S> <C> <C>
SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for stockholder
reinvestment of dividends $ 100,302 $ 412,625
----------- -----------
Acquisition of real estate in settlement
of loans $ 1,459,366 525,259
----------- -----------
Charge offs against the allowance $ 58,749 $ 56,065
----------- -----------
New contracts made in connection with
sales of real estate $ 184,390 $ 149,390
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Formation of the Company:
Opportunity Management Company, Inc. was incorporated in the state of
Washington on October 12, 1988, and is engaged in the business of making loans
secured by interest in real property. Since inception, it has elected to be
treated, for federal income tax purposes, as a real estate investment trust or
REIT.
Basis of financial statement presentation:
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of certain assets and liabilities as of the date of the
statement of financial condition and certain revenues and expenses for the
period. Actual results could differ, either positively or negatively, from
those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for loan losses and other real estate owned, management obtains independent
appraisals for significant properties.
Management believes that the allowance for loan losses and other real estate
owned is adequate. While management uses currently available information to
recognize losses on loans and other real estate, future additions to the
allowances may be necessary based on changes in economic conditions.
Cash and cash equivalents:
For purposes of reporting cash flows, the Company considers all highly liquid
debt instruments purchased with an original maturity of three months or less
to be cash equivalents.
Loans receivable and interest on loans:
Loans are stated at principal outstanding and net of the allowance for loan
losses. Interest income on loans is calculated by using the simple interest
method on daily balances of the principal amount outstanding.
Loans are placed in a nonaccrual status when loans become ninety days
delinquent. Thereafter, no interest is taken into income unless received in
cash or until such time as the borrower demonstrates the ability to resume
payments to principal and interest. Interest previously accrued but not
collected is generally reversed and charges against income at the time the
loan is placed on nonaccrual status.
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies (Continued)
Loans receivable and interest on loans (continued):
Loans placed in a nonaccrual status are considered impaired for purposes of
SFAS No. 114 and No. 118. A quarterly analysis of all nonaccrual loans is
performed by management which compares the collateral fair value less costs to
sell as compared to the loan balance, to determine if specific allowances for
impairment are needed.
Allowance for loan and real estate losses:
The Company utilizes the allowance method of providing for losses on
uncollectible loans or overvalued real estate held for sale. Specific
valuation allowances are provided for loans receivable when repayment becomes
doubtful and the amounts expected to be received in settlement of the loan are
less than the amount due. In addition to specific allowances, a general
allowance is provided for future losses based upon a continuing review of
loans which includes consideration of actual net loan loss experience, changes
in the size and character of the loan portfolio, and evaluation of current
economic conditions.
Valuation allowances are provided for foreclosed real estate held for sale or
purchased real estate held for sale when the fair value of the property less
costs to sell is less than its cost. Real estate held for sale is carried at
the lower of cost (recorded amount at the date of foreclosure or acquisition)
or fair value less disposition costs. Additions to the allowance are charged
to expense.
Real estate held for sale:
Real estate held for sale includes properties acquired through a foreclosure
proceeding, acceptance of a deed in lieu of foreclosure, or purchased by the
Company for resale. These properties are transferred to other real estate
owned and are recorded at the lower of the loan balances at the date of
transfer or the fair value of the property received as determined by
independent appraisals or current listings less costs of disposal. Loan
losses arising from the acquisition of such property are charged against the
allowance for loan and real estate losses. An allowance for losses on real
estate held for sale is maintained for subsequent valuation adjustments on a
specific property basis.
Sales of real estate:
Sales of real estate generally are accounted for under the full accrual
method. Under that method, gain is not recognized until the collectibility of
the sales price is reasonably assured and the earnings process is virtually
complete. When a sale does not meet the requirements for income recognition,
gain is deferred until those requirements are met.
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies (Continued)
Loan placement fees:
Opportunity Management Company, Inc. purchases loans from CLS Mortgage, Inc.
for its loan portfolio. The loan principal outstanding includes a loan
placement fee to CLS Mortgage, Inc. which was paid by the borrower and
financed in the loan balance. These fees are accounted for as revenue by CLS
Mortgage, Inc. when the loan is sold to Opportunity Management Company, Inc.
No income or expense related to these fees is recorded by Opportunity
Management Company, Inc. (Note 5).
Dividends:
It is the policy of the Company to distribute at least 95% of quarterly net
earnings in cash and stock reinvestment dividends to the stockholders. A
special dividend is declared annually if needed in order to meet REIT
requirements which require the Company to distribute 95% of its taxable income
to its stockholders. The special dividend cannot be determined until the tax
return is prepared, which is always subsequent to the Company's year end (Note
4).
[The balance of this page has been intentionally left blank.]
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies (Continued)
Dividends (continued):
The Company formerly offered a dividend reinvestment or rollover program that
gave the stockholders the ability to reinvest their cash dividends in
additional shares of the Company's common stock at the stated par value of $5
per share. In July of 1997, the Company voluntarily withdrew a Securities Act
registration statement in effect with respect to these newly-issuable shares,
effectively ending the program. The Company is currently considering adopting
an open market purchase program having many of the same objectives as the
rollover program. The following is a reconciliation of the dividends on
common stock as summarized in the statement of changes in stockholders'
equity:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash dividends paid $ 526,914 $ 517,788
Dividends reinvested in stock 100,302 412,625
Accrued dividends, end of year 163,963 135,293
Accrued dividends, beginning of year (135,293) (105,252)
Accrued fractional shares not paid 677 687
----------- -----------
Dividends on common stock 656,563 961,141
Dividends paid or accrued in excess
of net income (1,354) (146,378)
----------- -----------
NET INCOME $ 655,209 $ 814,763
=========== ===========
Cash dividends - accrual basis 554,907 545,555
Rescinded dividends - 2,961
Dividends reinvested in stock - accrual basis 100,302 412,625
Dividends accrued in excess of net income - (146,378)
----------- ------------
NET INCOME $ 655,209 $ 814,763
=========== ============
</TABLE>
Per share amounts:
Earnings per share were computed by dividing net income by the total weighted
average common shares outstanding during the respective periods.
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies (Continued)
Reclassifications:
Certain reclassifications have been made to the December 31, 1996, balances to
conform with the December 31, 1997, classification. These classifications had
no impact on net income as previously presented.
Note 2. Accounting Changes
Effective for the year ended December 31, 1997, the Company adopted SFAS No.
128, Earnings Per Share (EPS). Under the SFAS, earnings per share is
presented for basic and diluted EPS on the face of the income statement.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. There were no dilutive stock convertibles at
December 3, 1997 and 1996.
Note 3. Loans Receivable and Real Estate Held for Sale
Loans receivable at December 31, 1997 and 1996, consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
First mortgage loans $7,613,567 $8,190,034
Second mortgage loans 184,157 401,747
Loans secured by personal property and real estate 874,791 1,045,524
---------- ----------
$8,672,515 $9,637,305
========== ==========
</TABLE>
A concentration of credit exists in that the majority of loans are secured by
real property in the states of Washington and Idaho.
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 3. Loans Receivable and Real Estate Held for Sale (Continued)
Types of real property securing loans at December 31, 1997 and 1996, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Commercial $1,741,417 $1,934,661
Single and multiple family residential 2,382,735 2,371,002
Rural single and multiple family residential 1,678,901 1,760,819
Developed land 1,415,820 1,952,558
Undeveloped land 505,867 605,878
Manufactured homes on real property 874,791 1,002,629
Agricultural 72,984 9,758
---------- ----------
$8,672,515 $9,637,305
Real estate held for sale at December 31, 1997 and 1996, consists of the
following:
1997 1996
---------- ----------
Commercial $ 212,010 $ 127,442
Single and multiple family residential 167,904 104,850
Rural single family residential 443,176 209,506
Developed land 1,160,421 718,198
Undeveloped land 102,740 -
Manufactured homes on real property 112,305 60,144
Agricultural 9,775 -
---------- ----------
$2,208,331 $1,220,140
An analysis of the changes in the allowance for losses is as follows:
1997 1996
---------- ----------
Balance, beginning of year $ 156,391 $ 106,554
Provision charged to expense 85,000 105,000
Recoveries 103 902
Charge off of losses on sale of real estate owned ( 58,749) (56,065)
---------- ----------
Balance, end of year $ 182,745 $ 156,391
</TABLE>
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 3. Loans Receivable and Real Estate Held for Sale (Continued)
Gains on sale of real estate, which are included in the statements of income,
were $20,961 and $20,313 for the years ended December 31, 1997 and 1996,
respectively.
Impairment of loans having a recorded investment of $1,887,359 and $3,566,151
at December 31, 1997 and 1996, respectively, has been recognized in conformity
with SFAS No. 114 as amended by SFAS No. 118. There is a $32,348 of specific
allowance for loan losses related to these loans at December 31, 1997. No
specific allowance for these loans was recorded at December 31, 1996. The
average impaired loans during 1997 and 1996 was $2,665,533 and $3,151,423,
respectively.
Included in the allowance for losses is a $168,524 and $100,463 specific
allowance to reduce real estate held for sale to the estimated fair value less
costs of disposal at December 31, 1997 and 1996, respectively. The estimated
impairment losses of $101,947 and $38,247 resulting from changes in carrying
amounts during 1997 and 1996, respectively, of real estate held for sale are
included in the provision for loan and real estate losses on the statements of
income.
Note 4. Income Taxes
Management is of the opinion the Company continues to qualify as a real estate
investment trust or REIT under applicable provisions of the Internal Revenue
Code. The Company is allowed to deduct the dividends paid to its stockholders
as an expense and in effect not pay federal income taxes. In the event the
Company would not qualify, the Company would owe federal income taxes as
estimated below.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Income before taxes on income $ 655,209 $ 814,763
Federal income taxes at statutory rates (222,771) (277,019)
---------- ----------
Net Income $ 432,438 $ 537,744
========== ==========
</TABLE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 4. Income Taxes (Continued)
The Company must continue to meet certain conditions on an annual basis to
retain its tax status as a REIT. These conditions were met for the years
ended December 31, 1997 and 1996. Dividends distributed are considered
ordinary income to the investors for tax purposes, with the exception of gains
on the sale of real estate, which are treated as capital gains to the
investors.
Management fees:
CLS Mortgage, Inc. provides office space, administrative, accounting,
computer, and other services to Opportunity Management Company, Inc. For the
years ended December 31, 1997 and 1996, $166,551 and $163,445, respectively,
were paid for these services in accordance with a management agreement. For
1997 and 1996 the monthly fee was based on one-twelfth of 1.5% of the common
stock outstanding each month end. The amounts payable to CLS Mortgage, Inc.
at December 31, 1997 and 1996, were $13,927 and $13,691, respectively. The
Company is relying on CLS Mortgage, Inc. to manage its day-to-day operations
as its administrative manager. The President and Chairman of the Company is
also the President of CLS Mortgage, Inc. The President and his wife own 1.08%
of the common stock of Opportunity Management Company. The two sole
stockholders of CLS Mortgage, Inc. directly and indirectly own 3.48% of the
common stock of Opportunity Management Company, Inc. and 100% of the stock of
CLS Mortgage, Inc. at December 31, 1997.
Escrow services:
CLS Escrow provides Opportunity Management Company, Inc. with escrow services.
The stockholders of CLS Mortgage, Inc. collectively own 50% of the outstanding
shares of CLS Escrow.
Loan placement fees:
Loans are purchased from or brokered by CLS Mortgage, Inc. CLS Mortgage, Inc.
earns a 6-12% loan placement fee from the borrowers of the monies loaned by
Opportunity Management Company, Inc. For the years ended December 31, 1997
and 1996, CLS Mortgage, Inc. received $420,333 and $355,209, respectively, in
loan placement fees (Note 1).
Legal fees:
During 1997 and 1996, the Company incurred charges for legal services that
were either capitalized, expensed, or deducted from stock proceeds as stock
issuance costs of approximately $48,643 and $42,489, respectively, from a law
firm in which a stockholder/director (owning .88% of the outstanding stock at
December 31, 1997 and 1996) of the Company is a general partner.
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 5. Related Party Transactions (Continued)
Loans:
During 1997, a loan was made to CLS Mortgage, Inc. which is included in loans
receivable on the statements of condition. The note matures on May 30, 2000,
and bears interest at a rate of 12%. At December 31, 1997, the loan
receivable balance was $67,000.
Other assets:
Included in other assets is a $8,360 receivable from a company owned in
majority by a stockholder/director (owning .88% of the outstanding stock at
December 31, 1997) of the Company.
Note 6. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash, accrued interest receivable, other assets, accrued expenses, and accrued
cash dividends payable:
The carrying amount approximates fair value due to the short-term nature of
these financial instruments.
Loans:
It was determined that a reasonable estimate of fair value could not be made
without incurring excessive costs. The Company does not possess the
information processing system capabilities to provide future principal and
interest cash flows expected to be received. Manual calculation of these cash
flows could not be made without incurring excessive costs due to the
[The balance of this page has been intentionally left blank.]
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
- -----------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Note 6. Fair Value of Financial Instruments (Continued)
professional time and programming costs this procedure would require. All
loans are real estate loans with fixed interest rates, which range from 12-
18%, as of December 31, 1997 and 1996. The weighted average interest rate of
the portfolio was 14.87% at December 31, 1997. The approximate maturities of
the loan portfolio as of December 31 follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------
Principal Percentage Principal Percentage
Principal maturing during Carrying of Carrying of
years ended December 31, Amount Portfolio Amount Portfolio
- ------------------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997 $ - - $ 998,417 10%
1998 675,912 8% 568,861 6
1999 819,950 9 1,459,730 15
2000 887,756 10 2,088,172 22
2001 1,075,008 12 2,437,920 25
2002 3,412,871 39 85,548 1
2003 62,097 1 101,683 1
2004 38,839 1 170,176 2
Thereafter 1,700,082 20 1,726,798 18
----------- ---------- ---------- ----------
$ 8,672,515 100% $9,637,305 100%
=========== ========== ========== ==========
</TABLE>
Actual maturities may differ from contractual maturities due to prepayments of
principal by borrowers or delinquency of borrowers.
<PAGE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant caused this amendment to registration statement to be signed on
this behalf by the undersigned, thereunto duly authorized.
OPPORTUNITY MANAGEMENT COMPANY, INC.
By: /s/ H. E. Brazington
------------------------------------
H. E. Brazington, its President
Dated: March 23, 1998
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:/s/ Stanley E. Brazington By:/s/ Elden Sorensen
-------------------------------- --------------------------------
Stanley E. Brazington, its Elden Sorensen, a Director
Principal Financial and
Accounting Officer
Date: March 23, 1998 Date: March 23, 1998
By:/s/ Robert C. Brown By:/s/ Dr. David W. Hanson
-------------------------------- --------------------------------
Robert C. Brown, a Director Dr. David W. Hanson, a Director
Date: March 23, 1998 Date: March 23, 1998
By:/s/ Vaughn Ransom By:/s/ C. Patrick Craigen
-------------------------------- --------------------------------
Dr. Vaughn Ransom, a Director C. Patrick Craigen, a Director
Date: March 23, 1998 Date: March 23, 1998
By:/s/ Vern W. Haworth By:/s/ Douglas M. O'Coyne
-------------------------------- --------------------------------
Vern W. Haworth, a Director Douglas M. O'Coyne, Sr.,
a Director
Date: March 23, 1998 Date: March 23, 1998
Exhibit 10.1 to Annual Report on Form 10-KSB
For the Year Ended December 31, 1997
Opportunity Management Company, Inc.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 335,610
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 8,672,515
<ALLOWANCE> 182,745
<TOTAL-ASSETS> 11,132,523
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 11,141,446
<OTHER-SE> (204,823)
<TOTAL-LIABILITIES-AND-EQUITY> 11,132,523
<INTEREST-LOAN> 1,107,133
<INTEREST-INVEST> 0
<INTEREST-OTHER> 8,945
<INTEREST-TOTAL> 1,116,078
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 85,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 481,830
<INCOME-PRETAX> 0
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 655,209
<EPS-PRIMARY> .29
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 1,814,359
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 156,391
<CHARGE-OFFS> 58,749
<RECOVERIES> 103
<ALLOWANCE-CLOSE> 182,745
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
