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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO _____________
COMMISSION FILE NUMBER 0-26686
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0465087
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
675 BERING DRIVE, SUITE 710
HOUSTON, TEXAS 77057
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 977-2600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
SHARES
OUTSTANDING AT
CLASS AUGUST 31, 1999
------------------------------ ---------------------
COMMON STOCK-$.001 PAR VALUE 5,566,669
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<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
AND SUBSIDIARIES
FORM 10-Q
JULY 31, 1999
TABLE OF CONTENTS
PAGE NO.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
April 30, 1999 and
July 31, 1999........................ 3
Consolidated Statements of Operations
for the Three Months
Ended July 31, 1998 and 1999......... 4
Consolidated Statement of
Shareholders' Equity for the Three
Months Ended July 31, 1999........... 5
Consolidated Statements of Cash Flows
for the Three Months Ended
July 31, 1998 and 1999............... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations........................... 11
Item 3. Quantitative and Qualitative
Disclosures About Market Risk........ 19
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..... 20
SIGNATURES................................... 20
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- APRIL 30, 1999 AND JULY 31, 1999
APRIL 30, JULY 31,
1999 1999
--------------- ------------
(AUDITED) (UNAUDITED)
ASSETS
--------
Receivables Held for Investment,
net................................ $ 183,318,532 $203,987,663
Receivables Acquired for Investment,
net................................ 41,023,768 35,179,487
Investment in Trust Certificates..... 10,754,512 9,065,436
Cash and Short-Term Investments,
including restricted cash of
$7,487,636 and $6,609,239.......... 11,515,872 19,306,023
Other Receivables:
Due from servicer............... 14,065,957 --
Accrued interest................ 2,365,231 2,963,423
Assets Held for Sale................. 1,693,255 1,476,092
Other Assets:
Funds held under reinsurance
agreement..................... 2,620,296 2,984,333
Deferred financing costs and
other, net of accumulated
amortization and depreciation
of $1,702,088 and
$1,969,137.................... 4,898,045 4,946,764
Deferred income tax asset,
net........................... 553,781 825,899
--------------- ------------
Total assets............... $ 272,809,249 $280,735,120
=============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Debt:
Secured credit facilities....... $ 176,549,417 $191,871,201
Acquisition term facility....... 55,737,371 46,559,855
Unsecured credit facility....... 7,235,000 7,600,000
Other Liabilities:
Due to dealers.................. 162,081 120,071
Accounts payable and accrued
liabilities................... 5,633,304 5,799,714
Current income taxes payable.... 329,764 919,551
--------------- ------------
Total liabilities.......... 245,646,937 252,870,392
--------------- ------------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $0.001 par value,
10,000,000 shares authorized,
5,566,669 and 5,566,669,
shares issued and
outstanding................... 5,567 5,567
Additional paid-in capital...... 18,464,918 18,464,918
Retained earnings............... 8,691,827 9,394,243
--------------- ------------
Total shareholders'
equity..................... 27,162,312 27,864,728
--------------- ------------
Total liabilities and
shareholders' equity....... $ 272,809,249 $280,735,120
=============== ============
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 1998 AND 1999
(UNAUDITED)
FOR THE THREE MONTHS ENDED
JULY 31,
--------------------------
1998 1999
------------ ------------
Interest Income...................... $ 5,658,594 $ 9,609,333
Interest Expense..................... 2,224,471 3,879,688
------------ ------------
Net interest income........ 3,434,123 5,729,645
Provision for Credit Losses.......... 950,000 1,156,174
------------ ------------
Net Interest Income After Provision
for Credit Losses.................. 2,484,123 4,573,471
------------ ------------
Other Income:
Servicing....................... -- 404,001
Late fees and other............. 159,603 507,341
------------ ------------
Total other income......... 159,603 911,342
------------ ------------
Operating Expenses:
Servicing fees.................. 505,917 442,674
Salaries and benefits........... 855,834 2,194,578
Other........................... 785,939 1,741,394
------------ ------------
Total operating expenses... 2,147,690 4,378,646
------------ ------------
Income Before Provision for Income
Taxes.............................. 496,036 1,106,167
------------ ------------
Provision for Income Taxes:
Current......................... 235,749 675,869
Deferred........................ (54,696) (272,118)
------------ ------------
Total provision for income
taxes.................... 181,053 403,751
------------ ------------
Net Income........................... $ 314,983 $ 702,416
============ ============
Basic and Diluted Net Income per
Common Share....................... $0.06 $0.13
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JULY 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Balance, April 30, 1999.............. $5,567 $ 18,464,918 $ 8,691,827 $ 27,162,312
Net income...................... -- -- 702,416 702,416
------- -------------- ------------ --------------
Balance, July 31, 1999............... $5,567 $ 18,464,918 $ 9,394,243 $ 27,864,728
======= ============== ============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 31, 1998 AND 1999
(UNAUDITED)
1998 1999
--------------- ---------------
Cash Flows From Operating Activities:
Net income...................... $ 314,983 $ 702,416
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities --
Depreciation and
amortization expense..... 708,826 1,035,272
Provision for credit
losses................... 950,000 1,156,174
Charge-offs, net of
recoveries............... (947,519) (913,761)
(Increase) decrease in, net of
effects from the acquisition
of a business:
Accrued interest
receivable............... (229,617) (598,192)
Restricted cash............ (1,081,605) 878,397
Deferred financing costs
and other................ (11,330) (361,127)
Funds held under
reinsurance agreement.... (656,533) (364,037)
Due from servicer.......... 955,972 14,065,957
Deferred income tax asset,
net...................... (54,696) (272,118)
Federal income tax
receivable............... 261,497 --
Increase (decrease) in, net of
effects from the acquisition
of a business:
Due to dealers............. (18,264) (42,010)
Accounts payable and
accrued liabilities...... (480,327) 166,607
Current income taxes
payable.................. (109,999) 589,787
--------------- ---------------
Net cash provided by
operating
activities.......... (398,612) 16,043,365
--------------- ---------------
Cash Flows From Investing Activities:
Purchase of receivables held for
investment.................... (22,370,167) (37,238,579)
Principal payments from
receivables held for
investment.................... 14,427,635 15,821,137
Principal payments from
receivables acquired for
investment.................... -- 5,844,281
Principal payments from trust
certificates.................. -- 1,689,076
Purchase of furniture and
equipment..................... (11,220) --
--------------- ---------------
Net cash used in
investing
activities.......... (7,953,752) (13,884,085)
--------------- ---------------
Cash Flows From Financing Activities:
Proceeds from advances on --
Secured debt............... 18,544,879 31,524,980
Unsecured debt............. 2,180,000 5,365,000
Principal payments made on --
Secured Debt............... (11,805,356) (16,203,196)
Unsecured debt............. (1,000,000) (5,000,000)
Acquisition debt........... -- (9,177,516)
--------------- ---------------
Net cash provided by
financing
activities.......... 7,919,523 6,509,268
--------------- ---------------
Increase (Decrease) in Cash and
Short-Term Investments............. (432,841) 8,668,548
Cash and Short-Term Investments at
Beginning of Period................ 482,581 4,028,236
--------------- ---------------
Cash and Short-Term Investments at
End of Period...................... $ 49,740 $ 12,696,784
=============== ===============
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period
for --
Interest................... $ 2,026,762 $ 3,686,941
Income taxes............... 84,251 86,082
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998 AND 1999
1. THE COMPANY
ORGANIZATION. First Investors Financial Services Group, Inc. (First
Investors) together with its direct and indirect subsidiaries (collectively
referred to as the Company) is principally involved in the business of acquiring
and holding for investment retail installment contracts secured by new and used
automobiles and light trucks (receivables) originated by factory authorized
franchised dealers. As of July 31, 1999, approximately 33 percent of receivables
held for investment were located in Texas. The Company currently originates
loans from dealerships located in 26 states.
On October 2, 1998, the Company completed the acquisition of Auto Lenders
Acceptance Corporation (ALAC) from Fortis, Inc. Headquartered in Atlanta,
Georgia, ALAC was engaged in essentially the same business as the Company and
additionally performs servicing and collection activities. As a result of the
acquisition, the Company increased receivables, acquired an interest in certain
trust certificates related to two asset securitizations and acquired certain
servicing rights along with furniture, fixtures, equipment and technology. As of
July 31, 1999, ALAC performs servicing and collection functions on a Managed
Receivables Portfolio of $291.7 million.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of First Investors and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
The results for the interim periods are not necessarily indicative of the
results of operations that may be expected for the fiscal year. In the opinion
of management, the information furnished reflects all adjustments which are of a
normal recurring nature and are necessary for a fair presentation of the
Company's financial position as of July 31, 1999, and the results of its
operations for the three months ended July 31, 1998 and 1999, and its cash flows
for the three months ended July 31, 1998 and 1999.
The consolidated financial statements for the interim periods have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information not misleading. These financial statements should be read
in conjunction with the audited consolidated financial statements included in
the Company's 1999 Annual Report on Form 10-K filed July 23, 1999.
Certain reclassifications have been made to the 1998 amounts to conform
with the 1999 presentation.
EARNINGS PER SHARE. Earnings per share amounts are calculated based on net
income available to common shareholders divided by the weighted average number
of common shares outstanding. See Note 6.
7
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. RECEIVABLES HELD FOR INVESTMENT
Net receivables consisted of the following:
APRIL 30, JULY 31,
1999 1999
--------------- ---------------
Receivables.......................... $ 179,807,957 $ 200,604,162
Unamortized premium and deferred
fees............................... 5,040,226 5,155,565
Allowance for credit losses.......... (1,529,651) (1,772,064)
--------------- ---------------
Net receivables................. $ 183,318,532 $ 203,987,663
=============== ===============
Activity in the allowance for credit losses for the three months ended July
31, 1999, was as follows:
Balance, beginning of period......... $ 1,529,651
Provision for credit losses.......... 1,156,174
Charge-offs, net of recoveries....... (913,761)
--------------
Balance, end of period............... $ 1,772,064
==============
4. RECEIVABLES ACQUIRED FOR INVESTMENT
Loans purchased at a discount relating to credit quality were included in
the balance sheet amounts of Receivables Acquired for Investment as follows as
of July 31, 1999:
Contractual payments receivable from
Receivables Acquired for Investment
purchased at a discount relating to
credit quality........................ $ 53,055,236
Nonaccretable difference................ (11,735,320)
Accretable yield........................ (6,140,429)
---------------
Receivables Acquired for Investment
purchased at a discount relating to
credit quality, net................... $ 35,179,487
===============
The carrying amount of Receivables Acquired for Investment are net of
accretable yield and nonaccretable difference. Nonaccretable difference
represents contractual principal and interest payments that the Company has
determined that it would be unable to collect.
NONACCRETABLE ACCRETABLE
DIFFERENCE YIELD
------------- -----------
Balance at April 30, 1999............... $14,314,526 $ 7,632,607
Accretion.......................... -- (1,492,178)
Eliminations....................... (2,579,206) --
------------- -----------
Balance at July 31, 1999................ $11,735,320 $ 6,140,429
============= ===========
Nonaccretable difference eliminations represent contractual principal and
interest amounts on loans charged-off for the period ended July 31, 1999.
5. DEBT
Borrowings under the F.I.R.C., Inc. (FIRC) credit facility, First Investors
Auto Receivables Corporation (FIARC) commercial paper facility and First
Investors Auto Capital Corporation (FIACC) commercial paper facility were
$65,000,000, $106,681,083 and $20,190,118, respectively, at July 31, 1999, and
had weighted average interest rates, including the effect of facility fees,
program fees, dealer fees, and hedge instruments, as applicable, of 5.77
percent, 5.96
8
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
percent and 6.10 percent, respectively. The effect of the hedge instrument on
the weighted average interest rate is immaterial.
The Company, through its wholly-owned subsidiary, FIFS Acquisition Funding
Company, has outstanding non-recourse borrowings of $46,559,855 as of July 31,
1999 which is related to the acquisition of ALAC.
The Company, through its wholly-owned subsidiary, First Investors Financial
Services, Inc. (FIFS), also maintains a working capital facility with Bank of
America and First Union National Bank. At July 31, 1999, there was $7,600,000
outstanding borrowings under this facility.
The Company's credit facilities bear interest at floating interest rates
which are reset on a short-term basis whereas its receivables bear interest at
fixed rates which are generally at the maximum rates allowable by law and do not
generally vary with change in interest rates. To manage the risk of fluctuation
in the interest rate environment, the Company enters into interest rate swaps
and caps to lock in what management believes to be an acceptable net interest
spread. However, the Company will be exposed to limited rate fluctuation risk to
the extent it cannot perfectly match the timing of net advances from its credit
facilities and acquisitions of additional interest rate protection agreements.
6. EARNINGS PER SHARE
Earnings per share amounts are based on the weighted average number of
shares of common stock and potential dilutive common shares outstanding during
the period. The weighted average number of shares used to compute basic and
diluted earnings per share for the three months ended July 31, 1998 and 1999,
are as follows:
FOR THE THREE MONTHS
ENDED JULY 31,
------------------------
1998 1999
----------- -----------
Weighted average shares:
Weighted average shares outstanding
for basic earnings per share....... 5,566,669 5,566,669
Effect of dilutive stock options...... 109 --
----------- -----------
Weighted average shares outstanding
for diluted earnings per share..... 5,566,778 5,566,669
=========== ===========
For the three months ended July 31, 1998 and 1999, the Company had 137,891
and 138,000, respectively, of stock options which were not included in the
computation of diluted earnings per share because to do so would have been
antidilutive for the period presented.
7. BUSINESS COMBINATIONS
On October 2, 1998, the Company acquired all of the outstanding stock of
ALAC, a Delaware corporation and wholly-owned subsidiary of Fortis, Inc., for an
approximate purchase price of $74.1 million. ALAC's principal business activity
is the servicing of retail automobile sales contracts. The transaction was
treated as a purchase for accounting purposes and results of operations are
included in the financial statements beginning on October 2, 1998. The book
value of the assets exceeded the purchase price by $8.5 million. Receivables
acquired for investment have been recorded net of amounts estimated to be
uncollectible over the life of the receivables.
9
<PAGE>
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In conjunction with the acquisition, liabilities were assumed as follows:
Receivables acquired for
investment........................... $ 55,676,122
Investment in trust certificates..... 15,273,695
Fixed assets and other............... 6,635,013
Cash paid, net of cash acquired...... (76,052,178)
---------------
Liabilities assumed.................. $ 1,532,652
===============
The following unaudited pro forma summary presents information as if the
acquisition had occurred at the beginning of each fiscal year. The pro forma
information is provided for information purposes only. It is based on historical
information and does not necessarily reflect the actual results that would have
occurred nor is it necessarily indicative of future results of operations of the
combined business. In preparing the pro forma data, adjustments have been made
to (i) increase the yield on Receivables Acquired for Investment based on
discounted purchase price, (ii) increase interest expense for the financing of
the acquisition, (iii) eliminate intercompany costs, (iv) eliminate costs
incurred in preparation of the sale of ALAC and (v) adjust the federal and state
income tax provisions based on the combined operations.
FOR THE THREE MONTHS ENDED
JULY 31,
----------------------------
1998 1999
-------------- ------------
(UNAUDITED) (UNAUDITED)
Interest Income......................... $ 11,694,280 $ 9,609,333
Net Income (Loss)....................... $ (1,688,358) $ 702,416
Basic and Diluted Net Income (Loss) per
Common Share.......................... $ (0.30) $ 0.13
8. SERVICING
Effective July 6, 1999, the Company terminated its servicing contract with
General Electric Capital Corporation (GECC), an affiliate of the General
Electric Corporation, and completed the transition of its portfolio of
receivables held for investment from GECC to ALAC. Under a separate agreement,
GECC will perform certain daily functions, such as collecting and posting
payments on existing accounts, which is expected to continue for a brief period
following the transition and certain ongoing responsibilities such as forwarding
information, documents or other notices it receives with respect to the account
of the Company.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Net income for the three months ended July 31, 1999, was $702,416, an
increase of 123% from that reported for the comparable period in the preceding
year of $314,983. Earnings per common share was $0.13 for the three months ended
July 31, 1999, compared to $0.06 per common share for the comparable period in
the preceding year.
NET INTEREST INCOME
The continued profitability of the Company during this period has been
achieved by the growth of the receivables portfolio, income from servicing
activities and effective management of net interest income. The following table
summarizes the Company's growth in receivables and net interest income (dollars
in thousands):
AS OF OR FOR THE
THREE MONTHS ENDED
JULY 31,
----------------------
1998 1999
---------- ----------
Receivables Held for Investment:
Number.......................... 13,097 17,267
Principal balance............... $ 142,975 $ 200,314
Average principal balance of
receivables outstanding during
the period.................... 139,400 188,669
Receivables Acquired for Investment:
Number.......................... -- 4,459
Principal balance............... $ -- $ 43,101
Securitized Receivables:(1)
Number.......................... -- 5,795
Principal balance............... $ -- $ 48,251
Total Managed Receivables Portfolio:
Number.......................... 13,097 27,521
Principal balance............... $ 142,975 $ 291,666
- ------------
(1) Represents receivables previously owned by ALAC which were sold in
connection with two asset securitizations and on which the Company retains
the servicing rights to those receivables.
THREE MONTHS ENDED
JULY 31,
--------------------
1998 1999(2)
--------- ---------
Interest income(1)................... $ 5,658 $ 9,609
Interest expense..................... 2,224 3,880
--------- ---------
Net interest income............. $ 3,434 $ 5,729
========= =========
- ------------
(1) Amounts shown are net of amortization of premium and deferred fees.
(2) The Receivables Acquired for Investment and Investment in Trust Certificates
contributed $1,972 to interest income, $954 to interest expense and $1,018
to net interest income for the three months ended.
11
<PAGE>
The following table sets forth information with regard to the Company's net
interest spread, which represents the difference between the effective yield on
receivables held for investment and the Company's average cost of debt utilized
to fund these receivables, and its net interest margin (averages based on
month-end balances):
THREE MONTHS ENDED
JULY 31,
--------------------
1998 1999
--------- ---------
Receivables Held for Investment:
Effective yield on receivables
held for investment(1)......... 16.2% 16.2%
Average cost of debt(2)......... 6.6 6.3
--------- ---------
Net interest spread(3).......... 9.6% 9.9%
========= =========
Net interest margin(4).......... 9.9% 10.0%
========= =========
- ------------
(1) Represents interest income as a percentage of average receivables held for
investment outstanding.
(2) Represents interest expense as a percentage of average debt outstanding.
(3) Represents yield on receivables held for investment less average cost of
debt.
(4) Represents net interest income as a percentage of average receivables held
for investment outstanding.
Net interest income is the difference between interest earned from the
receivables portfolio and interest expense incurred on the credit facilities
used to acquire the receivables. Net interest income increased for the three
months ended July 31, 1999 to $5.7 million from $3.4 million for the comparable
period in the preceding year, an increase of 67%.
Changes in the principal amount and rate components associated with the
receivables held for investment and debt can be segregated to analyze the
periodic changes in net interest income on such receivables. The following table
analyzes the changes attributable to the principal amount and rate components of
net interest income (dollars in thousands):
THREE MONTHS ENDED
JULY 31, 1998 TO 1999
---------------------------------
INCREASE DUE TO
CHANGE IN
--------------------
AVERAGE
PRINCIPAL AVERAGE TOTAL NET
AMOUNT RATE INCREASE
--------- ------- ---------
Receivables Held for Investment:
Interest income................. $ 2,000 $ (21 ) $ 1,979
Interest expense................ 831 (129 ) 702
--------- ------- ---------
Net interest income............. $ 1,169 $ 108 $ 1,277
========= ======= =========
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1999 AND 1998 (DOLLARS IN THOUSANDS)
INTEREST INCOME Interest income for the 1999 period increased to $9,609
compared with $5,658 for the comparable period in 1998 which reflects an
increase of 70%. The increase in interest income is primarily due to an increase
in the average principal balance of receivables held for investment of 35% from
the 1998 to 1999 comparable periods and the contribution to interest income made
by the receivables acquired for investment and trust certificates acquired
pursuant to the ALAC acquisition.
12
<PAGE>
INTEREST EXPENSE. Interest expense in 1999 increased to $3,880 as compared
to $2,224 in 1998. The increase of 74% was due to an increase of 37% in the
weighted average borrowings outstanding under secured credit facilities and
interest expense associated with the $75 million acquisition facility. Weighted
average cost of debt for secured credit facilities decreased 4% for the three
month period as a result of lower market rates which were partially offset by a
higher level of facility utilization.
NET INTEREST INCOME. Net interest income increased to $5,729, an increase
of 67%. The increase resulted primarily from the growth in receivables held for
investment and contributions to interest income from the receivables acquired
for investment and trust certificates. In addition, a decrease in the average
cost of debt increased net interest spread .3% over the 1998 period.
PROVISION FOR CREDIT LOSSES. The provision for credit losses for 1999
increased to $1,156 as compared to $950 in 1998. The increase was the result of
the growth of the Company's Receivables Held for Investment portfolio offset by
a decrease in net charge-offs.
SERVICING INCOME. Represents servicing income received on loan receivables
previously sold by ALAC in connection with two asset securitization
transactions. Under these transactions, ALAC, as servicer, is entitled to
receive a fee of 3% on the outstanding balance of the principal balance of
securitized receivables plus reimbursement for certain costs and expenses
incurred as a result of its collection activities. Under the terms of the
securitizations, the servicer may be removed upon breach of its obligations
under the servicing agreements, the deterioration of the underlying receivables
portfolios in violation of certain performance triggers or the deteriorating
financial condition of the servicer. During the three month period, servicing
income was $404.
LATE FEES AND OTHER INCOME. Late fees and other income increased to $507
in 1999 from $160 in 1998 which primarily represents late fees collected from
customers on past due accounts, collections on certain ALAC assets which had
previously been charged-off by the Company, and interest income earned on
short-term marketable securities and money market instruments.
SERVICING FEE EXPENSES. Servicing fee expenses decreased to $443 in 1999
from $506 in 1998. Servicing fees consist primarily of fees paid by the Company
to General Electric Credit Corporation with which the Company has a servicing
relationship on its receivables held for investment. Effective July 6, 1999, the
Company began servicing its portfolio in-house and terminated the General
Electric arrangement. Thus, for July 1999, the Company incurred minimal
servicing expenses. This decrease in servicing fee expense was partially offset
by an increase during the first two months of the period related to a higher
volume of loans serviced as compared to 1998.
SALARIES AND BENEFIT EXPENSES. Salaries and benefit costs increased to
$2,195 in 1999 from $856 in 1998. The increase is a result of increasing staff
levels to support an increase in the Company's receivables portfolio, an
expansion of its geographic territory and an increase in staffing levels as a
result of the acquisition of ALAC and the resulting assumption of loan servicing
activities.
OTHER EXPENSES. Other expenses increased to $1,741 in 1999 from $786 in
1998. The increase is a result of an expansion of the Company's asset base, an
increase in the volume of applications for credit processed by the Company in
the 1999 period versus the comparable period and operating costs associated with
the acquired company which were not applicable to the prior year period.
INCOME BEFORE PROVISION FOR INCOME TAXES. During 1999, income before
provision for income taxes increased to $1,106 or an increase of 123% from the
comparable period in 1998. This change was a result of the increase in net
interest income after provision for credit losses of $2,089 and an increase in
late fees and other income of $347, offset by an increase in operating expenses
of $2,231.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH FLOWS. The Company's business requires
significant cash flow to support its operating activities. The principal cash
requirements include (i) amounts necessary to acquire receivables from dealers
and fund required reserve accounts, (ii) amounts necessary to fund premiums for
credit enhancement insurance, and (iii) amounts necessary to fund costs to
retain receivables, primarily interest expense and servicing fees. The Company
also requires a significant amount of cash flow for working capital to fund
fixed operating expenses, primarily salaries and benefits.
The Company's most significant cash flow requirement is the acquisition of
receivables from dealers. The Company paid $37.2 million for receivables
acquired for the three months ended July 31, 1999 compared to $22.4 million paid
in the comparable 1998 period.
The Company funds the purchase price of the receivables through the use of
a $65 million warehouse credit facility provided to F.I.R.C., Inc. ("FIRC") a
wholly-owned special purpose financing subsidiary of the Company. The current
FIRC credit facility generally permits the Company to draw advances up to the
outstanding principal balance of qualified receivables. Receivables that have
accumulated in the FIRC credit facility may be transferred to a commercial paper
conduit facility at the option of the Company. The commercial paper facility
provides additional liquidity of up to $135 million to fund the Company's
investment in the receivables portfolio. Credit enhancement for the warehouse
lenders is provided by an Auto Loan Protection ("ALPI") policy issued by
National Union Fire Insurance Company of Pittsburgh and reinsured by the
Company's captive insurance subsidiary.
The Company utilizes a $135 million commercial paper conduit financing
through Enterprise Funding Corporation, a commercial paper conduit administered
by Bank of America as its primary source of permanent financing for receivables
held for investment. The financing was provided to a special-purpose,
wholly-owned subsidiary of the Company, First Investors Auto Receivables
Corporation ("FIARC"). Credit enhancement for the $135 million facility is
provided to the commercial paper investors by a surety bond issued by MBIA
Insurance Corporation.
Receivables originally purchased by the Company are financed with
borrowings under the FIRC credit facility. Once a sufficient amount of
receivables have been accumulated, the receivables are transferred from FIRC to
FIARC with advances under the FIARC commercial paper facility used to repay
borrowings under the FIRC credit facility. Once receivables are transferred to
the FIARC subsidiary and pledged as collateral for commercial paper borrowings,
the ALPI policy with respect to the transferred receivables is cancelled with
any unearned premiums returned to FIRC. FIARC may borrow up to 90% of the face
amount of the receivables being transferred. In addition, a cash reserve equal
to 1% of the outstanding borrowings under the FIARC commercial paper facility
must be maintained in a reserve account for the benefit of the creditors and
surety bond provider.
The current term of the FIRC credit facility expires on October 15, 1999,
at which time the outstanding balance will be payable in full, subject to
certain notification provisions allowing the Company a period of six months in
order to endeavor to refinance the facility in the event of termination. The
term of the facility has been extended on eight occasions since its inception in
October 1992. The FIARC commercial paper facility was provided for a term of one
year and has been extended to March 31, 2000. If the facility was terminated,
receivables pledged as collateral would be allowed to amortize; however, no new
receivables would be allowed to be transferred from the FIRC credit facility.
The Company also maintains a $25 million commercial paper conduit financing
through Variable Funding Capital Corporation ("VFCC"), a commercial paper
conduit administered by First Union National Bank. The financing was provided to
a special-purpose, wholly-owned subsidiary of the Company, First Investors Auto
Capital Corporation ("FIACC") to fund the
14
<PAGE>
acquisition of additional receivables generated under certain of the Company's
financing programs.
FIACC acquires receivables from the Company and may borrow up to 88% of the
face amount of receivables which are pledged as collateral for the commercial
paper borrowings. In addition, a cash reserve equal to 2% of the outstanding
borrowings under the FIACC commercial paper facility must be maintained in a
reserve account for the benefit of the creditors.
The current term of the FIACC commercial paper facility expires on December
31, 1999. If the facility was terminated, receivables pledged as collateral
would be allowed to amortize; however, no new receivables could be transferred
to the facility.
In addition to the $225 million in currently available debt facilities
utilized to fund the acquisition of receivables, the Company also maintains a
$10 million working capital facility to be used for working capital and general
corporate purposes. The working capital facility expires on October 15, 1999. If
the lenders elect not to renew, any outstandings will be amortized over a one
year period. There was $7.6 million outstanding under this facility at July 31,
1999.
On October 2, 1998, the Company, through its indirect, wholly-owned
subsidiary, FIFS Acquisition Funding Company LLC ("FIFS Acquisition"), entered
into a $75 million non-recourse bridge financing facility with VFCC, an
affiliate of First Union National Bank, to finance the Company's acquisition of
ALAC. Contemporaneously with the Company's purchase of ALAC, ALAC transferred
certain assets to FIFS Acquisition, consisting primarily of (i) all receivables
owned by ALAC as of the acquisition date, (ii) ALAC's ownership interest in
certain trust certificates and subordinated spread or cash reserve accounts
related to two asset securitizations previously conducted by ALAC, and (iii)
certain other financial assets, including charged-off accounts owned by ALAC as
of the acquisition date. These assets, along with a $1 million cash reserve
account funded at closing serve as the collateral for the bridge facility. The
facility bears interest at VFCC's commercial paper rate plus 2.35%. Under the
terms of the facility, all cash collections from the receivables or cash
distributions to the certificate holder under the securitizations are first
applied to pay ALAC a servicing fee in the amount of 3% on the outstanding
balance of all owned or managed receivables and then to pay interest on the
facility. Excess cash flow available after servicing fees and interest payments
are utilized to reduce the outstanding principal balance on the indebtedness. In
addition, one-third of the servicing fee paid to ALAC is also utilized to reduce
principal outstanding on the indebtedness. The bridge facility expires on
October 31, 1999. The Company is currently negotiating with First Union to
refinance the acquisition facility over an extended term sufficient to amortize
the outstanding balance of the indebtedness through collections of the
underlying receivables and trust certificates. It is anticipated that the
permanent financing will consist of issuing various tranches of notes, to be
held by VFCC, or certificates to be held by the Company and First Union, which
will contain distinct principal amortization requirements and interest rates.
The Company anticipates no material change in the weighted average interest rate
under the permanent financing. It is anticipated, however, that in conjunction
with VFCC providing the permanent financing, VFCC will obtain a beneficial
interest in certain portion of the excess cash flow generated by the remaining
assets. The amount of excess cash to be received by First Union will vary
depending upon the timing and amount of such cash flows. To the extent that the
facility is not finalized prior to the expiration date, the Company intends to
seek a short-term extension to allow for the completion of the term financing.
The Company has no reason to believe that an agreement with VFCC will not grant
such an extension or that an agreement to refinance the bridge loan will not be
reached prior to the then final maturity of the bridge facility. If the facility
were not extended, the remaining outstanding principal balance would be due at
maturity.
Substantially all of the Company's receivables are pledged to collateralize
the credit facilities. Management considers its relationship with all of the
Company's lenders to be satisfactory and has no reason to believe that the
credit facilities will not be renewed.
15
<PAGE>
The Company's most significant source of cash flow is the principal and
interest payments from the receivables portfolios. The Company received such
payments in the amount of $23.6 million and $20.8 million for the three months
ended July 31, 1999 and 1998, respectively. Such cash flow funds repayment of
amounts borrowed under the FIRC credit and commercial paper facilities and other
holding costs, primarily interest expense and servicing and custodial fees.
During the three months ended, the Company required net cash flow of $21.4
million in 1999 and $7.9 million in 1998 (cash required to acquire receivables
held for investment net of principal payments on receivables) to fund the growth
of its receivables portfolio.
INTEREST RATE MANAGEMENT. The Company's credit facilities bear interest at
floating interest rates which are reset on a short-term basis whereas its
receivables bear interest at fixed rates which are generally at the maximum
rates allowable by law and do not generally vary with changes in interest rates.
To manage the risk of fluctuation in the interest rate environment, the Company
enters into interest rate swaps and caps with notional principal amounts which
approximate the balance of its debt outstanding to lock in what management
believes to be an acceptable net interest spread. However, the Company will be
exposed to limited rate fluctuation risk to the extent it cannot perfectly match
the timing of net advances from its credit facilities and acquisitions of
additional interest rate protection agreements. As of July 31, 1999, the Company
was party to a swap agreement with Bank of America pursuant to which the
Company's interest rate is fixed at 5.565% on a notional amount of $120 million.
The swap agreement expires on January 12, 2000 and may be extended to January
14, 2002 at the option of Bank of America.
On October 2, 1998, in connection with the $75 million acquisition
facility, the Company, through FIFS Acquisition, entered into a series of
hedging instruments with First Union National Bank designed to hedge floating
rate borrowings under the acquisition facility against changes in market rates.
Accordingly, the Company entered into two interest rate swap agreements, the
first in the initial notional amount of $50.1 million (Swap A) pursuant to which
the Company's interest rate is fixed at 4.81%; and, the second in the initial
notional amount of $24.9 million (Swap B) pursuant to which the Company's
interest rate is fixed at 5.50%. The notional amount outstanding under each swap
agreement amortizes based on an implied amortization of the hedged indebtedness.
Swap A has a final maturity of December 20, 2002 while Swap B has a final
maturity of February 20, 2000. The Company also purchased two interest rate caps
which protect the Company and the lender against any material increases in
interest rates which may adversely affect any outstanding indebtedness which is
not fully covered by the aggregate notional amount outstanding under the swaps.
The first cap agreement enables the Company to receive payments from the
counterparty in the event that the one-month commercial paper rate exceeds 4.81%
on a notional amount that increases initially and then amortizes based on the
expected difference between the outstanding notional amount under Swap A and the
underlying indebtedness. The interest rate cap expires December 20, 2002 and the
cost of the cap is amortized in interest expense for the period. The second cap
agreement enables the Company to receive payments from the counterparty in the
event that the one-month commercial paper rate exceeds 6% on a notional amount
that increases initially and then amortizes based on the expected difference
between the outstanding notional amount under Swap B and the underlying
indebtedness. The interest rate cap expires February 20, 2002 and the cost of
the cap is imbedded in the fixed rate applicable to Swap B.
DELINQUENCY AND CREDIT LOSS EXPERIENCE
The Company's results of operations, financial condition and liquidity may
be adversely affected by nonperforming receivables. The Company seeks to manage
its risk of credit loss through (i) prudent credit evaluations, (ii) risk
management activities, (iii) effective collection procedures, and (iv) by
maximizing recoveries on defaulted loans. The allowance for credit losses of
$1,772 as a percentage of receivables is .9% at July 31, 1999.
16
<PAGE>
With respect to Receivables Acquired for Investment, the Company has
established a nonaccretable loss reserve to cover expected losses over the
remaining life of the receivables. As of July 31, 1999 and April 30, 1999, the
nonaccretable loss reserve as a percentage of Receivables Acquired for
Investment was 22.1% and 20.6%, respectively. The nonaccretable portion
represents the excess of the loan's scheduled contractual principal and
contractual interest payments over its expected cash flows.
The Company considers a loan to be delinquent when the borrower fails to
make a scheduled payment of principal and interest. Accrual of interest is
suspended when the payment from the borrower is over 60 days past due.
Generally, repossession procedures are initiated 60 to 90 days after the payment
default.
The Company retains the credit risk associated with the receivables
acquired. The Company purchases credit enhancement insurance from third party
insurers which covers the risk of loss upon default and certain other risks.
Until March 1994, such insurance absorbed substantially all credit losses. In
April 1994, the Company established a captive insurance subsidiary to reinsure
certain risks under the credit enhancement insurance coverage for all
receivables acquired in March 1994 and thereafter. In addition, receivables
financed under the FIARC and FIACC commercial paper facilities do not carry
default insurance. A provision for credit losses of $1,156 has been recorded for
the three months ended July 31, 1999, for losses on receivables which are either
uninsured or which are reinsured by the Company's captive insurance subsidiary.
The allowance for credit losses represents management's estimate of losses
for receivables that may become uncollectable. In making this estimate,
management analyzes portfolio characteristics in the light of its underwriting
criteria, delinquency and repossession statistics, historical loss experience,
and size, quality and concentration of the receivables, as well as external
factors such as future economic outlooks. The allowance for credit losses is
based on estimates and qualitative evaluations and ultimate losses will vary
from current estimates. These estimates are reviewed periodically and as
adjustments, either positive or negative, become necessary, are reported in
earnings in the period they become known.
The following table summarizes the status and collection experience of
receivables by the Company (dollars in thousands):
<TABLE>
<CAPTION>
AS OF OR FOR THE THREE MONTHS ENDED JULY 31,
----------------------------------------------------
1998 1999
----------------------- -----------------------
NUMBER NUMBER
OF LOANS AMOUNT(1) OF LOANS AMOUNT(1)
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Receivables Held for Investment:
Delinquent amount outstanding:
30 - 59 days.................... 223 $ 3,081 745 $ 8,387
60 - 89 days.................... 67 930 97 1,011
90 days or more................. 107 1,708 12 111
--- --------- --- ---------
Total delinquencies.................. 397 $ 5,719 854 $ 9,509
=== ========= === =========
Total delinquencies as a percentage
of outstanding receivables......... 2.9% 2.8% 5.0% 4.8%
Net charge-offs as a percentage of
average receivables outstanding
during the
period(2)(3)....................... 2.7% 1.9%
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
17
<PAGE>
- ------------
(1) Amounts of delinquent receivables outstanding and total delinquencies as a
percent of outstanding receivables for the 1998 period are based on gross
receivables balances, which include principal outstanding plus unearned
interest income and on the outstanding principal balance of receivables for
the 1999 period. The change in calculation methodology is a result of the
transfer of servicing from GE Capital. GE Capital provided the Company with
gross receivable balance information only, therefore, comparable data cannot
be obtained. While the dollar amount of delinquent receivables are not
comparable period over period, management does not believe that the change
in methodology would result in materially different delinquency percentages.
(2) Does not give effect to reimbursements under the Company's credit
enhancement insurance policies with respect to charged-off receivables. The
Company recognized no charge-offs prior to March 1994 since all credit
losses were reimbursed by third-party insurers. Subsequent to that time the
primary coverage has been reinsured by an affiliate of the Company under
arrangements whereby the Company bears the entire risk of credit losses, and
charge-offs have accordingly been recognized.
(3) The percentages have been annualized and are not necessarily indicative of
the results for a full year.
The total number of delinquent accounts (30 days or more) as a percentage
of the number of outstanding receivables for the Company's portfolio of
Receivables Acquired for Investment and Securitized Receivables was 6.7% and
3.4% as of July 31, 1999 and April 30, 1999, respectively.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs and microprocessors
using two digits rather than four to define the applicable year (the "Year 2000
Issue"). Such programs or microprocessors may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failures or
miscalculations leading to disruptions in the Company's activities and
operations. If the Company, or third parties with which it has a significant
relationship or upon which is relies for certain data utilized in its business
(the "Counterparties"), fail to make necessary modifications, conversions and
contingency plans on a timely basis, the Year 2000 Issue could have a material
adverse effect on the Company's business, financial condition and results of
operations. While the Company believes its internal systems are compliant with
the Year 2000 Issue, the potential effects of the Year 2000 issue cannot be
quantified at this time because the Company cannot accurately estimate the
magnitude, duration, or nature of problems that noncompliance by the
Counterparties will have on its operations.
Although the risk is not presently quantifiable, the following disclosure
is intended to summarize the Company's actions to minimize the risk from the
Year 2000 Issue. Programs that will operate in the year 2000 unaffected by the
change in year from 1999 to 2000 are referred to herein as "year 2000
compliant."
STATE OF READINESS. The Company relies almost exclusively on third party
application software in its operations. All software applications are designed
to run on client server systems. The Company employs three major software
applications in its business: (i) a loan origination system which is utilized in
the receipt, approval and funding of receivables, (ii) a loan servicing and
collection system which is used by the Company's personnel to track and service
all active customer accounts as well as repossession and disposition activities,
and (iii) accounting systems which process all general ledger and financial
reporting activities. Each of the vendors that supply these software
applications has certified to the Company that their respective applications are
Year 2000 compliant. In addition, the Company has developed internal testing
procedures on each system and presently intends to conduct these tests prior to
September 30, 1999 to confirm the vendors' certification as to compliance.
The Company has also requested confirmation from all other Counterparties,
which an internal review indicated may be exposed to Year 2000 Issues. As of
September 14, 1999, the only material Counterparties which had not confirmed
Year 2000 compliance were national
18
<PAGE>
banks, upon which the company relies for cash management, lockbox and certain
custodial services relating to its credit facilities, and the credit reporting
agencies upon which the Company relies in obtaining credit histories on the loan
applications it reviews for approval. All other Counterparties have assured the
Company that they expect to be Year 2000 compliant prior to December 31, 1999.
COSTS. Since the Company does not rely on internally-developed
applications, it does not currently anticipate that compliance efforts to solve
the Year 2000 issue will require additional expenditures in any material amount.
To the extent that software upgrades must be purchased in order to insure
compliance, the cost of such software will be expensed.
RISKS. The Company believes that the most reasonably likely worst case
scenario is a compliance failure by a Counterparty upon which the Company
relies. Such a failure would likely have an effect on the Company's business,
financial condition and results of operations. The magnitude of that effect
however, cannot be quantified at this time because of variables such as the type
and importance of the third party, the possible effect on the Company's
operations and the Company's ability to respond. Thus, there can be no assurance
that there will not be a material adverse effect on the Company if such third
parties do not remediate their systems in a timely manner. In addition, it is
possible that the Company would experience a failure of a non-mission critical
system for a period of time, which could result in a minor disruption in some
internal operations.
CONTINGENCY PLANS. Contingency planning is an integral part of the
Company's year 2000 readiness project. The Company has and is continuing to
develop contingency plans, which document the processes necessary to maintain
critical business functions should significant third party system or mission
critical internal system fail. These contingency plans generally include the
repair of existing systems and, in some instances, the use of alternative
systems or procedures.
The disclosure in this section contains information regarding Year 2000
readiness which constitutes "Year 2000 Readiness Disclosure" as defined in the
Year 2000 Readiness Disclosure Act. Readers are cautioned that forward-looking
statements contained in the Year 2000 Update should be read in conjunction with
the Company's disclosures under the heading "Forward Looking Information."
FORWARD LOOKING INFORMATION
Statements and financial discussion and analysis included in this report
that are not historical are considered to be forward-looking in nature.
Forward-looking statements involve a number of risks and uncertainties that may
cause actual results to differ materially from anticipated results. Specific
factors that could cause such differences include unexpected fluctuations in
market interest rates; changes in economic conditions; or increases or changes
in the competition for loans. Although the Company believes that the
expectations reflected in the forward-looking statements presented herein are
reasonable, it can give no assurance that such expectations will prove to be
correct.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary risks are credit risk and interest rate risk. There
have been no material changes to these market risk factors as included in the
Company's 1999 Annual Report on Form 10-K. See the Annual Report on Form 10-K
for the year ended April 30, 1999 for a complete discussion of the Company's
market risk.
19
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
(Registrant)
Date: September 14, 1999 By: /s/ TOMMY A. MOORE, JR.
TOMMY A. MOORE, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: September 14, 1999 By: /s/ BENNIE H. DUCK
BENNIE H. DUCK
SECRETARY, TREASURER AND CHIEF
FINANCIAL OFFICER
20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> JUL-31-1999
<CASH> 19,306,023
<SECURITIES> 0
<RECEIVABLES> 205,759,727
<ALLOWANCES> 1,772,064
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 280,735,120
<CURRENT-LIABILITIES> 0
<BONDS> 238,431,056
0
0
<COMMON> 5,567
<OTHER-SE> 27,864,728
<TOTAL-LIABILITY-AND-EQUITY> 280,735,120
<SALES> 9,609,333
<TOTAL-REVENUES> 9,609,333
<CGS> 3,879,688
<TOTAL-COSTS> 3,879,688
<OTHER-EXPENSES> 4,378,646
<LOSS-PROVISION> 1,156,174
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,106,167
<INCOME-TAX> 403,751
<INCOME-CONTINUING> 702,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 702,416
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
</TABLE>
