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þ | Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 |
o | Transition report under section 13 or 15(d) of the securities exchange act of 1934 |
Kansas | 48-1009756 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number: (913) 383-9700
Large accelerated filero | Accelerated filerþ | Non-accelerated filero | Smaller reporting companyo | |||
(Do not check if a smaller reporting company) |
Table of Contents
EXPLANATORY NOTE
This Form 10-Q/A-1 amends our Form 10-Q for the period ended June 30, 2008, which was filed with the Securities and Exchange Commission on August 18, 2008 (the “Original Filing”). We are filing this Form 10-Q/A-1 to add certain financial information and to correct typographical matters.
In addition, in connection with the filing of this Form 10-Q/A-1 and pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, we are including with this Form 10-Q/A-1 certain currently dated certifications.
This Amendment does not reflect events occurring after the Original Filing except as noted above. Except for the foregoing amended or added information, this Form 10-Q/A continues to speak as of the date of the Original Filing and the Company has not otherwise updated disclosures contained therein or herein to reflect events that occurred at a later date. For the convenience of the reader, this Form 10-Q/A-1 sets forth the Original Filing in its entirety as amended.
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Consolidated Balance Sheets
UNAUDITED
(in thousands, except share amounts)
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
Current Assets | ||||||||
Cash | $ | 6,825 | $ | 4,699 | ||||
Restricted cash | 388 | 454 | ||||||
Investments | 86,609 | 32,020 | ||||||
Accounts and notes receivable, net | 224,015 | 193,688 | ||||||
Income tax receivable | 894 | 2,428 | ||||||
Other receivables | 6,604 | 5,303 | ||||||
Securities | 71,050 | 89,634 | ||||||
Interest-only strip receivable | 7,072 | 7,749 | ||||||
Security deposits | — | 221 | ||||||
Prepaid expenses | 3,558 | 1,693 | ||||||
Advertising supply inventory | 664 | 929 | ||||||
Assets of discontinued operation, held for sale | 26,860 | 25,987 | ||||||
Total Current Assets | 434,539 | 364,805 | ||||||
Investment in Businesses | 951 | 9,413 | ||||||
Property and Equipment | ||||||||
Cost | 22,890 | 23,755 | ||||||
Less: Accumulated depreciation | (7,375 | ) | (7,008 | ) | ||||
Net Property and Equipment | 15,515 | 16,747 | ||||||
Other Assets | ||||||||
Amortizable intangible assets | 12,738 | 9,709 | ||||||
Less: Accumulated amortization | (2,424 | ) | (2,031 | ) | ||||
Goodwill | 2,660 | 3,022 | ||||||
Servicing asset | 5,226 | 6,025 | ||||||
Deferred charges | 2,740 | 5,904 | ||||||
Deferred tax asset | 23,776 | — | ||||||
Other assets | 8,938 | 1,276 | ||||||
Non-current assets of discontinued operation, held for sale | 8,196 | 8,124 | ||||||
Net Other Assets | 61,850 | 32,029 | ||||||
Total Assets | $ | 512,855 | $ | 422,994 | ||||
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Consolidated Balance Sheets
UNAUDITED
(in thousands, except share amounts)
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
Current Liabilities | ||||||||
Accounts payable | $ | 45,890 | $ | 18,912 | ||||
Premiums payable to insurance companies | 5,963 | 7,621 | ||||||
Deposits | 109,234 | 22,951 | ||||||
Federal funds purchased | — | 9,522 | ||||||
Payable under participation agreements | 60,301 | 39,452 | ||||||
Accrued commission refunds | 491 | 570 | ||||||
IBNR loss reserve | 5,957 | 8,440 | ||||||
Unearned insurance premiums | 3,383 | 3,110 | ||||||
Income tax payable | — | 826 | ||||||
Deferred income tax payable | 1,801 | 1,715 | ||||||
Warrant liability | 900 | 900 | ||||||
Short-term debt | 73,665 | 43,536 | ||||||
Current maturities of long-term debt | 51,456 | 52,465 | ||||||
Liabilities of discontinued operation, held-for-sale | 28,076 | 26,643 | ||||||
Total Current Liabilities | 387,117 | 236,663 | ||||||
Non-current Liabilities | ||||||||
Warrant liability | 2,354 | 2,354 | ||||||
Deferred income tax payable | — | 6,402 | ||||||
Servicing liability | 12 | 16 | ||||||
Long-term debt less current maturities | 57,899 | 61,012 | ||||||
Total Liabilities | 447,382 | 306,447 | ||||||
Minority Interest in subsidiaries | 31,029 | 45,899 | ||||||
Stockholders’ Equity | ||||||||
Common stock, $0.01 par value, 99,500,000 shares authorized, 14,524,456 and 14,224,021 shares issued and outstanding | 145 | 142 | ||||||
Preferred stock series 2002 and 2002A, $25 par value, 110,000 shares authorized, 49,667 shares issued and outstanding | 1,242 | 1,242 | ||||||
Preferred stock series 2002B, $32 par value, 34,375 authorized, 24,331 shares issued and outstanding | 779 | 779 | ||||||
Preferred stock series 2006, $1 par value, 20,000 authorized, 20,000 shares issued and outstanding | 20 | 20 | ||||||
Additional paid-in capital on preferred stock series 2006 | 18,576 | 18,576 | ||||||
Discount on preferred stock series 2006 | (675 | ) | (2,025 | ) | ||||
Additional paid-in capital | 55,869 | 55,424 | ||||||
Accumulated deficit | (39,513 | ) | (6,889 | ) | ||||
Accumulated other comprehensive income (loss) | (1,999 | ) | 3,379 | |||||
Total Stockholders’ Equity | 34,444 | 70,648 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 512,855 | $ | 422,994 | ||||
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Consolidated Statements of Operations
UNAUDITED
(in thousands, except per share data)
For three months | For three months | |||||||
Ended June 30, | Ended June 30, | |||||||
2008 | 2007 | |||||||
Operating Revenues | ||||||||
Insurance commissions | $ | 27,967 | $ | 28,326 | ||||
Interest income (net) | 7,263 | 6,191 | ||||||
Consulting fees | 3 | 4,415 | ||||||
Gain (loss) on sale of businesses | (3,631 | ) | 1,161 | |||||
Initial franchise fees for basic services | — | 7,095 | ||||||
Initial franchise fees for buyer assistance plans | — | 70 | ||||||
Gain (loss) on sale of notes receivable | (1,728 | ) | 4,284 | |||||
Insurance premiums earned | 2,544 | 3,191 | ||||||
Policy fee income | 131 | 153 | ||||||
Loss on sale of assets | (1,323 | ) | (15 | ) | ||||
Other income | 595 | 283 | ||||||
Total Operating Revenues | 31,821 | 55,154 | ||||||
Operating Expenses | ||||||||
Commissions expense | 22,466 | 22,260 | ||||||
Payroll expense | 7,445 | 8,831 | ||||||
Depreciation and amortization | 1,328 | 809 | ||||||
Insurance loss and loss expense incurred | 1,111 | 2,227 | ||||||
Provision for losses | 10,534 | 1,485 | ||||||
Other operating expenses | 10,471 | 11,394 | ||||||
Other operating interest expense | 652 | 368 | ||||||
Total Operating Expenses | 54,007 | 47,374 | ||||||
Income (loss) from Continuing Operations | (22,186 | ) | 7,780 | |||||
Other Expenses | ||||||||
Interest expense | 2,500 | 2,730 | ||||||
Minority interest in subsidiaries | (5,173 | ) | 760 | |||||
Total Other Expenses | (2,673 | ) | 3,490 | |||||
Income (loss) from Continuing Operations Before Income Taxes | (19,513 | ) | 4,290 | |||||
Income tax expense (benefit) | (9,374 | ) | 1,800 | |||||
Net Income (loss) from Continuing Operations | (10,139 | ) | 2,490 | |||||
Net income from discontinued operation | 56 | 216 | ||||||
Net Income (loss) | $ | (10,083 | ) | $ | 2,706 | |||
Net Income (loss) per Share: | ||||||||
Basic and diluted | ||||||||
Net income (loss) from continuing operations | $ | (.76 | ) | $ | 0.13 | |||
Net income from discontinued operation | .01 | 0.02 | ||||||
Net income (loss) | $ | (.75 | ) | $ | 0.15 |
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Consolidated Statements of Operations
UNAUDITED
(in thousands, except per share data)
For six months | For six months | |||||||
Ended June 30, | Ended June 30, | |||||||
2008 | 2007 | |||||||
Operating Revenues | ||||||||
Insurance commissions | $ | 62,280 | $ | 61,062 | ||||
Interest income (net) | 15,399 | 14,244 | ||||||
Consulting fees | 256 | 4,730 | ||||||
Gain (loss) on sale of businesses | (4,477 | ) | 1,842 | |||||
Initial franchise fees for basic services | 1,320 | 19,965 | ||||||
Initial franchise fees for buyer assistance plans | — | 455 | ||||||
Gain (loss) on sale of notes receivable | (1,629 | ) | 11,206 | |||||
Insurance premiums earned | 5,212 | 3,266 | ||||||
Policy fee income | 245 | 256 | ||||||
Impairment loss | (11,763 | ) | — | |||||
Loss on sale of assets | (1,323 | ) | (31 | ) | ||||
Other income | 975 | 530 | ||||||
Total Operating Revenues | 66,495 | 117,525 | ||||||
Operating Expenses | ||||||||
Commissions expense | 47,705 | 45,378 | ||||||
Payroll expense | 16,901 | 16,597 | ||||||
Depreciation and amortization | 2,712 | 1,616 | ||||||
Insurance loss and loss expense incurred | 2,193 | 2,554 | ||||||
Provision for losses | 23,424 | 5,202 | ||||||
Other operating expenses | 27,957 | 22,751 | ||||||
Other operating interest expense | 1,413 | 2,033 | ||||||
Total Operating Expenses | 122,305 | 96,131 | ||||||
Income (loss) from Continuing Operations | (55,810 | ) | 21,394 | |||||
Other Expenses | ||||||||
Interest expense | 5,571 | 5,390 | ||||||
Loss on extinguishment of debt | 8,210 | — | ||||||
Minority interest in subsidiaries | (14,754 | ) | 724 | |||||
Total Other Expenses | (973 | ) | 6,114 | |||||
Income (loss) from Continuing Operations Before Income Taxes | (54,837 | ) | 15,280 | |||||
Income tax expense (benefit) | (26,141 | ) | 5,988 | |||||
Net Income (loss) from Continuing Operations | (28,696 | ) | 9,292 | |||||
Net income from discontinued operation | 79 | 223 | ||||||
Net Income (loss) | $ | (28,617 | ) | $ | 9,515 | |||
Net Income (loss) per Share: | ||||||||
Basic and diluted | ||||||||
Net income from continuing operations | $ | (2.12 | ) | $ | 0.62 | |||
Net income from discontinued operation | .01 | 0.01 | ||||||
Net income (loss) | $ | (2.11 | ) | $ | 0.63 |
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Consolidated Statements of Changes in Stockholders’ Equity
UNAUDITED
(in thousands, except common shares)
Accumulated | ||||||||||||||||||||||||||||||||||||
Preferred | Preferred | Add’l | Other | |||||||||||||||||||||||||||||||||
Common | Common | Preferred | Add’l | Stock | Paid-In | Retained | Comprehensive | |||||||||||||||||||||||||||||
Shares | Stock | Stock | Capital | Discount | Capital | Earnings | Income | Total | ||||||||||||||||||||||||||||
Balances, December 31, 2006 | 12,553,726 | $ | 126 | $ | 2,041 | $ | 18,576 | $ | (4,725 | ) | $ | 36,139 | $ | 4,077 | $ | 294 | $ | 56,528 | ||||||||||||||||||
Dividends paid | 2,700 | (12,561 | ) | (9,861 | ) | |||||||||||||||||||||||||||||||
Equity issuance from plan awards | 170,810 | 1 | 425 | 426 | ||||||||||||||||||||||||||||||||
Equity issuance | 1,500,000 | 15 | 18,860 | 18,875 | ||||||||||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||
Interest-only strip receivable, change in fair market value, net of income taxes | 2,885 | 2,885 | ||||||||||||||||||||||||||||||||||
Currency translation adjustment, net of income taxes | 200 | 200 | ||||||||||||||||||||||||||||||||||
Net income | 1,595 | 1,595 | ||||||||||||||||||||||||||||||||||
Total comprehensive income | 4,680 | |||||||||||||||||||||||||||||||||||
Balances, December 31, 2007 | 14,224,536 | $ | 142 | $ | 2,041 | $ | 18,576 | $ | (2,025 | ) | $ | 55,424 | $ | (6,889 | ) | $ | 3,379 | $ | 70,648 | |||||||||||||||||
Balances, December 31, 2007 | 14,224,536 | $ | 142 | $ | 2,041 | $ | 18,576 | $ | (2,025 | ) | $ | 55,424 | $ | (6,889 | ) | $ | 3,379 | $ | 70,648 | |||||||||||||||||
Dividends paid | 1,350 | (4,007 | ) | (2,657 | ) | |||||||||||||||||||||||||||||||
Equity issuance from plan awards | 299,920 | 3 | 445 | 448 | ||||||||||||||||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
Interest-only strip receivable, change in fair market value, net of income taxes | (5,328 | ) | (5,328 | ) | ||||||||||||||||||||||||||||||||
Currency translation adjustment, net of income taxes | (50 | ) | (50 | ) | ||||||||||||||||||||||||||||||||
Net loss | (28,617 | ) | (28,617 | ) | ||||||||||||||||||||||||||||||||
Total comprehensive loss | (33,995 | ) | ||||||||||||||||||||||||||||||||||
Balances, June 30, 2008 | 14,524,456 | 145 | 2,041 | 18,576 | (675 | ) | 55,869 | (39,513 | ) | (1,999 | ) | 34,444 | ||||||||||||||||||||||||
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Consolidated Statements of Cash Flows
UNAUDITED
(in thousands)
For six months | For six months | |||||||
Ended June 30, | Ended June 30, | |||||||
2008 | 2007 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (28,617 | ) | $ | 9,515 | |||
Net income from discontinued operation | 79 | 223 | ||||||
Net income (loss) from continuing operations | (28,696 | ) | 9,292 | |||||
Adjustments to reconcile net income (loss) from continuing operations to net cash flows from operating activities: | ||||||||
Depreciation | 1,166 | 797 | ||||||
Amortization | 1,546 | 819 | ||||||
(Gain) loss on sale of businesses | 4,477 | (1,842 | ) | |||||
Deferred income tax expense | — | 1,137 | ||||||
Write down to realizable value of inventory | — | 300 | ||||||
(Gain) loss on sale of notes receivable | 1,629 | (11,586 | ) | |||||
Loss on extinguishment of debt | 8,210 | — | ||||||
Impairment loss | 11,763 | — | ||||||
Provisions for stock awards | 782 | — | ||||||
Minority interest | (14,870 | ) | 760 | |||||
Loss on sale assets | 1,323 | |||||||
(Increase) decrease in assets: | ||||||||
Accounts and notes receivable | (30,327 | ) | 83,612 | |||||
Other receivables | (25,077 | ) | (1,477 | ) | ||||
Prepaid expenses and other assets | 155 | 632 | ||||||
Business inventory | 4,831 | (1,433 | ) | |||||
Purchase of business inventory provided by sellers | 105 | 11,021 | ||||||
Payments on seller notes for business inventory | (2,970 | ) | (4,790 | ) | ||||
Increase (decrease) in liabilities: | ||||||||
Accounts and expenses payable | 26,978 | 9,319 | ||||||
Other liabilities | 86,521 | (34 | ) | |||||
Net cash provided by operating activities | 47,546 | 96,527 | ||||||
Cash flows from investing activities: | ||||||||
Cash payments for securities | (12,252 | ) | (41,083 | ) | ||||
(Purchase) sale of investments | (54,589 | ) | 6,010 | |||||
Cash payments for property and equipment | (1,480 | ) | (2,525 | ) | ||||
Purchase of subsidiary and business assets | (8,291 | ) | (18,548 | ) | ||||
Sale of subsidiary and business assets | — | 8,888 | ||||||
Net cash used in investing activities | (76,612 | ) | (47,258 | ) | ||||
Cash flows from financing activities: | ||||||||
Dividends paid | (2,608 | ) | (4,647 | ) | ||||
Cash proceeds from common stock issuance | — | 19,371 | ||||||
Loan proceeds on debt | 46,213 | 9,564 | ||||||
Payments on bond maturities | (45 | ) | (40 | ) | ||||
Advances (payments) on short-term borrowing | 50,483 | 15,276 | ||||||
Payments on long-term debt | (62,851 | ) | (85,936 | ) | ||||
Net cash provided by (used in) financing activities | 31,192 | (46,412 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 2,126 | 2,857 | ||||||
Cash and cash equivalents, beginning of period | 4,699 | 19,225 | ||||||
Cash and cash equivalents, end of period | $ | 6,825 | $ | 22,082 | ||||
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Notes to Consolidated Financial Statements
UNAUDITED
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(in thousands) | 2008 | |||
Balance at December 31, 2007 | $ | 190 | ||
Provision for loan losses | 100 | |||
Losses charged off | (4 | ) | ||
Recoveries | — | |||
Balance at June 30, 2008 | $ | 286 | ||
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Balance at | Balance at | |||||||||||||||
Beginning of | Charges to | Write | End of | |||||||||||||
(in thousands) | the Period | Expenses | Offs | the Period | ||||||||||||
Allowance for Doubtful Accounts | ||||||||||||||||
Year ended December 31, 2007 | 1,466 | 8,608 | 7,115 | 2,959 | ||||||||||||
Period ended June 30, 2008 | $ | 2,959 | $ | 23,424 | $ | 2,177 | $ | 24,206 |
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(in thousands, except share and per share data) | June 30, 2008 | June 30, 2007 | ||||||
Basic Earnings Per Share | ||||||||
Net Income (loss) from continuing operations | $ | (28,696 | ) | $ | 9,292 | |||
Less: Preferred Stock Dividends | (1,447 | ) | (1,447 | ) | ||||
Income (loss) Available to Common Stockholders | (30,143 | ) | 7,845 | |||||
Average Common Stock Shares | 14,247 | 12,731 | ||||||
Basic Earnings (loss) Per Share from continuing operations | $ | (2.12 | ) | $ | 0.62 | |||
June 30, 2008 | June 30, 2007 | |||||||||||||||
Diluted Earnings Per Share | ||||||||||||||||
Net Income (loss) from continuing operations | $ | (28,696 | ) | $ | 9,292 | |||||||||||
Less: Preferred Stock Dividends on Non-Convertible Shares | (97 | ) | (97 | ) | ||||||||||||
Income (loss) Available to Common Stockholders | (28,793 | ) | 9,195 | |||||||||||||
Average Common Stock Shares | 14,247 | 12,731 | ||||||||||||||
Plus: Assumed Exercise of 1,176,471 Preferred Stock | 1,176 | 1,176 | ||||||||||||||
Plus: Assumed Exercise of 121,940 and 74,870 Stock Options | 122 | 15,545 | 75 | 13,982 | ||||||||||||
Diluted Earnings (loss) Per Share from continuing operations | $ | (2.12 | ) | $ | 0.62 | |||||||||||
* | The convertible preferred stock is anti-dilutive at June 30, 2008 and 2007. These shares are excluded from the dilution calculation and included as preferred stock dividend. |
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Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
(in thousands) | Cost | Gains | Losses | Value | ||||||||||||
June 30, 2008: | ||||||||||||||||
U.S. Treasury | $ | 2,057 | $ | 37 | $ | (9 | ) | $ | 2,085 | |||||||
U.S. Government Agency | 62,012 | 21 | (1,562 | ) | 60,471 | |||||||||||
Corporate bonds | 2,860 | 10 | (74 | ) | 2,796 | |||||||||||
Total | $ | 66,929 | $ | 68 | $ | (1,645 | ) | $ | 65,352 | |||||||
Equity securities | $ | 590 | $ | 68 | $ | (90 | ) | $ | 568 | |||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
(in thousands) | Cost | Gains | Losses | Value | ||||||||||||
December 31, 2007: | ||||||||||||||||
U.S. Treasury | $ | 1,729 | $ | 30 | $ | — | $ | 1,759 | ||||||||
U.S. Government Agency | 26,133 | 30 | (104 | ) | 26,059 | |||||||||||
Corporate bonds | 3,584 | 15 | (50 | ) | 3,549 | |||||||||||
Total | $ | 31,446 | $ | 75 | $ | (154 | ) | $ | 31,367 | |||||||
Equity securities | $ | 590 | $ | 113 | $ | (50 | ) | $ | 653 | |||||||
June 30, 2008 | ||||||||
(in thousands) | Amortized Cost | Fair Value | ||||||
Due in one year or less | $ | 875 | $ | 878 | ||||
Due after one year through five years | 3,192 | 3,185 | ||||||
Due after five years through ten years | 1,949 | 1,934 | ||||||
Due after ten years | 5,145 | 5,031 | ||||||
Mortgage-backed bonds | 55,768 | 54,324 | ||||||
$ | 66,929 | $ | 65,352 | |||||
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2008 | ||||
(in thousands) | Amount | |||
Noninterest-bearing checking | $ | 2 | ||
Savings | 218 | |||
Interest-bearing checking | 6,685 | |||
Money market | 14,117 | |||
21,022 | ||||
Certificates of deposit | 79,242 | |||
IRAs | 8,970 | |||
$ | 109,234 | |||
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(in thousands) | Amount | |||
Within one year | $ | 79,886 | ||
One to three years | 6,795 | |||
Three to five years | 1,512 | |||
Over five years | 19 | |||
$ | 88,212 | |||
(in thousands) | 06/30/2008 | 12/31/2007 | ||||||
Business loans | $ | 613,083 | $ | 606,596 | ||||
Less: Business loans sold | (498,585 | ) | (517,743 | ) | ||||
Commercial real estate loans | 103,543 | 96,024 | ||||||
Less: Real estate loans sold | (66,599 | ) | (60,672 | ) | ||||
Loans with subsidiaries | 18,821 | 19,786 | ||||||
Less: Subsidiary loans sold | (18,821 | ) | (19,786 | ) | ||||
Plus: Loans sold not classified as a true sale | 60,301 | 39,452 | ||||||
Other Loans | 1,664 | 681 | ||||||
Total notes receivable, net | 213,407 | 164,338 | ||||||
Interest earned not collected on notes* | 7,950 | 7,132 | ||||||
Customer receivables | 26,912 | 27,687 | ||||||
Deferred loan fees | (48 | ) | (10 | ) | ||||
Allowance for doubtful accounts | (24,206 | ) | (2,959 | ) | ||||
Total accounts and notes receivable, net | $ | 224,015 | $ | 196,188 | ||||
* | The Company has a corresponding liability for interest payable to participating lenders in the amounts of $2,058,000 and $1,609,000 at June 30, 2008 and December 31, 2007, respectively. |
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June 30, | December 31, | |||||||
(in thousands) | 2008 | 2007 | ||||||
Securitizations | $ | 118,527 | $ | 128,711 | ||||
Participations | 211,390 | 229,159 | ||||||
Off-balance sheet warehouse facility | 174,966 | 181,093 | ||||||
Notes receivable sold | $ | 504,883 | $ | 538,963 | ||||
(in thousands) | Apr 2003 | Nov 2003 | Jun 2004 | Mar 2005 | Dec 2005 | Jul 2006 | ||||||||||||||||||
Loans sold initially | $ | 15,825 | $ | 23,526 | $ | 24,832 | $ | 40,993 | $ | 64,111 | $ | 65,433 | ||||||||||||
Asset-back securities | 13,350 | 18,500 | 20,000 | 32,000 | 51,500 | 52,346 | ||||||||||||||||||
Securities retained at June 30, 2008: | ||||||||||||||||||||||||
Interest-only strip receivables | $ | 47 | $ | 93 | $ | 258 | $ | 1,758 | $ | 2,556 | $ | 2,774 | ||||||||||||
Over-collateralization interests | 164 | 1,007 | (862 | ) | (2,761 | ) | 2,384 | 426 | ||||||||||||||||
Cash Reserves | 125 | 125 | 125 | 125 | 175 | 175 | ||||||||||||||||||
Total | $ | 336 | $ | 1,225 | $ | (479 | ) | $ | (878 | ) | $ | 5,115 | $ | 3,375 | ||||||||||
Securities retained at December 31, 2007 | $ | 1,054 | $ | 1,263 | $ | 2,837 | $ | 5,902 | $ | 9,285 | $ | 13,977 | ||||||||||||
Service income, period ended: | ||||||||||||||||||||||||
June 30, 2008 | — | 1 | 1 | 7 | 10 | 13 | ||||||||||||||||||
June 30, 2007 | 2 | 2 | 3 | 15 | 24 | 31 |
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Six Months Ended June 30, | ||||||||
(in thousands) | 2008 | 2007 | ||||||
Proceeds from new loan sales to qualifying special purpose entities* | $ | 5,826 | $ | 105,822 | ||||
Proceeds reinvested in qualifying special purpose entities(retained equity interest)** | 1,469 | 21,941 | ||||||
Servicing fees received | 154 | 41 | ||||||
Other cash flows received on retained interests*** | 3,925 | 3,919 | ||||||
Proceeds from collections reinvested in (revolving-period) securitizations | — | — |
* | This amount represents total loans sold by the Company to qualifying special purpose entities in connection with off-balance sheet securitizations and credit facilities. | |
** | This amount represents the Company’s retained equity interest in the securitization or credit facility qualifying special purpose entities. | |
*** | This amount represents total cash flows received from retained interests by the Company other than servicing fees. Other cash flows include cash flows from interest-only strip receivables and cash above the minimum required level in cash collateral accounts. |
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June 30, 2008 | December 31, 2007 | |||||||||||||||
Servicing | Servicing | Servicing | Servicing | |||||||||||||
(in thousands) | Asset | Liability | Asset | Liability | ||||||||||||
Carrying amount, beginning of year | $ | 6,025 | $ | 16 | $ | 4,512 | $ | 24 | ||||||||
Additions: | ||||||||||||||||
Servicing obligations that result from transfer of financial assets | 427 | — | 3,546 | — | ||||||||||||
Subtractions: | ||||||||||||||||
Disposals | (509 | ) | — | (703 | ) | — | ||||||||||
Accumulated amortization | (717 | ) | (4 | ) | (1,330 | ) | (8 | ) | ||||||||
Carrying amount, end of period | $ | 5,226 | $ | 12 | $ | 6,025 | $ | 16 | ||||||||
Fair value as of: Beginning of year | $ | 6,870 | $ | 16 | $ | 5,176 | $ | 24 | ||||||||
End of period | 7,771 | 14 | 6,870 | 16 |
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Table of Contents
Business Loans | ||||
(Fixed & Adjustable Rate Stratum)* | ||||
Prepayment speed | 12.00 | % | ||
Weighted average life(months) | 120 | |||
Expected credit losses | 0.50 | % | ||
Discount rate | 11.00 | % |
* | During the fourth quarter of 2007, the prepayment speed assumption was changed from 10.00% to 12.00%. |
Business Loans | ||||
(in thousands except percentages) | (Fixed & Adjustable Rate Stratum) | |||
Prepayment speed (annual rate)** | 12.00 | % | ||
Impact on fair value of 10% adverse change | $ | (2,034 | ) | |
Impact on fair value of 20% adverse change | $ | (3,210 | ) | |
Expected credit losses (annual rate) | 0.50 | % | ||
Impact on fair value of 10% adverse change | $ | (1,678 | ) | |
Impact on fair value of 20% adverse change | $ | (2,030 | ) | |
Discount rate (annual)* | 11.00 | % | ||
Impact on fair value of 10% adverse change | $ | (2,194 | ) | |
Impact on fair value of 20% adverse change | $ | (3,125 | ) |
* | During the fourth quarter of 2007, the prepayment speed assumption was changed from 10.00% to 12.00%. |
Fixed & | ||||||||
Adjustable Rate Stratum | ||||||||
10% | 20% | |||||||
Prepayment | Prepayment | |||||||
(in thousands) | Increase | Increase | ||||||
Estimated cash flows from loan servicing fees | $ | 7,984 | $ | 7,769 | ||||
Servicing expense | (1,414 | ) | (1,359 | ) | ||||
Discount of estimated cash flows at 11.00% rate | (1,437 | ) | (1,375 | ) | ||||
Carrying value of servicing asset after effect of increases | 5,133 | 5,035 | ||||||
Carrying value of servicing asset before effect of increases | 5,226 | 5,226 | ||||||
Decrease of carrying value due to increase in prepayments | $ | (93 | ) | $ | (191 | ) | ||
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Table of Contents
Fixed & | ||||||||
Adjustable Rate Stratum | ||||||||
10% | 20% | |||||||
Prepayment | Prepayment | |||||||
(in thousands) | Increase | Increase | ||||||
Estimated cash flows from interest income | $ | 47,430 | $ | 45,357 | ||||
Estimated credit losses | (4,908 | ) | (4,673 | ) | ||||
Discount of estimated cash flows at 11.00% rate | (10,772 | ) | (10,012 | ) | ||||
Carrying value of retained interests after effect of increases | 31,750 | 30,672 | ||||||
Carrying value of retained interests before effect of increases | 33,691 | 33,691 | ||||||
Decrease of carrying value due to increase in prepayments | $ | (1,941 | ) | $ | (3,019 | ) | ||
Fixed & | ||||||||
Adjustable Rate Stratum | ||||||||
10% | 20% | |||||||
Credit Loss | Credit Loss | |||||||
(in thousands) | Increase | Increase | ||||||
Estimated cash flows from interest income | $ | 49,661 | $ | 49,661 | ||||
Estimated credit losses | (5,675 | ) | (6,183 | ) | ||||
Discount of estimated cash flows at 11.00% rate | (11,973 | ) | (11,817 | ) | ||||
Carrying value of retained interests after effect of increases | 32,013 | 31,661 | ||||||
Carrying value of retained interests before effect of increases | 33,691 | 33,691 | ||||||
Decrease of carrying value due to increase in credit losses | $ | (1,678 | ) | $ | (2,030 | ) | ||
Fixed & | ||||||||
Adjustable Rate Stratum | ||||||||
10% | 20% | |||||||
Discount Rate | Discount Rate | |||||||
(in thousands) | Increase | Increase | ||||||
Estimated cash flows from loan servicing fees | $ | 8,212 | $ | 8,212 | ||||
Servicing expense | (1,451 | ) | (1,451 | ) | ||||
Discount of estimated cash flows | (1,729 | ) | (1,840 | ) | ||||
Carrying value of servicing asset after effect of increases | 5,032 | 4,921 | ||||||
Carrying value of servicing asset before effect of increases | 5,226 | 5,226 | ||||||
Decrease of carrying value due to increase in discount rate | $ | (194 | ) | $ | (305 | ) | ||
Fixed & | ||||||||
Adjustable Rate Stratum | ||||||||
10% | 20% | |||||||
Discount Rate | Discount Rate | |||||||
(in thousands) | Increase | Increase | ||||||
Estimated cash flows from interest income | $ | 49,661 | $ | 49,661 | ||||
Estimated credit losses | (5,154 | ) | (5,154 | ) | ||||
Discount of estimated cash flows | (12,816 | ) | (13,636 | ) | ||||
Carrying value of retained interests after effect of increases | 31,691 | 30,871 | ||||||
Carrying value of retained interests before effect of increases | 33,691 | 33,691 | ||||||
Decrease of carrying value due to increase in discount rate | $ | (2,000 | ) | $ | (2,820 | ) | ||
Recourse & Securitized | ||||||||||||
Loans Sold in | ||||||||||||
2008 | 2007* | 2006 | ||||||||||
Actual & Projected Credit Losses (%) at: | ||||||||||||
June 30, 2008 | 0.00 | % | 0.00 | % | 1.52 | % | ||||||
December 31, 2007 | 0.00 | 1.41 | ||||||||||
December 31, 2006 | 1.95 |
* | There were no loans sold in securitizations in 2007 and 2008 to date. |
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Table of Contents
Total Principal Amount of | Principal Amounts 60 or | Net Credit | ||||||||||||||||||||||
Loans | More Days Past Due* | Losses** | ||||||||||||||||||||||
June 30, | December 31, | June 30, | December 31, | June 30 | June 30, | |||||||||||||||||||
(in thousands) | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||||||||||||||||||
Loan portfolio consists of: | ||||||||||||||||||||||||
Loans on balance sheet**** | $ | 156,396 | $ | 144,131 | $ | 24,113 | $ | 13,319 | $ | 91 | $ | 151 | ||||||||||||
Loans on balance sheet held in bankruptcy-remote warehouses | 57,011 | 20,207 | — | — | — | — | ||||||||||||||||||
Off-balance sheet warehouse facility***** | 174,966 | 181,093 | — | — | — | — | ||||||||||||||||||
Loans participated*** | 211,390 | 229,159 | 13,673 | 7,343 | 318 | — | ||||||||||||||||||
Loans securitized | 118,527 | 128,711 | 1,852 | 1,898 | 1,096 | 668 | ||||||||||||||||||
Total loans managed | $ | 718,290 | $ | 703,301 | $ | 39,638 | $ | 22,560 | $ | 1,505 | $ | 819 | ||||||||||||
* | Loans 60 days or more past due are based on end of period loan balances. | |
** | Net credit losses are based on total loans outstanding. The net credit losses are net of recoveries, including recoveries from the proceeds of financial guaranty policies. | |
*** | Loans participated represents true sale loan participations sold. | |
**** | Loans on balance sheet exclude reserve for credit loss of $17,506,000 and $1,655,000 at June 30, 2008 and December 31, 2007. | |
***** | Net credit losses for loans in the off-balance sheet warehouse facility are accounted for through the valuation of the retained securities. |
June 30, | December 31, | |||||||
(in thousands) | 2008 | 2007 | ||||||
Furniture and equipment | $ | 6,336 | $ | 6,893 | ||||
Computer equipment | 4,909 | 5,310 | ||||||
Automobiles and airplanes | 2,037 | 1,999 | ||||||
Building and leasehold improvements | 8,520 | 8,465 | ||||||
Land | 1,088 | 1,088 | ||||||
22,890 | 23,755 | |||||||
Less: Accumulated depreciation | (7,375 | ) | (7,008 | ) | ||||
Property and equipment, net | $ | 15,515 | $ | 16,747 | ||||
Depreciation expense | $ | 1,166 | $ | 1,806 | ||||
June 30, | December 31, | |||||||
(in thousands) | 2008 | 2007 | ||||||
Seller notes payable. These notes are payable to the seller of businesses that the Company has purchased and are collateralized by assets of the businesses purchased. Some of these notes have an interest rate of 0% and have been discounted at a rate of 5.50% to 9.75%. Interest rates on these notes range from 4.00% to 7.00% and maturities range from July 2008 to September 2015. | $ | 16,573 | $ | 19,581 | ||||
Valley View Bank line of credit. Maximum line of credit available of $4,000,000. Collateralized by notes receivable. Line of credit due was extended to August 2008. Interest rate is variable and was 7.25% at June 30, 2008, with interest and principal due monthly. | 3,989 | 3,989 | ||||||
Fifth Third Bank, Canadian Branch line of credit.New amounts available under the line were eliminated in the second quarter (Canadian dollars) | 4,822 | 8,967 | ||||||
Bank of Kansas City line of credit.Maximum line of credit available of $1,750,000. Collateralized by notes receivable. Line of credit due February, 2009. Interest rate is variable and was 5.25% at June 30, 2008. | 2,453 | — |
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Table of Contents
June 30, | December 31, | |||||||
(in thousands) | 2008 | 2007 | ||||||
Home Federal Savings and Loan Association of Nebraska, line of credit.Maximum line of credit available of $7,500,000. Collateralized by cash flows of securities and other assets. Line of credit was paid off in March 2008. | — | 6,353 | ||||||
DZ BANK AG Deutsche Zentral-Genossenschaftsbank line of credit. New amounts available under the line were eliminated in the second quarter. Collateralized by new notes receivable. Line of credit due August 2009. Interest rate is variable and was at 4.25% at June 30, 2008, with interest due monthly. | 37,758 | 14,023 | ||||||
Columbian Bank and Trust Company,due July 2008. Interest rate is variable and was 5.00% at June 30, 2008. Interest and principal are due in one payment at maturity. Collateralized by accounts receivable. Columbian has agreed in principle to extend the maturity of this line of credit to January 2009. | 7,500 | — | ||||||
Citizens Bank and Trust Company,due August 2008. Interest rate is variable at Prime plus 3.00%, due quarterly with principal due at maturity. Interest rate was 8.00% at June 30, 2008. The Company pledged stock it owned in Aleritas and Brooke Capital Corporation. | 8,750 | 9,000 | ||||||
Participating Lenders, due December 2011. Interest rate is variable and was 9.50% at June 30, 2008. Principal payments are scheduled during the note’s term with unpaid balance due at maturity. Collateralized by stock in subsidiary and other assets. | 12,137 | 12,382 | ||||||
Bank Midwest, due February 2009. Interest rate is variable at Prime and was 5.00% at June 30, 2008. Interest due quarterly and principal due at maturity. Collateralized by stock in Generations Bank. | 5,000 | — | ||||||
Company debt with banks. These notes are payable to banks and collateralized by various assets of the Company. Interest rates on these notes range from 5.00% to 10.50%. Maturities range from July 2008 to September 2021. | 37,435 | 39,711 | ||||||
First State Bank secured term loan.Collateralized by substantially all of the Company’s assets. Minimum monthly payments of $875,000, with a final maturity in February 2013. Interest rate is variable and was 7.25% at June 30, 2008. | 46,213 | — | ||||||
Falcon Mezz. Partners II, LP, FMP II Co.-Investment, LLC and JZ Equity Partners PLC note payable.This $45,000,000 note had an associated discount of $2,499,000. Was collateralized by assets of the Company. Interest rate was fixed at 12.00%, with interest due quarterly. Repurchased in March 2008. | — | 42,572 | ||||||
Total bank loans and notes payable | 182,630 | 156,578 | ||||||
Capital lease obligation (See Note 5) | 390 | 435 | ||||||
Total bank loans, notes payable and other long-term obligations | 183,020 | 157,013 | ||||||
Less: Current maturities and short-term debt | (125,121 | ) | (96,001 | ) | ||||
Total long-term debt | $ | 57,899 | $ | 61,012 | ||||
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Table of Contents
Twelve Months Ended June 30 | Bank Loans & | Capital | ||||||||||
(in thousands) | Notes Payable | Lease | Total | |||||||||
2009 | $ | 125,121 | $ | 90 | $ | 125,211 | ||||||
2010 | 14,434 | 95 | 14,529 | |||||||||
2011 | 13,498 | 100 | 13,598 | |||||||||
2012 | 18,109 | 105 | 18,214 | |||||||||
2013 | 8,728 | — | 8,728 | |||||||||
Thereafter | 2,740 | — | 2,740 | |||||||||
$ | 182,630 | $ | 390 | $ | 183,020 | |||||||
Capital | Operating | |||||||||||
Twelve Months Ended June 30 | Real | Real | ||||||||||
(in thousands) | Estate | Estate | Total | |||||||||
2009 | $ | 118 | $ | 8,729 | $ | 8,847 | ||||||
2010 | 117 | 5,810 | 5,927 | |||||||||
2011 | 114 | 2,563 | 2,677 | |||||||||
2012 | 111 | 798 | 909 | |||||||||
2013 | — | 279 | 279 | |||||||||
2014 and thereafter | — | 204 | 204 | |||||||||
Total minimum lease payments | 460 | $ | 18,383 | $ | 18,843 | |||||||
Less amount representing interest | (70 | ) | ||||||||||
December 31, | ||||||||
2007 | ||||||||
Total obligations under capital leases | $ | 390 | $ | 435 | ||||
Less current maturities of obligations under capital leases | (90 | ) | (90 | ) | ||||
Obligations under capital leases payable after one year | $ | 300 | $ | 345 | ||||
June 30, | June 30, | |||||||
(in thousands) | 2008 | 2007 | ||||||
Current | $ | (894 | ) | $ | 1,321 | |||
Deferred | (25,247 | ) | 4,667 | |||||
$ | (26,141 | ) | $ | 5,988 | ||||
June 30, | June 30, | |||||||
2008 | 2007 | |||||||
U.S. federal statutory tax rate | (35 | )% | 35 | % | ||||
State statutory tax rate | (4 | )% | 4 | % | ||||
Miscellaneous* | 1 | % | (2 | )% | ||||
Effective tax rate | (38 | )% | 37 | % | ||||
* | The miscellaneous adjustment above includes the taxes of Brooke Capital Corporation which files a separate tax return. |
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Table of Contents
June 30, | December 31, | |||||||
(in thousands) | 2008 | 2007 | ||||||
Income tax receivable—Beginning balance, January 1 | $ | 1,998 | $ | 480 | ||||
Income tax payments over (under) current tax liability | (1,104 | ) | 1,518 | |||||
Income tax receivable—Ending balance | $ | 894 | $ | 1,998 | ||||
June 30, | December 31, | |||||||
(in thousands) | 2008 | 2007 | ||||||
Deferred tax asset—Beginning balance, January 1 | $ | — | $ | — | ||||
Deferred tax asset over receivable | 23,776 | — | ||||||
Deferred tax asset—Ending balance | $ | 23,776 | $ | — | ||||
June 30, | December 31, | |||||||
(in thousands) | 2008 | 2007 | ||||||
Deferred income tax liability—Beginning balance, January 1 | $ | 8,117 | $ | 7,594 | ||||
Accumulated other comprehensive income, unrealized gain (loss) on interest-only strip receivables | (5,318 | ) | 2,071 | |||||
Accumulated other comprehensive income, currency exchange | — | — | ||||||
Gain on sale of notes receivable | (938 | ) | (1,548 | ) | ||||
Ending Balance | $ | 1,801 | $ | 8,117 | ||||
June 30, | December 31, | |||||||
(in thousands) | 2008 | 2007 | ||||||
Deferred income tax liability—Current | $ | 1,801 | $ | 1,715 | ||||
Deferred income tax liability—Long-term | — | 6,402 | ||||||
Deferred income tax liability—Total | $ | 1,801 | $ | 8,117 | ||||
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Table of Contents
Insurance | Lending | Elimination of | ||||||||||||||||||||||||||||||
For the three months ended June 30, 2008 | Services | Brokerage | Services | Banking | Intersegment | Continuing | Discontinued | |||||||||||||||||||||||||
(in thousands) | Business | Business | Business | Services | Corporate | Activity | Operations | Operation | ||||||||||||||||||||||||
Insurance commissions | $ | 27,205 | $ | 762 | $ | — | $ | — | $ | — | $ | — | $ | 27,967 | — | |||||||||||||||||
Policy fee income | — | 131 | — | — | — | — | 131 | — | ||||||||||||||||||||||||
Insurance premiums earned | 2,544 | — | — | — | 157 | (157 | ) | 2,544 | 898 | |||||||||||||||||||||||
Interest income | 173 | 3 | 5,527 | 1,377 | 100 | 83 | 7,263 | 408 | ||||||||||||||||||||||||
Gain (loss) on sale of notes receivable | — | — | (1,756 | ) | — | — | 28 | (1,728 | ) | — | ||||||||||||||||||||||
Consulting fees | 3 | — | — | — | — | — | 3 | — | ||||||||||||||||||||||||
Initial franchise fees for basic services | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Initial franchise fees for buyers assistance plans | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Gain (loss) on sale of businesses | (3,631 | ) | — | — | — | — | — | (3,631 | ) | — | ||||||||||||||||||||||
Impairment loss | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Loss on sale of assets | (1,323 | ) | — | — | — | — | — | (1,323 | ) | — | ||||||||||||||||||||||
Other income | 3,795 | 11 | 93 | 268 | 41 | (3,613 | ) | 595 | 61 | |||||||||||||||||||||||
Total Operating Revenues | 28,766 | 907 | 3,864 | 1,645 | 298 | (3,659 | ) | 31,821 | 1,367 | |||||||||||||||||||||||
Interest expense | 645 | 23 | 1,567 | 127 | 706 | 84 | 3,152 | — | ||||||||||||||||||||||||
Commissions expense | 22,071 | 316 | — | 79 | — | — | 22,466 | 49 | ||||||||||||||||||||||||
Payroll expense | 6,720 | 400 | (818 | ) | 277 | 866 | — | 7,445 | 134 |
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Table of Contents
Insurance | Lending | Elimination of | ||||||||||||||||||||||||||||||
For the three months ended June 30, 2008 | Services | Brokerage | Services | Banking | Intersegment | Continuing | Discontinued | |||||||||||||||||||||||||
(in thousands) | Business | Business | Business | Services | Corporate | Activity | Operations | Operation | ||||||||||||||||||||||||
Insurance loss and loss expense incurred | 1,111 | — | — | — | — | — | 1,111 | — | ||||||||||||||||||||||||
Depreciation and amortization | 716 | 110 | 353 | 113 | 36 | — | 1,328 | 195 | ||||||||||||||||||||||||
Provision for losses | 8,076 | — | 2,358 | 100 | — | — | 10,534 | — | ||||||||||||||||||||||||
Other operating expenses | 13,442 | 174 | (1,434 | ) | 1,257 | 802 | (3,770 | ) | 10,471 | 933 | ||||||||||||||||||||||
Loss on extinguishment of debt | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Minority interest in subsidiary | (5,615 | ) | — | 442 | — | — | — | (5,173 | ) | — | ||||||||||||||||||||||
Income (loss) from Continuing Operations Before Income Taxes | (18,400 | ) | (116 | ) | 1,396 | (308 | ) | (2,112 | ) | 27 | (19,513 | ) | 56 | |||||||||||||||||||
Segment assets | 84,490 | 12,329 | 292,719 | 130,153 | 90,257 | (132,093 | ) | 477,855 | 35,000 | |||||||||||||||||||||||
Expenditures for segment assets | 581 | — | — | — | — | — | 581 | — |
Franchise | Lending | Elimination of | ||||||||||||||||||||||||||||||
For the three months ended June 30, 2007 | Services | Brokerage | Services | Financial | Intersegment | Continuing | Discontinued | |||||||||||||||||||||||||
(in thousands) | Business | Business | Business | Services | Corporate | Activity | Operations | Operation | ||||||||||||||||||||||||
Insurance commissions | $ | 27,615 | $ | 711 | $ | — | $ | — | $ | — | $ | — | $ | 28,326 | — | |||||||||||||||||
Policy fee income | — | 153 | — | — | — | — | 153 | — | ||||||||||||||||||||||||
Insurance premiums earned | — | 3,156 | — | — | 283 | (248 | ) | 3,191 | 849 | |||||||||||||||||||||||
Interest income | 95 | 122 | 5,371 | 671 | 166 | (234 | ) | 6,191 | 352 | |||||||||||||||||||||||
Gain on sale of notes receivable | — | — | 4,282 | — | — | 2 | 4,284 | — | ||||||||||||||||||||||||
Consulting fees | 1,113 | — | — | 3,990 | — | (688 | ) | 4,415 | — | |||||||||||||||||||||||
Initial franchise fees for basic services | 7,095 | — | — | — | — | — | 7,095 | — | ||||||||||||||||||||||||
Initial franchise fees for buyers assistance plans | 70 | — | — | — | — | — | 70 | — | ||||||||||||||||||||||||
Gain on sale of businesses | 1,161 | — | — | — | — | — | 1,161 | — | ||||||||||||||||||||||||
Loss on sale of assets | — | — | — | — | (15 | ) | — | (15 | ) | — | ||||||||||||||||||||||
Other income | 696 | (18 | ) | 181 | 26 | 98 | (700 | ) | 283 | 60 | ||||||||||||||||||||||
Total Operating Revenues | 37,845 | 4,124 | 9,834 | 4,687 | 532 | (1,868 | ) | 55,154 | 1,261 | |||||||||||||||||||||||
Interest expense | 705 | 47 | 1,838 | — | 741 | (233 | ) | 3,098 | — | |||||||||||||||||||||||
Commissions expense | 22,126 | 134 | — | — | — | — | 22,260 | 50 | ||||||||||||||||||||||||
Payroll expense | 5,423 | 1,134 | 611 | 977 | 686 | — | 8,831 | 116 | ||||||||||||||||||||||||
Insurance loss and loss expense incurred | — | 2,002 | — | — | 225 | — | 2,227 | — | ||||||||||||||||||||||||
Depreciation and amortization | 30 | 127 | 283 | 14 | 353 | 2 | 809 | 212 | ||||||||||||||||||||||||
Provision for losses | 1,337 | — | 148 | — | — | — | 1,485 | — | ||||||||||||||||||||||||
Other operating expenses | 8,950 | 981 | 1,280 | 1,206 | 613 | (1,636 | ) | 11,394 | 667 | |||||||||||||||||||||||
Minority interest in subsidiary | — | — | — | 760 | — | — | 760 | — | ||||||||||||||||||||||||
Income (loss) from Continuing Operations Before Income Taxes | (726 | ) | (301 | ) | 5,674 | 1,730 | (2,086 | ) | (1 | ) | 4,290 | 216 | ||||||||||||||||||||
Segment assets | 81,945 | 43,305 | 217,265 | 52,830 | 118,138 | (176,669 | ) | 336,814 | 31,000 | |||||||||||||||||||||||
Expenditures for segment assets | — | — | 19,140 | (2,624 | ) | 780 | — | 17,296 | — |
Insurance | Lending | Elimination of | ||||||||||||||||||||||||||||||
For the six months ended June 30, 2008 | Services | Brokerage | Services | Banking | Intersegment | Continuing | Discontinued | |||||||||||||||||||||||||
(in thousands) | Business | Business | Business | Services | Corporate | Activity | Operations | Operation | ||||||||||||||||||||||||
Insurance commissions | $ | 60,823 | $ | 1,457 | $ | — | $ | — | $ | — | $ | — | $ | 62,280 | — | |||||||||||||||||
Policy fee income | — | 245 | — | — | — | — | 245 | — | ||||||||||||||||||||||||
Insurance premiums earned | 5,177 | — | — | — | 418 | (383 | ) | 5,212 | 2,000 | |||||||||||||||||||||||
Interest income | 292 | 5 | 12,165 | 2,659 | 351 | (73 | ) | 15,399 | 805 | |||||||||||||||||||||||
Gain (loss) on sale of notes receivable | — | — | (1,657 | ) | — | — | 28 | (1,629 | ) | — | ||||||||||||||||||||||
Consulting fees | 256 | — | — | — | — | — | 256 | — | ||||||||||||||||||||||||
Initial franchise fees for basic services | 1,320 | — | — | — | — | — | 1,320 | — | ||||||||||||||||||||||||
Initial franchise fees for buyers assistance plans | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Gain (loss) on sale of businesses | (4,477 | ) | — | — | — | — | — | (4,477 | ) | — |
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Table of Contents
Insurance | Lending | Elimination of | ||||||||||||||||||||||||||||||
For the six months ended June 30, 2008 | Services | Brokerage | Services | Banking | Intersegment | Continuing | Discontinued | |||||||||||||||||||||||||
(in thousands) | Business | Business | Business | Services | Corporate | Activity | Operations | Operation | ||||||||||||||||||||||||
Impairment loss | — | — | (11,763 | ) | — | — | — | (11,763 | ) | — | ||||||||||||||||||||||
Loss on sale of assets | (1,323 | ) | — | — | — | — | — | (1,323 | ) | — | ||||||||||||||||||||||
Other income | 9,716 | 10 | 240 | 301 | 93 | (9,385 | ) | 975 | 121 | |||||||||||||||||||||||
Total Operating Revenues | 71,784 | 1,717 | (1,015 | ) | 2,960 | 862 | (9,813 | ) | 66,495 | 2,926 | ||||||||||||||||||||||
Interest expense | 1,646 | 49 | 3,899 | 127 | 1,337 | (74 | ) | 6,984 | — | |||||||||||||||||||||||
Commissions expense | 46,981 | 579 | — | 145 | — | — | 47,705 | 104 | ||||||||||||||||||||||||
Payroll expense | 13,516 | 820 | 705 | 464 | 1,396 | — | 16,901 | 312 | ||||||||||||||||||||||||
Insurance loss and loss expense incurred | 1,790 | — | — | — | 403 | — | 2,193 | — | ||||||||||||||||||||||||
Depreciation and amortization | 1,459 | 226 | 763 | 193 | 71 | — | 2,712 | 385 | ||||||||||||||||||||||||
Provision for loan losses | 8,428 | — | 14,896 | 100 | — | — | 23,424 | — | ||||||||||||||||||||||||
Other operating expenses | 26,166 | 317 | 6,784 | 2,441 | 2,014 | (9,765 | ) | 27,957 | 2,046 | |||||||||||||||||||||||
Loss on extinguishment of debt | — | — | 8,210 | — | — | — | 8,210 | — | ||||||||||||||||||||||||
Minority interest in subsidiary | (6,163 | ) | — | (8,591 | ) | — | — | — | (14,754 | ) | — | |||||||||||||||||||||
Income (loss) from Continuing Operations Before Income Taxes | (22,039 | ) | (274 | ) | (27,681 | ) | (510 | ) | (4,359 | ) | 26 | (54,837 | ) | 79 | ||||||||||||||||||
Segment assets | 84,490 | 12,329 | 292,719 | 130,153 | 90,257 | (132,093 | ) | 477,855 | 35,000 | |||||||||||||||||||||||
Expenditures for segment assets | 1,048 | — | 324 | 108 | — | — | 1,480 | 13 |
Franchise | Lending | Elimination of | ||||||||||||||||||||||||||||||
For the six months ended June 30, 2007 | Services | Brokerage | Services | Financial | Intersegment | Consolidated | Discontinued | |||||||||||||||||||||||||
(in thousands) | Business | Business | Business | Services | Corporate | Activity | Totals | Operation | ||||||||||||||||||||||||
Insurance commissions | $ | 59,623 | $ | 1,439 | $ | — | $ | — | $ | — | $ | — | $ | 61,062 | — | |||||||||||||||||
Policy fee income | — | 256 | — | — | — | — | 256 | — | ||||||||||||||||||||||||
Insurance premiums earned | — | 3,156 | — | — | 549 | (439 | ) | 3,266 | 1,922 | |||||||||||||||||||||||
Interest income | 173 | 132 | 12,798 | 1,270 | 361 | (490 | ) | 14,244 | 667 | |||||||||||||||||||||||
Gain on sale of notes receivable | — | — | 11,203 | — | — | 3 | 11,206 | — | ||||||||||||||||||||||||
Consulting fees | 1,427 | — | — | 4,245 | — | (942 | ) | 4,730 | — | |||||||||||||||||||||||
Initial franchise fees for basic services | 19,965 | — | — | — | — | — | 19,965 | — | ||||||||||||||||||||||||
Initial franchise fees for buyers assistance plans | 455 | — | — | — | — | — | 455 | — | ||||||||||||||||||||||||
Gain on sale of businesses | 1,842 | — | — | — | — | — | 1,842 | — | ||||||||||||||||||||||||
Loss on sale of assets | — | — | — | (16 | ) | (15 | ) | — | (31 | ) | — | |||||||||||||||||||||
Other income | 1,335 | (18 | ) | 349 | 49 | 175 | (1,360 | ) | 530 | 124 | ||||||||||||||||||||||
Total Operating Revenues | 84,820 | 4,965 | 24,350 | 5,548 | 1,070 | (3,228 | ) | 117,525 | 2,713 | |||||||||||||||||||||||
Interest expense | 1,258 | 83 | 5,174 | — | 1,397 | (489 | ) | 7,423 | — | |||||||||||||||||||||||
Commissions expense | 44,967 | 411 | — | — | — | — | 45,378 | 109 | ||||||||||||||||||||||||
Payroll expense | 10,985 | 1,643 | 1,125 | 1,330 | 1,514 | — | 16,597 | 240 | ||||||||||||||||||||||||
Insurance loss and loss expense incurred | — | 2,003 | — | — | 551 | — | 2,554 | — | ||||||||||||||||||||||||
Depreciation and amortization | 46 | 226 | 575 | 32 | 733 | 4 | 1,616 | 394 | ||||||||||||||||||||||||
Provision for losses | 4,383 | — | 819 | — | — | — | 5,202 | — | ||||||||||||||||||||||||
Other operating expenses | 19,394 | 1,172 | 3,034 | 1,634 | 260 | (2,743 | ) | 22,751 | 1,747 | |||||||||||||||||||||||
Minority interest in subsidiary | — | — | — | 724 | — | — | 724 | — | ||||||||||||||||||||||||
Income (loss) from Continuing Operations Before Income Taxes | 3,787 | (573 | ) | 13,623 | 1,828 | (3,385 | ) | — | 15,280 | 223 | ||||||||||||||||||||||
Segment assets | 81,945 | 43,305 | 217,265 | 52,830 | 118,138 | (176,669 | ) | 336,814 | 31,000 | |||||||||||||||||||||||
Expenditures for segment assets | 482 | — | 41,083 | 7,911 | 2,525 | — | 52,001 | 2 |
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At January 8, 2007 | ||||
Investment securities | $ | 30,383 | ||
Loans, net | 19,644 | |||
Cash and other assets | 1,176 | |||
Total assets | 51,203 | |||
Deposits | 41,493 | |||
Other borrowings | 1,289 | |||
Other liabilities | 221 | |||
Total liabilities | 43,003 | |||
Net assets acquired | $ | 8,200 | ||
Purchase premium recorded | 2,077 | |||
Initial capitalization of the Bank | $ | 10,277 | ||
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2001 Plan | 2006 Plan | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Expected term (in years) | 3.3 | 4.8 | 4.7 | 5.7 | ||||||||||||
Expected stock volatility | 10 | % | 10 | % | 10 | % | 10 | % | ||||||||
Risk-free interest rate | 5 | % | 5 | % | 5 | % | 5 | % | ||||||||
Dividend | 1 | % | 1 | % | 1 | % | 1 | % | ||||||||
Fair value per share | $ | 0.17 | $ | 0.18 | $ | 1.09 | $ | 1.37 |
2001 Plan | 2006 Plan | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Shares | Average | Shares | Average | |||||||||||||
Under | Exercise | Under | Exercise | |||||||||||||
Option | Price | Option | Price | |||||||||||||
Outstanding December 31, 2006 | 228,650 | $ | 3.84 | — | $ | — | ||||||||||
Granted | — | — | 90,000 | 12.45 | ||||||||||||
Exercised | (158,660 | ) | 2.30 | — | — | |||||||||||
Terminated and expired | (10,200 | ) | 23.49 | (25,250 | ) | 12.31 | ||||||||||
Outstanding December 31, 2007 | 59,790 | 4.59 | 64,750 | 12.50 | ||||||||||||
Granted | — | — | — | — | ||||||||||||
Exercised | (— | ) | — | — | — | |||||||||||
Terminated and expired | (500 | ) | 23.49 | (2,100 | ) | 12.31 | ||||||||||
Outstanding June 30, 2008 | 59,290 | $ | 4.44 | 62,650 | $ | 12.51 |
Options Outstanding | Options Exercisable | |||||||||||||||||||
Remaining | Weighted | Weighted | ||||||||||||||||||
Range of | Number | Contractual | Average | Number | Average | |||||||||||||||
Exercisable Prices | Outstanding | Life in Years | Exercise Price | Exercisable | Exercise Price | |||||||||||||||
2001 Plan ($2.09 – $23.49) | 59,290 | 3.3 | $ | 4.44 | 52,290 | $ | 3.64 | |||||||||||||
2006 Plan ($12.31 – $13.54) | 62,650 | 4.7 | $ | 12.51 | 12,950 | $ | 12.50 |
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For the period | For the period | |||||||
Ended June 30, | Ended June 30, | |||||||
2008 | 2007 | |||||||
Supplemental disclosures: (in thousands) | ||||||||
Cash paid for interest | $ | 4,827 | $ | 2,829 | ||||
Cash paid for income tax | $ | — | $ | 3,346 | ||||
For the period | For the period | |||||||
Ended June 30, | Ended June 30, | |||||||
(in thousands) | 2008 | 2007 | ||||||
Purchase of business inventory | $ | — | $ | (18,439 | ) | |||
Sale of business inventory | 1,073 | 27,727 | ||||||
Net cash provided from sale of business inventory | 1,073 | 9,288 | ||||||
Cash provided by sellers of business inventory | — | (11,021 | ) | |||||
Write down to realizable value of inventory | 3,631 | 300 | ||||||
(Increase) decrease in inventory on balance sheet | $ | 4,704 | $ | (1,433 | ) | |||
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To be Well-Capitalized | ||||||||||||||||||||||||
For Capital | Under Prompt Corrective | |||||||||||||||||||||||
Actual | Adequacy Purposes | Action Provisions | ||||||||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
As of June 30, 2008: | ||||||||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 10,669 | 21.4 | % | $ | 3,985 | 8.0 | % | $ | 4,981 | 10.0 | % | ||||||||||||
Tier 1 capital (to adjusted tangible assets) | 10,383 | 8.2 | 5,078 | 4.0 | 6,347 | 5.0 | ||||||||||||||||||
Tangible capital (to tangible assets) | 10,383 | 8.2 | 2,539 | 2.0 | N/A | N/A | ||||||||||||||||||
Tier 1 capital (to risk-weighted assets) | 10,383 | 20.8 | 1,993 | 4.0 | 2,989 | 6.0 |
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June 30, 2008 | ||||||||||||
Tangible | Core | Total | ||||||||||
Capital | Capital | Capital | ||||||||||
GAAP capital | $ | 14,162 | $ | 14,162 | $ | 14,162 | ||||||
Plus: | ||||||||||||
Allowance for loan losses | — | — | 286 | |||||||||
Net unrealized loss on available-for-sale securities | 1,003 | 1,003 | 1,003 | |||||||||
Less: | ||||||||||||
Goodwill and core deposit intangible | (4,782 | ) | (4,782 | ) | (4,782 | ) | ||||||
Regulatory capital | $ | 10,383 | $ | 10,383 | 10,669 | |||||||
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Six Months Ended | ||||
June 30, | ||||
2008 | ||||
Gross translation adjustment | $ | (81 | ) | |
Deferred taxes on the above | 31 | |||
Net impact on accumulated other comprehensive income | $ | (50 | ) | |
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• | Level 1:Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. |
• | Level 2:Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data. |
• | Level 3:Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. |
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(unaudited) | (unaudited) | |||||||
June 30, 2008 | December 31, 2007 | |||||||
Cash | $ | 1,210 | $ | 459 | ||||
Investment securities available-for-sale | 18,675 | 18,867 | ||||||
Other current assets | 6,975 | 6,661 | ||||||
Total Current Assets | 26,860 | 25,987 | ||||||
Net Property and Equipment | 2,693 | 2,718 | ||||||
Deferred charges, net | 5,503 | 5,406 | ||||||
Total Assets | 35,056 | 34,111 | ||||||
Future annuity benefits | 19,565 | 18,735 | ||||||
Future policy benefits | 7,580 | 7,035 | ||||||
Other current liabilities | 931 | 873 | ||||||
Total Liabilities | 28,076 | 26,643 | ||||||
Net Assets | $ | 6,980 | $ | 7,468 | ||||
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2008 | 2008 | |||||||||||||||||||||||
Three Months | Three Months | % Increase | Six Months | Six Months | % Increase | |||||||||||||||||||
Ended | Ended | (decrease) | Ended | Ended | (decrease) | |||||||||||||||||||
June 30, 2008 | June 30, 2007 | over 2007 | June 30, 2008 | June 30, 2007 | over 2007 | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
REVENUES | ||||||||||||||||||||||||
Insurance premiums earned | $ | 898 | $ | 849 | 6 | % | $ | 2,000 | $ | 1,922 | 4 | % | ||||||||||||
Interest income | 408 | 352 | 16 | 805 | 667 | 21 | ||||||||||||||||||
Other income | 61 | 60 | 2 | 121 | 124 | (3 | ) | |||||||||||||||||
Total revenues | 1,367 | 1,261 | 8 | 2,926 | 2,713 | 8 | ||||||||||||||||||
EXPENSES | ||||||||||||||||||||||||
Commission expense | 49 | 50 | (2 | ) | 104 | 109 | (5 | ) | ||||||||||||||||
Payroll expense | 134 | 116 | 16 | 312 | 240 | 30 | ||||||||||||||||||
Depreciation and amortization | 195 | 212 | (8 | ) | 385 | 394 | (2 | ) | ||||||||||||||||
Other expenses | 933 | 667 | 40 | 2,046 | 1,747 | 17 | ||||||||||||||||||
Total expenses | 1,311 | 1,045 | 25 | 2,847 | 2,490 | 14 | ||||||||||||||||||
Income from discontinued operation | $ | 56 | 216 | (74 | ) | 79 | 223 | (65 | ) |
Six-Month Periods Ended | ||||||||
June 30, | ||||||||
2008 | 2007 | |||||||
Unrealized holding losses on available-for-sale securities: | ||||||||
Unrealized holding gains (losses) during the period | $ | (708 | ) | $ | (432 | ) | ||
Less: Reclassification adjustment for gains included in net income | 1 | — | ||||||
Tax benefit | 142 | 87 | ||||||
Other comprehensive income (loss) | $ | (567 | ) | $ | (345 | ) | ||
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June 30, 2008 | December 31, 2007 | |||||||
Deferred policy acquisition costs | $ | 11,017 | $ | 10,579 | ||||
Accumulated amortization | (5,514 | ) | (5,173 | ) | ||||
Net | $ | 5,503 | $ | 5,406 | ||||
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• | prevailing economic conditions, either nationally or locally in some or all areas in which we conduct business or conditions in the securities markets or the banking industry; | |
• | changes in interest rates, deposit flows, loan demand, real estate values and competition, which can materially affect, among other things, consumer banking revenues, origination levels in our lending businesses and the level of defaults, losses and prepayments on loans made by us, whether held in portfolio or sold in the secondary markets; | |
• | operational issues and/or capital spending necessitated by the potential need to adapt to industry changes in information technology systems, on which our banking segment is highly dependent; | |
• | changes in accounting principles, policies, and guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; risks and uncertainties related to mergers and related integration and restructuring activities; conditions in the securities markets or the banking industry; | |
• | our borrowers’ financial performance and their potential ability to repay amounts due to us; | |
• | inability to fund our loans through sales to third parties; | |
• | certain assumptions regarding the profitability of our securitizations, loan participations, warehouse lines of credit and other funding vehicles, which may not prove to be accurate; | |
• | the value of the collateral securing our loans; | |
• | potential litigation and regulatory proceedings regarding commissions, fees, contingency payments, profit sharing and other compensation paid to brokers or agents; | |
• | dependence on key personnel; and |
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• | the level of expenditures required to comply with the Sarbanes-Oxley Act and the potential material adverse effects of not complying with the Sarbanes-Oxley Act; |
• | potential inability to accurately report our financial results or prevent fraud if we fail to maintain an effective system of internal controls; |
• | potentially inadequate reserves for credit losses; |
• | the maturity of significant liabilities during future months and uncertainties in the current economic environment may adversely affect our ability to repay, renew or extend those liabilities; |
• | collateral values supporting loans to Brooke franchisees may deteriorate if Brooke Capital Corporation is not able to assist with management and liquidation of troubled insurance agencies; |
• | potential inability of DB Indemnity to pay claims made on financial guaranty policies issued to affiliates; |
• | failure to resolve potential breaches of our agreements and our affiliates agreements with Fifth Third Bank, First State Bank, DZ Bank and Textron; |
• | potentially increased expenses or restrictions in our operations resulting from competition in highly regulated industries; |
• | failure of pending transactions involving our subsidiaries to close or to close when expected; |
• | changes in economic, political and regulatory environments, governmental policies, laws and regulations, including changes in accounting policies and standards and taxation requirements (such as new tax laws and new or revised tax law interpretations) that could materially adversely affect our operations and financial condition; |
• | general credit market conditions and the share price of our publicly-traded subsidiaries, Aleritas Capital Corp. and Brooke Capital Corporation could make sales of our interests in those companies difficult or unacceptable, which would have a material and adverse affect on our ability to service our debt; and |
• | general credit market conditions could prevent us from extending the maturities of our short term debt, which extension may be required if we are unable to sell assets or interests in our publicly-traded subsidiaries. |
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2008 | 2008 | |||||||||||||||||||||||
Three months | Three months | % Increase | Six months | Six months | % Increase | |||||||||||||||||||
Ended | Ended | (decrease) | Ended | Ended | (decrease) | |||||||||||||||||||
June 30, 2008 | June 30, 2007 | over 2007 | June 30, 2008 | June 30, 2007 | over 2007 | |||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||
Insurance commissions | $ | 27,967 | $ | 28,326 | (1 | )% | $ | 62,280 | $ | 61,062 | 2 | % | ||||||||||||
Interest income (net) | 7,263 | 6,191 | 17 | 15,399 | 14,244 | 8 | ||||||||||||||||||
Consulting fees | 3 | 4,415 | (100 | ) | 256 | 4,730 | (95 | ) | ||||||||||||||||
Gain on sale of businesses | (3,631 | ) | 1,161 | (413 | ) | (4,477 | ) | 1,842 | (343 | ) | ||||||||||||||
Initial franchise fees for basic services | — | 7,095 | (100 | ) | 1,320 | 19,965 | (93 | ) | ||||||||||||||||
Initial franchise fees for buyers assistance plans | — | 70 | (100 | ) | — | 455 | (100 | ) | ||||||||||||||||
Gain on sale of notes receivable | (1,728 | ) | 4,284 | (140 | ) | (1,629 | ) | 11,206 | (115 | ) | ||||||||||||||
Insurance premiums earned | 2,544 | 3,191 | (20 | ) | 5,212 | 3,266 | 60 | |||||||||||||||||
Policy fee income | 131 | 153 | (14 | ) | 245 | 256 | — | |||||||||||||||||
Impairment loss | — | — | — | (11,763 | ) | — | — | |||||||||||||||||
Loss on sale of assets | (1,323 | ) | (15 | ) | 8,720 | (1,323 | ) | (31 | ) | 4,168 | ||||||||||||||
Other income | 595 | 283 | 110 | 975 | 530 | 84 | ||||||||||||||||||
Total operating revenues | 31,821 | 55,154 | (42 | ) | 66,495 | �� | 117,525 | (43 | ) | |||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
Commission expense | 22,466 | 22,260 | 1 | 47,705 | 45,378 | 5 | ||||||||||||||||||
Payroll expenses | 7,445 | 8,831 | (16 | ) | 16,901 | 16,597 | 2 | |||||||||||||||||
Depreciation and amortization expense | 1,328 | 809 | 64 | 2,712 | 1,616 | 68 | ||||||||||||||||||
Insurance loss and loss expense | 1,111 | 2,227 | (50 | ) | 2,193 | 2,554 | (14 | ) | ||||||||||||||||
Provision for losses | 10,534 | 1,485 | 609 | 23,424 | 5,202 | 351 |
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2008 | 2008 | ||||||||||||||||||||||||
Three months | Three months | % Increase | Six months | Six months | % Increase | ||||||||||||||||||||
Ended | Ended | (decrease) | Ended | Ended | (decrease) | ||||||||||||||||||||
June 30, 2008 | June 30, 2007 | over 2007 | June 30, 2008 | June 30, 2007 | over 2007 | ||||||||||||||||||||
Other operating expenses | 10,471 | 11,394 | (8 | ) | 27,957 | 22,751 | 23 | ||||||||||||||||||
Other operating interest expense | 652 | 368 | 77 | 1,413 | 2,033 | (30 | ) | ||||||||||||||||||
Total operating expenses | 54,007 | 47,374 | 14 | 122,305 | 96,131 | 27 | |||||||||||||||||||
Income (loss) from continuing operations | (22,186 | ) | 7,780 | (385 | ) | (55,810 | ) | 21,394 | (361 | ) | |||||||||||||||
Interest expense | 2,500 | 2,730 | (8 | ) | 5,571 | 5,390 | 3 | ||||||||||||||||||
Loss on extinguishment of debt | — | — | — | 8,210 | — | — | |||||||||||||||||||
Minority interest in subsidiary | (5,173 | ) | 760 | (781 | ) | (14,754 | ) | 724 | (2138 | ) | |||||||||||||||
Income (loss) from continuing operations before income taxes | (19,513 | ) | 4,290 | (555 | ) | (54,837 | ) | 15,280 | (459 | ) | |||||||||||||||
Income tax expenses | (9,374 | ) | 1,800 | (621 | ) | (26,141 | ) | 5,988 | (537 | ) | |||||||||||||||
Net income (loss) from continuing operations | $ | (10,139 | ) | $ | 2,490 | (507 | ) | $ | (28,696 | ) | $ | 9,292 | (409 | ) | |||||||||||
Net income from discontinued operation | 56 | 216 | (74 | )% | 79 | 223 | (65 | )% | |||||||||||||||||
Net income (loss) | $ | (10,083 | ) | 2,706 | (472 | ) | (28,617 | ) | 9,515 | (400 | ) | ||||||||||||||
Basic and Diluted net income (loss) per share from continuing operations | $ | (.76 | ) | $ | 0.13 | (685 | )% | $ | (2.12 | ) | $ | 0.62 | (442 | )% | |||||||||||
Basic and Diluted net income (loss) per share from discontinued operation | $ | .01 | $ | 0.02 | (50 | )% | $ | .01 | $ | 0..01 | — | % |
2008 | ||||||||||||
% Increase | ||||||||||||
As of | As of | (decrease) | ||||||||||
June 30, 2008 | December 31, 2007 | over 2007 | ||||||||||
Investments | $ | 86,609 | $ | 32,020 | 170 | % | ||||||
Customer receivable | 26,912 | 27,687 | (3 | ) | ||||||||
Notes receivable | 213,407 | 164,338 | 30 | |||||||||
Interest earned not collected on notes | 7,950 | 7,132 | 11 | |||||||||
Other receivables | 6,604 | 5,303 | 25 | |||||||||
Securities | 71,050 | 89,634 | (21 | ) | ||||||||
Deferred charges | 2,740 | 5,904 | (54 | ) | ||||||||
Accounts payable | 45,890 | 18,912 | 142 | |||||||||
Deposits | 109,234 | 22,951 | 376 | |||||||||
Payable under participation agreements | 60,301 | 39,452 | 53 | |||||||||
Premiums payable | 5,963 | 7,621 | (22 | ) | ||||||||
Debt | 183,020 | 157,013 | 17 | |||||||||
Minority interest in subsidiaries | 31,029 | 45,899 | (32 | ) | ||||||||
Net assets of discontinued operations | 6,980 | 7,468 | (7 | ) |
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2008 | 2008 | |||||||||||||||||||||||
Three months | Three months | % Increase | Six months | Six months | % Increase | |||||||||||||||||||
Ended | Ended | (decrease) | Ended | Ended | (decrease) | |||||||||||||||||||
June 30, 2008 | June 30, 2007 | Over 2007 | June 30, 2008 | June 30, 2007 | Over 2007 | |||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||
Interest Income | $ | 1,377 | $ | 590 | 133 | % | $ | 2,659 | $ | 1,181 | 125 | % | ||||||||||||
Other income | 268 | 25 | 972 | 301 | 38 | 692 | ||||||||||||||||||
Total operating revenues | 1,645 | 615 | 167 | 2,960 | 1,219 | 142 | ||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
Commission expense | 79 | — | 145 | — | ||||||||||||||||||||
Payroll expense | 277 | 213 | 30 | 464 | 342 | 35 | ||||||||||||||||||
Depreciation and amortization | 113 | 3 | 3657 | 193 | 5 | 3760 | ||||||||||||||||||
Other operating expenses | 1,357 | 395 | 243 | 2,541 | 716 | 255 | ||||||||||||||||||
Total operating expenses | 1,826 | 611 | 199 | 3,343 | 1,063 | 214 | ||||||||||||||||||
Income from operations | $ | (181 | ) | $ | 4 | (4625 | )% | $ | (383 | ) | $ | 156 | (345 | )% | ||||||||||
Interest expense | 127 | — | — | 127 | — | — | ||||||||||||||||||
Income (loss) before income taxes | (308 | ) | 4 | (7,800 | ) | (510 | ) | 156 | (427 | ) | ||||||||||||||
Total Assets (at period end) | $ | 130,153 | $ | 47,043 | 176 | $ | 130,153 | $ | 47,043 | 176 |
2008 | 2008 | |||||||||||||||||||||||
Three months | Three months | % Increase | Six months | Six months | % Increase | |||||||||||||||||||
Ended | Ended | (decrease) | Ended | Ended | (decrease) | |||||||||||||||||||
June 30, 2008 | June 30, 2007 | Over 2007 | June 30, 2008 | June 30, 2007 | Over 2007 | |||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||
Insurance commissions | $ | 762 | $ | 640 | 19 | % | $ | 1,457 | $ | 1,368 | 7 | % | ||||||||||||
Policy fee income | 131 | 154 | (15 | ) | 245 | 256 | (4 | ) | ||||||||||||||||
Interest income | 3 | 3 | — | 5 | 13 | (62 | ) | |||||||||||||||||
Other income | 11 | — | — | 10 | — | — | ||||||||||||||||||
Total operating revenues | 907 | 797 | 14 | 1,717 | 1,637 | 5 | ||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
Commission expense | 316 | 293 | 8 | 579 | 570 | 2 | ||||||||||||||||||
Payroll expense | 400 | 265 | 51 | 820 | 774 | 6 | ||||||||||||||||||
Depreciation and amortization | 110 | 102 | 8 | 226 | 201 | 12 | ||||||||||||||||||
Other operating expenses | 174 | 279 | (38 | ) | 317 | 470 | (33 | ) | ||||||||||||||||
Total operating expenses | 1,000 | 939 | 6 | 1,942 | 2,015 | (4 | ) | |||||||||||||||||
Income from operations | (93 | ) | (142 | ) | — | (225 | ) | (378 | ) | — | ||||||||||||||
Interest expense | 23 | 35 | (34 | ) | 49 | 71 | (31 | ) | ||||||||||||||||
Income before income taxes | $ | (116 | ) | (177 | ) | — | % | $ | (274 | ) | (449 | ) | — | % | ||||||||||
Total assets (at period end) | $ | 12,329 | $ | 9,044 | 36 | % | $ | 12,329 | $ | 9,044 | 36 | % |
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2008 | 2008 | |||||||||||||||||||||||
Three months | Three months | % Increase | Six months | Six months | % Increase | |||||||||||||||||||
Ended | Ended | (decrease) | Ended | Ended | (decrease) | |||||||||||||||||||
June 30, 2008 | June 30, 2007 | over 2007 | June 30, 2008 | June 30, 2007 | over 2007 | |||||||||||||||||||
REVENUES | ||||||||||||||||||||||||
Insurance commissions | $ | 27,205 | $ | 27,685 | (2 | )% | $ | 60,823 | $ | 59,694 | 2 | % | ||||||||||||
Consulting fees | 3 | 5,103 | (100 | ) | 256 | 5,672 | (43 | ) | ||||||||||||||||
Gain on sale of businesses | (3,631 | ) | 1,161 | (413 | ) | (4,477 | ) | 1,842 | (343 | ) | ||||||||||||||
Initial franchise fees for basic services | — | 7,095 | (100 | ) | 1,320 | 19,965 | (93 | ) | ||||||||||||||||
Initial franchise fees for buyers assistance plans | — | 70 | (100 | ) | — | 455 | (100 | ) | ||||||||||||||||
Insurance premiums earned | 2,544 | 3,156 | (19 | ) | 5,177 | 3,156 | 64 | |||||||||||||||||
Interest income | 173 | 296 | (42 | ) | 292 | 380 | (23 | ) | ||||||||||||||||
Loss on sale of assets | (1,323 | ) | — | — | (1,323 | ) | — | |||||||||||||||||
Other income | 3,795 | 635 | 498 | 9,716 | 1,313 | 640 | ||||||||||||||||||
Total operating revenues | 28,766 | 45,201 | (36 | ) | 71,784 | 92,477 | (22 | ) | ||||||||||||||||
EXPENSES | ||||||||||||||||||||||||
Commission expense | $ | 22,071 | $ | 21,967 | — | % | $ | 46,982 | $ | 44,808 | 5 | % | ||||||||||||
Payroll expense | 6,720 | 7,056 | (5 | ) | 13,516 | 12,842 | 5 | |||||||||||||||||
Depreciation and amortization | 716 | 22 | 3155 | 1,459 | 98 | 1389 | ||||||||||||||||||
Insurance loss and loss expense | 1,111 | 2,002 | (45 | ) | 1,790 | 2,002 | (11) | |||||||||||||||||
Provision for losses | 8,076 | 1,337 | 504 | 8,428 | 4,383 | 92 | ||||||||||||||||||
Other operating expenses | 13,442 | 10,443 | 29 | 26,166 | 21,013 | 25 | ||||||||||||||||||
Total operating expenses | 52,136 | 42,827 | 22 | 98,341 | 85,146 | 15 | ||||||||||||||||||
Income from operations | (23,370 | ) | 2,374 | (1084 | ) | (26,557 | ) | 7,331 | (462 | ) | ||||||||||||||
Interest expense | 645 | 629 | (3 | ) | 1,646 | 1,271 | 30 | |||||||||||||||||
Minority interest in subsidiary | (5,615 | ) | 760 | (839 | ) | (6,163 | ) | 724 | (951 | ) | ||||||||||||||
Income before income taxes | $ | (18,400 | ) | $ | 985 | (1968 | )% | $ | (22,039 | ) | $ | 5,336 | (513 | )% | ||||||||||
Total assets (at period end) | $ | 84,490 | $ | 139,465 | 39 | % | $ | 84,490 | $ | 139,465 | 39 | % |
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Recurring | ||||||||||||||||||||||||
Franchise | Expenses Incurred | Profit Sharing | Expenses | |||||||||||||||||||||
Royalties Collected | for Operation of | Service Center Fees | Expenses | Commissions | Incurred | |||||||||||||||||||
from Franchisees | Phillipsburg | Collected from | Incurred | Collected | for Mass Media | |||||||||||||||||||
for Support | Support Services | Franchisees for | for Operation of | from | & | |||||||||||||||||||
Services | Campus | Service Centers | Service Centers | Insurance Cos | Logo Advertising | |||||||||||||||||||
Three months ended June 30, 2008 | $ | 2,045 | $ | 2,588 | $ | 663 | $ | 1,537 | $ | 351 | $ | 1,262 | ||||||||||||
Six months ended June 30, 2008 | $ | 4,245 | $ | 5,575 | $ | 1,284 | $ | 3,197 | $ | 4,034 | $ | 3,178 | ||||||||||||
Three months ended June 30, 2007 | $ | 3,058 | $ | 2,118 | $ | 861 | $ | 1,879 | $ | 443 | $ | 1,858 | ||||||||||||
Six months ended June 30, 2007 | $ | 5,868 | $ | 4,665 | $ | 1,763 | $ | 3,570 | $ | 4,655 | $ | 4,283 |
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and the Number of New Locations
(in thousands, except number of locations)
Start-up | ||||||||||||||||||||||||||||||||
Related | Conversion | |||||||||||||||||||||||||||||||
Initial | Related | Company | ||||||||||||||||||||||||||||||
Franchise | Initial Franchise | Developed | Total Initial | |||||||||||||||||||||||||||||
Fees | Fees | Initial Franchise | Franchise Fees | |||||||||||||||||||||||||||||
for Basic | for Basic | Fees | For Basic | |||||||||||||||||||||||||||||
Services | # | Services | # | for Basic Services | # | Services | # | |||||||||||||||||||||||||
(Locations) | Loc | (Locations) | Loc | (Locations) | Loc | (Locations) | Loc | |||||||||||||||||||||||||
Three months ended June 30, 2008 | $ | — | 1 | $ | — | — | $ | — | — | $ | — | 1 | ||||||||||||||||||||
Six months ended June 30, 2008 | — | 1 | 1,320 | 1 | — | — | 1,320 | 2 | ||||||||||||||||||||||||
Three months ended June 30, 2007 | 3,630 | 22 | 2,640 | 13 | 825 | 5 | 7,095 | 40 | ||||||||||||||||||||||||
Six months ended June 30, 2007 | 10,395 | 63 | 7,260 | 55 | 2,310 | 12 | 19,965 | 130 |
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(in thousands, except percentages and number of days)
Interest Rate | ||||||||||||||||||||||||||||
Used | Gain on Sale | |||||||||||||||||||||||||||
Beginning | Weighted | Weighted | for Net | Full Nominal | Reduced | from | ||||||||||||||||||||||
Principal | Average | Average | Present | Purchase | Carrying | Deferred | ||||||||||||||||||||||
Balance | Rate | Maturity | Value | Price | Value | Payments | ||||||||||||||||||||||
Three months ended June 30, 2008 | $ | — | — | % | — days | — | % | $ | — | $ | — | $ | — | |||||||||||||||
Six months ended June 30, 2008 | 60 | 7.75 | % | 304 days | 7.75 | % | 65 | 60 | 5 | |||||||||||||||||||
Three months ended June 30, 2007 | 3,683 | 9.75 | % | 602 days | 9.75 | % | 13,598 | 13,155 | 443 | |||||||||||||||||||
Six months ended June 30, 2007 | 9,561 | 9.75 | % | 514 days | 9.75 | % | 23,982 | 22,858 | 1,124 |
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As of | As of | |||||||
June 30, 2008 | December 31, 2007 | |||||||
Total Statement Balances | $ | 9,918 | $ | 9,662 | ||||
Uncollected Accounts* (Included in Above Total Statement Balances) | $ | 2,773 | $ | 3,688 | ||||
Watch Statement Balances (Included in Above Total Statement Balances) | $ | 9,652 | $ | 9,077 | ||||
Watch Statement Uncollected Accounts** | $ | 1,941 | $ | 1,657 |
* | These amounts are limited to uncollected balances for franchisees with unpaid statement balances as of June 30, 2008 and December 31, 2007. | |
** | These amounts are limited to uncollected balances for franchisees with watch statement balances as of June 30, 2008 and December 31, 2007. |
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Balance at | Write off | Write off | Balance at | |||||||||||||||||
beginning | Charges to | statement | non-statement | end of | ||||||||||||||||
of period | Expenses | balances | balances | period | ||||||||||||||||
Allowance for Doubtful Accounts | ||||||||||||||||||||
Year ended December 31, 2007 | $ | 1,466 | $ | 4,276 | $ | 961 | $ | 3,667 | $ | 1,114 | ||||||||||
Six months ended June 30, 2008 | 1,114 | 6,645 | 421 | 638 | 6,700 |
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• | Retail insurance agents and agencies that are franchisees of Brooke Capital Corporation (“Brooke Capital”), an affiliated company. | ||
• | Retail insurance agents and agencies that are not franchisees of Brooke Capital. This lending program primarily includes loans made to captive retail insurance agents and agencies. | ||
• | Managing general agencies, in which the sale of insurance is their primary business. | ||
• | Independent funeral home owners, in which the sale of insurance is not their primary business but often an important part of their business (the sale of pre-need life insurance). |
Average Loan Size | ||||||||||||||||
June 30, | December 31, | June 30, | December 31, | |||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Loan portfolio composition: | ||||||||||||||||
On-balance sheet loans | $ | 169,967 | $ | 136,298 | ||||||||||||
Off-balance sheet loans | 515,650 | 541,948 | ||||||||||||||
Total | $ | 685,617 | $ | 678,246 | ||||||||||||
Loans(number and average loan size) | 1,272 | 1,313 | $ | 539 | $ | 517 | ||||||||||
Obligors(number and average loan size) | 865 | 843 | 793 | 805 | ||||||||||||
Weighted average seasoning(months) | 20 | 16 | ||||||||||||||
Weighted average months to maturity | 122 | 125 | ||||||||||||||
Variable loan portfolio’s average index over prime | 3.77 | % | 3.78 | % |
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2008 | 2008 | |||||||||||||||||||||||
Three months | Three months | % Increase | Six months | Six months | % Increase | |||||||||||||||||||
Ended | Ended | (decrease) | Ended | Ended | (decrease) | |||||||||||||||||||
June 30, 2008 | June 30, 2007 | over 2007 | June 30, 2008 | June 30, 2007 | over 2007 | |||||||||||||||||||
Operating revenues | ||||||||||||||||||||||||
Interest income | $ | 12,096 | $ | 13,239 | (9 | )% | $ | 26,646 | $ | 28,300 | (6 | )% | ||||||||||||
Participating interest expense | (6,569 | ) | (7,869 | ) | — | (14,481 | ) | (15,503 | ) | — | ||||||||||||||
Gain on sale of notes receivable | (1,756 | ) | 4,282 | (141 | ) | (1,657 | ) | 11,203 | (115 | ) | ||||||||||||||
Impairment loss | — | — | (11,763 | ) | — | — | ||||||||||||||||||
Other income | 93 | 181 | (49 | ) | 240 | 349 | (31 | ) | ||||||||||||||||
Total operating revenues | 3,864 | 9,833 | (61 | ) | (1,015 | ) | 24,349 | (104 | ) | |||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Other operating interest expense | 652 | 368 | 77 | 1,413 | 2,033 | (30 | ) | |||||||||||||||||
Payroll expense | (818 | ) | 610 | (234 | ) | 705 | 1,124 | (37 | ) | |||||||||||||||
Depreciation and amortization | 353 | 282 | 25 | 763 | 575 | (33 | ) | |||||||||||||||||
Provision for loan losses | 2,358 | 148 | 1,493 | 14,896 | 819 | 1719 | ||||||||||||||||||
Other operating expenses | (1,434 | ) | 1,281 | (212 | ) | 6,784 | 3,034 | 124 | ||||||||||||||||
Total operating expenses | 1,111 | 2,689 | 59 | 24,561 | 7,585 | 224 | ||||||||||||||||||
Income from operations | 2,753 | 7,144 | (61 | ) | (25,576 | ) | 16,764 | (253 | ) | |||||||||||||||
Interest expense | 915 | 1,471 | (38 | ) | 2,486 | 3,141 | (21 | ) | ||||||||||||||||
Loss on extinguishment of debt | — | — | 8,210 | — | ||||||||||||||||||||
Minority interest | 442 | — | (8,591 | ) | — | |||||||||||||||||||
Income before income taxes | 1,396 | 5,673 | (75 | ) | (27,681 | ) | 13,623 | (303 | ) | |||||||||||||||
Total assets (at period end) | $ | 292,719 | $ | 217,265 | 35 | % | $ | 292,719 | $ | 217,265 | 35 | % |
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Six Months | ||||||||
Ended June 30, | ||||||||
2008 | 2007 | |||||||
Net gain from securitizations | $ | (153 | ) | $ | 8,442 | |||
Net gain (loss) from true sale loan participations: | ||||||||
Interest-only strip receivable benefit (loss) | (642 | ) | 1,606 | |||||
Net gain (loss) from loan servicing | (82 | ) | 1,538 | |||||
Subtotal | (877 | ) | 11,586 | |||||
Losses from related party loan sales | (28 | ) | (3 | ) | ||||
Gain on sale of notes receivable | (905 | ) | 11,583 | |||||
Less: Securitization fee expense | (752 | ) | (380 | ) | ||||
Gain on sale of notes receivable, net | $ | (1,657 | ) | $ | 11,203 | |||
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Business Loans | ||||
(Fixed & Adjustable-Rate | ||||
Stratum) | ||||
Prepayment speed* | 12.00 | % | ||
Weighted average life (months) | 120 | |||
Expected credit losses* | 0.50 | % | ||
Discount Rate* | 11.00 | % |
* | Annual rates. |
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June 30, | December 31, | |||||||
2008 | 2007 | |||||||
Off-balance sheet unaffiliated loans | $ | 515,650 | $ | 541,948 | ||||
Percent of the portfolio | 76 | % | 80 | % | ||||
Related party loans off-balance sheet | 9,371 | 14,572 |
Estimated cash flows from loan servicing fees | $ | 8,212 | ||
Less: | ||||
Servicing Expense | (1,451 | ) | ||
Discount to present value | (1,535 | ) | ||
Carrying Value of Retained Servicing Interest in Loan Participations | $ | 5,226 |
Estimated cash flows from loan servicing fees | $ | — | ||
Less: | ||||
Servicing expense | 49 | |||
Discount to present value | (37 | ) | ||
Carrying Value of Retained Servicing Liability in Loan Participations | $ | 12 |
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Estimated cash flows from interest income | $ | 11,163 | ||
Less: | ||||
Estimated credit losses | — | |||
Discount to present value | (4,091 | ) | ||
Carrying Value of Retained Interest in Loan Participations | $ | 7,072 |
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
Interest-only strip receivables | $ | 26,619 | $ | 28,144 | ||||
Retained over-collateralization interest in loans sold | 41,710 | 58,769 | ||||||
Cash reserves | 850 | 850 | ||||||
Securities resulting from sales to QSPEs | $ | 69,179 | $ | 87,763 | ||||
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June 30, | ||||
2008 | ||||
Estimated cash flows from interest income | $ | 38,498 | ||
Less: | ||||
Estimated credit losses | (5,154 | ) | ||
Discount to present value | (6,725 | ) | ||
Carrying value of interest receivable portion of securities | $ | 26,619 | ||
Six Months | ||||||||
Ended June 30, | ||||||||
2008 | 2007 | |||||||
Income tax expense (benefit) | $ | (13,784 | ) | $ | 5,177 | |||
Effective tax rate | 38 | % | 38 | % | ||||
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
Current income tax liabilities | $ | — | $ | 2,549 | ||||
Deferred income tax liabilities (asset), net | 382 | 10,910 |
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Six Months Ended | ||||||||
June 30, | ||||||||
2008 | 2007 | |||||||
Credit losses on all loans | $ | 14,896 | $ | 819 | ||||
Summary of Credit Losses: | ||||||||
Retail insurance agencies — franchise | $ | 1,504 | $ | — | ||||
non-franchise | ||||||||
Managing general agencies | ||||||||
Funeral homes | ||||||||
Related parties | ||||||||
Total credit losses | $ | 1,504 | $ | — | ||||
Credit Loss Analysis: | ||||||||
On-balance sheet loans: | ||||||||
Loans charged off, net of recoveries | $ | 91 | $ | 3 | ||||
Increase in the loan loss reserve | 14,896 | — | ||||||
Total credit losses — on-balance sheet loans | $ | 14,987 | $ | 3 | ||||
Percent of on-balance sheet loans | 8.8 | % | 0.0 | % | ||||
Off-balance sheet loans: | ||||||||
Credit losses incurred — warehouse facility* | $ | — | $ | — | ||||
participations | 318 | — | ||||||
securitizations | 1,096 | 668 | ||||||
Total credit losses — off-balance sheet loans | $ | 1,414 | $ | 668 | ||||
Annualized percent of off-balance sheet loans | 0.5 | % | 0.3 | % |
* | Net credit losses for loans in the off-balance sheet warehouse facility are accounted for through the valuation of the retained securities rather than charged to credit loss expense. |
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June 30, 2008 | December 31, 2007 | |||||||||||||||
Amount | Percent of Loans | Amount | Percent of Loans | |||||||||||||
On-balance sheet loans | $ | 24,113 | $ | 13,301 | ||||||||||||
Off-balance sheet loans — warehouse facility | — | — | ||||||||||||||
participations | 13,673 | 7,343 | ||||||||||||||
securitizations | 1,852 | 1,898 | ||||||||||||||
Total loan balances delinquent 60 days or more | $ | 39,638 | 5.8 | % | $ | 22,542 | 3.3 | % | ||||||||
Percent of delinquent loans associated with: | ||||||||||||||||
Retail agency loans — franchise | 77 | % | 91 | % | ||||||||||||
non-franchise | 0 | % | 0 | % | ||||||||||||
Independent funeral home owners | 13 | % | 9 | % | ||||||||||||
Managing general agencies | 0 | % | 0 | % | ||||||||||||
Other | 10 | % | ||||||||||||||
Delinquent loans to related entities | $ | — | $ | — | 0 | % |
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2008 | 2008 | |||||||||||||||||||||||
Three months | Three months | % Increase | Six months | Six months | % Increase | |||||||||||||||||||
Ended | Ended | (decrease) | Ended | Ended | (decrease) | |||||||||||||||||||
June 30, 2008 | June 30, 2007 | over 2007 | June 30, 2008 | June 30, 2007 | over 2007 | |||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||
Insurance premiums earned | $ | 157 | $ | 283 | (45 | )% | $ | 418 | $ | 549 | (24 | )% | ||||||||||||
Interest income | 100 | 166 | (40 | ) | 351 | 361 | (3 | ) | ||||||||||||||||
Other income | 41 | 83 | 49 | 93 | 160 | (42 | ) | |||||||||||||||||
Total operating revenues | 298 | 532 | (44 | ) | 862 | 1,070 | (19 | ) | ||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||
Payroll expense | 866 | 686 | 26 | 1,396 | 1,514 | (8 | ) | |||||||||||||||||
Depreciation and amortization | 36 | 353 | (90 | ) | 71 | 733 | (90 | ) | ||||||||||||||||
Insurance loss and loss expense | — | 225 | (100 | ) | 403 | 551 | (27 | ) | ||||||||||||||||
Other operating expenses | 802 | 613 | 31 | 2,014 | 260 | 675 | ||||||||||||||||||
Total operating expenses | 1,704 | 1,877 | (9 | ) | 3,884 | 3,058 | 27 | |||||||||||||||||
Income from operations | (1,406 | ) | (1,345 | ) | (3,022 | ) | (1,988 | ) | ||||||||||||||||
Interest expense | 706 | 741 | (5 | ) | 1,337 | 1,397 | (4 | ) | ||||||||||||||||
Income before income taxes | $ | (2,112 | ) | $ | (2,086 | ) | $ | (4,359 | ) | $ | (3,385 | ) | ||||||||||||
Total assets (at period end) | $ | 90,257 | $ | 118,138 | (24 | )% | $ | 90,257 | $ | 118,138 | (24 | )% |
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2008 | 2008 | |||||||||||||||||||||||
Three Months | Three Months | % Increase | Six Months | Six Months | % Increase | |||||||||||||||||||
Ended | Ended | (decrease) | Ended | Ended | (decrease) | |||||||||||||||||||
June 30, 2008 | June 30, 2007 | over 2007 | June 30, 2008 | June 30, 2007 | over 2007 | |||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
REVENUES | ||||||||||||||||||||||||
Insurance premiums earned | $ | 898 | $ | 849 | 6 | % | $ | 2,000 | $ | 1,922 | 4 | % | ||||||||||||
Interest income | 408 | 352 | 16 | 805 | 667 | 21 | ||||||||||||||||||
Other income | 61 | 60 | 2 | 121 | 124 | (3 | ) | |||||||||||||||||
Total revenues | 1,367 | 1,261 | 8 | 2,926 | 2,713 | 8 | ||||||||||||||||||
EXPENSES | ||||||||||||||||||||||||
Commission expense | 49 | 50 | (2 | ) | 104 | 109 | (5 | ) | ||||||||||||||||
Payroll expense | 134 | 116 | 16 | 312 | 240 | 30 | ||||||||||||||||||
Depreciation and amortization | 195 | 212 | (8 | ) | 385 | 394 | (2 | ) | ||||||||||||||||
Other expenses | 933 | 667 | (40 | ) | 2,046 | 1,747 | (17 | ) | ||||||||||||||||
Total expenses | 1,311 | 1,045 | 25 | 2,847 | 2,490 | 14 | ||||||||||||||||||
Income from discontinued operation | 56 | 216 | (74 | ) | 79 | 223 | (65 | ) | ||||||||||||||||
Total assets (at period end) | $ | 35,000 | $ | 31,000 | 13 | % | $ | 35,000 | $ | 31,000 | 13 | % |
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• | $11,500,000 owed to Aleritas by Brooke Corporation, primarily sold to syndicate of banks, secured by Brooke Bancshares stock and matures July 2008 | ||
• | $4,500,000 owed to Stockton National by Brooke Corporation, primarily sold to syndicate of banks, secured by Aleritas stock and matures November 2008. | ||
• | $2,300,000 owed to Security State by Brooke Corporation, secured by Brooke Brokerage stock and matures July 2008 | ||
• | $5,500,000 owed to NFC by Brooke Corporation, secured by CJD & Associates stock and other assets and matures September 2008. | ||
• | $1,200,000 misc |
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Payments Due by Period | ||||||||||||||||||||
Less than | 1 to 3 | 3 to 5 | More than | |||||||||||||||||
Contractual Obligations | Total | 1 year | years | years | 5 years | |||||||||||||||
Short-term borrowings | $ | 73,665 | $ | 73,665 | $ | — | $ | — | $ | — | ||||||||||
Long-term debt | 108,965 | 51,456 | 27,932 | 26,837 | 2,740 | |||||||||||||||
Interest payments* | 14,099 | 7,489 | 4,914 | 991 | 705 | |||||||||||||||
Operating leases (facilities) | 18,383 | 8,729 | 8,373 | 1,077 | 204 | |||||||||||||||
Capital leases (facilities) | 390 | 90 | 195 | 105 | — | |||||||||||||||
Total from continuing operations | $ | 215,502 | $ | 141,429 | $ | 41,414 | $ | 29,010 | $ | 3,649 | ||||||||||
Discontinued operations | $ | 27,145 | 2,443 | 5,429 | 6,243 | 13,030 | ||||||||||||||
* | Includes interest on short-term and long-term borrowings. For additional information on the debt associated with these interest payments see Notes 4 and 5 to our consolidated financial statements. |
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For | Against | |||||||
Robert D. Orr | 11,514,466 | 403,342 | ||||||
Leland G. Orr | 11,509,551 | 408,256 | ||||||
John L. Allen | 11,818,279 | 99,529 | ||||||
Joe. L. Barnes | 11,815,296 | 102,511 | ||||||
Mitchell G. Holthus | 11,817,576 | 100,231 |
For | Against | Abstain | ||||||
11,840,035 | 77,773 | 0 |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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Date: August 20, 2008 | BROOKE CORPORATION | |||||
By: | /s/ Leland G. Orr | |||||
By: | /s/ Travis W. Vrbas |
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Exhibit No. | Description | |||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.1 | |||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.1 | |||
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.1 | |||
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.1 |
1 | Filed herewith. |
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