Exhibit 13.1
Litchfield Logo is displayed here.
A specialty consumer finance company.
1996 ANNUAL REPORT
Income Per Share Before Extraordinary Item
A bar graph of income per share before extraordinary item for 1989 through
1996 is displayed here.
LITCHFIELD FINANCIAL CORPORATION is a specialty consumer finance
company which provides mortgage financing for the purchase of rural and
vacation properties and financing for the purchase of vacation ownership
interests, popularly known as timeshare interests. In addition, the Company
makes loans to rural land and resort developers secured by consumer
receivables and other secured loans.
Through the support of its investors and dedication of its employees,
Litchfield has been able to provide quality service, maintain consistent
growth and be among the top performers in the consumer finance industry.
Litchfield's common stock trades on The Nasdaq Stock Market's National
Market under the symbol "LTCH" and is listed in some newspapers as
"LITCHFNL".
A bar graph depicting the components of revenue for 1991 through 1996
is displayed here.
Dear Fellow Stockholders and Noteholders:
Litchfield had a great year in 1996. Net income was up 53%, revenues
were up 39% and originations increased 11%. We encourage you to review the
details in this annual report where you will see our Company is better
today by virtually all measures. I would like to describe what we believe
are some of the reasons for our success.
People. We have the finest team in specialty finance. Our people are
focused, hard working and dedicated to getting things right. Whether its
preparing a spreadsheet, answering a customer's question or negotiating a
large loan purchase, everybody works to get it right. We hold ourselves to
a very high standard and are not satisfied unless we are graded straight
A's.
Plan. We have specific, measurable goals and budgets. We all live by
our business plan and how each part of our Company contributes to the
plan's success. We measure the smallest details of our business, report on
them, discuss them and look for ways to improve them.
Niche. The niches we are in have six important characteristics: good
credit, guarantees, reserves, good rates, good collateral and growing
markets. We are striving to maximize our potential in consumer land and VOI
loans while looking for other consumer loan businesses with these
characteristics.
Relationships. We have solid relationships with our customers,
lenders, investment bankers and service providers. We are open, candid and
ask all of them how we can do better. We do what we say we will do and they
believe in us.
Training. Training is a part of everybody's job at Litchfield. We have
an in-house curriculum to improve our skills, efficiency and use of
technology. We have a management training program for young recruits. These
trainees rotate through all our departments for a two to three year period.
Yesterday's trainees are our middle managers of today and senior managers
of tomorrow. This is one of the best things we have ever done.
Track Record. We have had eight consecutive years of over 20% earnings
per share growth which we believe shows a consistent, reliable track
record. Our success includes starting new businesses from scratch and
buying businesses and integrating the new people into Litchfield.
In 1997 and forward, we believe we can continue to build on these
ingredients of our success to maintain deliberate, controlled growth,
quality assets and cost control. We will constantly review our performance
and strive to improve ourselves. Thank you for your continued support.
RANDY STRATTON
Chief Executive Officer and President
January 31 , 1997
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
Year Ended December 31,
-------------------------------------------------------
Statements of Income Data: (1) 1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Revenues:
Interest and fees on loans .. $ 2,305 $ 4,330 $ 5,669 $ 11,392 $ 15,396
Gain on sale of loans ....... 2,501 4,550 4,847 5,161 7,331
Servicing and other fee income. 368 501 459 908 1,456
----- ----- ------ ------ ------
Total revenues ....... 5,174 9,381 10,975 17,461 24,183
===== ===== ====== ====== ======
Expenses:
Interest expense ......... 629 2,717 3,158 6,138 7,197
Salaries and employee benefits 1,017 1,350 1,776 2,798 3,233
Other operating expenses. 810 1,017 1,164 2,120 3,225
Provision for loan losses 270 620 559 890 1,954
----- ----- ----- ------ ------
Total expenses 2,726 5,704 6,657 11,946 15,609
===== ===== ===== ====== ======
Income before income taxes and
extraordinary item 2,448 3,677 4,318 5,515 8,574
Provision for income taxes 942 1,426 1,619 2,066 3,301
----- ----- ----- ----- -----
Income before extraordinary item 1,506 2,251 2,699 3,449 5,273
Extraordinary item (2) -- -- (126) -- --
------ ------ ------ ----- -------
Net income .. $ 1,506 $ 2,251 $ 2,573 $ 3,449 $ 5,273
====== ====== ====== ===== =======
Primary per common share amounts:
Income before extraordinary
item $ .42 $ .53 $ .63 $ .76 $ .93
Extraordinary item -- -- (.03) -- --
-------- -------- -------- -------- --------
Net income per share . $ .42 $ .53 $ .60 $ .76 $ .93
======== ======== ======== ======== ========
Primary weighted average number of
shares outstanding 3,572,289 4,224,402 4,280,006 4,522,983 5,674,264
Fully-diluted per common share
amounts:
Income before extraordinary
item $ .42 $ .53 $ .63 $ .76 $ .92
Extraordinary item -- -- (.03) -- --
-------- -------- -------- -------- -------
Net income per share $ .42 $ .53 $ .60 $ .76 $ .92
======== ======== ======== ======== =======
Fully-diluted weighted average
number of shares outstanding 3,589,264 4,246,945 4,280,006 4,543,009 5,736,467
Cash dividends declared per
common share $ -- $ .02 $ .03 $ .04 $ .05
Other Statements of Income Data:
Net income as a percentage
of revenues 29.1% 24.0% 23.4% 19.8% 21.8%
Return on average assets 6.2% 5.0% 4.3% 3.7% 4.0%
Return on average equity (3) 20.3% 17.0% 16.4% 16.6% 13.3%
(1) Certain amounts in the 1992 through 1995 financial information have been
restated to conform to the 1996 presentation.
(2) Reflects loss on early extinguishment of a portion of the 1992 Notes (as
defined herein), net of applicable tax benefit of $76,000.
(3) Average equity includes redeemable preferred stock, which was redeemed on
March 19, 1992, and stockholders' equity.
SELECTED CONSOLIDATED FINANCIAL INFORMATION - (Continued)
(Dollars in thousands, except per share data)
December 31,
--------------------------------------------
Balance Sheet Data : 1992 1993 1994 1995 1996
------ ------- ------- ------- -------
Total assets $34,177 $55,044 $64,367 $113,391 $153,800
Loans held for sale (4) 5,086 5,931 11,094 14,380 12,260
Loans held for investment (4) 3,501 10,306 15,790 33,613 79,996
Subordinated pass-through
certificates held to
maturity (4) 7,773 7,433 3,951 13,468 18,004
Senior long-term debt 15,065 32,302 29,896 47,401 46,995
Subordinated debt 1,145 --- --- --- ---
Stockholders' equity 11,813 14,722 16,610 37,396 42,448
December 31,
--------------------------------------------
Other Financial Data: 1992 1993 1994 1995 1996
------- ------- ------- -------- --------
Loans purchased and
originated (5) $32,214 $42,410 $59,798 $121,046 $133,750
Loans sold (5) 24,632 28,099 40,116 65,115 54,936
Serviced Portfolio (6) 58,968 84,360 105,013 176,650 242,445
Loans serviced for others 43,623 59,720 72,731 111,117 129,619
Dealer/developer reserves 3,512 4,926 6,575 9,644 10,628
Allowance for loan losses (7) 498 1,064 1,264 3,715 4,528
Allowance ratio (8) .84% 1.26% 1.20% 2.10% 1.87%
Net charge-off ratio (5)(9) .37% .69% .38% .67% .94%
Non-performing asset ratio (10) 1.09% 1.48% 1.02% 1.35% 1.57%
(4) Amount indicated is net of allowance for losses.
(5) During the relevant period.
(6) The Serviced Portfolio consists of the principal amount of Land, VOI and
Dealer/Other Loans serviced by or on behalf of the Company.
(7) The allowance for loan losses includes allowance for losses under the
recourse provisions of loans sold. See Note 4 to financial statements.
(8) The allowance ratio is the allowances for loan losses divided by the amount
of the Serviced Portfolio.
(9) The net charge-off ratio is determined by dividing the amount of net
charge-offs for the period by the average Serviced Portfolio for the period.
(10) The non-performing asset ratio is determined by dividing the sum of the
amount of those loans which are 90 days or more past due and other real estate
owned by the amount of the Serviced Portfolio.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
Litchfield Financial Corporation (the "Company") is a specialty consumer
finance company which provides financing for the purchase of rural and vacation
properties ("Land Loans") and financing of vacation ownership interests ("VOI
Loans"), popularly known as timeshare interests. In addition, the Company makes
loans to rural land dealers and resort developers secured by consumer
receivables and other secured loans (collectively "Dealer/Other Loans").
The principal sources of the Company's revenues are (i) interest and fees
on loans, (ii) gain from the sale of loans, and (iii) servicing and other fee
income. Gains on sales of loans are based principally on the present value of
the difference between the interest to be collected from the borrower and the
interest to be passed on to the purchaser of the loan during the estimated
average life of the loans, less a normal servicing fee (referred to as "excess
servicing asset"). The excess servicing asset is calculated using prepayment,
default, and interest rate assumptions prevalent in the marketplace at the time
of sale for similar instruments. The Company provides an allowance for expected
losses under the recourse provisions at the time of the loan sale. The excess
servicing asset is amortized over the estimated life of the loans using the
interest method. Because a significant portion of the Company's revenues is
comprised of gains realized on sales of loans, the timing of such sales has a
significant effect on the Company's results of operations.
Results of Operations
The following table sets forth the percentage relationship to revenues of
certain items included in the Company's statements of income.
Year ended December 31,
----------------------------
1994 1995 1996
----- ---- -----
Revenues:
Interest and fees on loans ............ 51.6% 65.2% 63.7%
Gain on sale of loans ................ 44.2 29.6 30.3
Servicing and other fee income ........ 4.2 5.2 6.0
----- ----- -----
100.0 100.0 100.0
----- ----- -----
Expenses:
Interest expense ...................... 28.8 35.2 29.7
Salaries and employee benefits ........ 16.2 16.0 13.4
Other operating expenses .............. 10.6 12.1 13.3
Provision for loan losses ............. 5.1 5.1 8.1
---- ---- ----
60.7 68.4 64.5
---- ---- ----
Income before income taxes and
extraordinary item ....................... 39.3 31.6 35.5
Provision for income taxes ................ 14.7 11.8 13.7
---- ---- ----
Income before extraordinary item .......... 24.6 19.8 21.8
Extraordinary item ........................ (1.2) -- --
---- ---- ----
Net income ................................ 23.4% 19.8% 21.8%
==== ==== ====
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues increased 38.5% to $24,183,000 for the year ended December 31,
1996, from $17,461,000 for the year ended December 31, 1995. Net income for the
year ended December 31, 1996 increased 52.9% to $5,273,000 compared to
$3,449,000 in 1995. Net income as a percentage of revenues was 21.8% for the
year ended December 31, 1996 compared to 19.8% for the year ended December 31,
1995. Loan originations grew 10.5% to $133,750,000 in 1996 from $121,046,000 in
1995. Excluding the 1995 purchase of $41,500,000 of loans from the Government
Employees Financial Corporation ("GEFCO"), originations increased 68.1%. The
Serviced Portfolio increased 37.2% to $242,445,000 at December 31, 1996 from
$176,650,000 at December 31, 1995.
Interest and fees on loans increased 35.2% to $15,396,000 in 1996 from
$11,392,000 in 1995, primarily as the result of increases in loans held for
investment, subordinated pass-through certificates and fees related to
Dealer/Other Loan originations. Interest on loans, subordinated pass-through
certificates, cash and investments, and excess servicing revenue comprised
77.8%, 8.0% and 7.0%, respectively, of interest and fees on loans for the year
ended December 31, 1996, compared with 74.5%, 10.4% and 8.6%, respectively, for
the prior year. Interest earned on loans, subordinated pass-through
certificates, cash and investments, and excess servicing revenue increased
41.1%, 4.4% and 10.6%, respectively, for 1996 compared to 1995. The average rate
earned on loans owned and subordinated pass-through certificates decreased to
12.5% for the year ended December 31, 1996 from 13.2% in 1995, primarily due to
the effect of the growth in Dealer/Other Loans as a percentage of the loan
portfolio. Dealer/Other Loan yields are usually less than Land Loan or VOI Loan
yields, but Dealer/Other Loans servicing costs and loan losses are generally
less as well. Fees on loans representing an adjustment of yield comprised 7.2%
of interest and fees on loans in 1996 compared to 6.5% in 1995. Such fees
increased 48.4% in 1996 compared to 1995 primarily as the result of the increase
in Dealer/Other Loans.
Gain on the sale of loans increased 42.0% to $7,331,000 in 1996 from
$5,161,000 in 1995. The volume of loans sold decreased 15.6% to $54,936,000 for
the year ended 1996 from $65,115,000 in 1995. The primary reason for the
increase in the gain on sale of loans despite the decrease in the volume of
loans sold was that the Company did not recognize any gain on the sale of
$27,155,000 of VOI Loans purchased from GEFCO in the second quarter of 1995.
Loans serviced for others increased 16.7% to $129,619,000 at December 31,
1996 from $111,117,000 at December 31, 1995. Servicing and other fee income
increased 60.4% to $1,456,000 for the year ended December 31, 1996, from
$908,000 in 1995 because of the higher average Serviced Portfolio in 1996. In
connection with the Company's continued growth, the Company decided to
subcontract its servicing rights in order to avoid incurring additional fixed
overhead costs associated with such servicing. Accordingly, the Company
subcontracted to an unaffiliated third party the servicing of VOI Loans in 1995
and the remaining loans in April 1996.
Interest expense increased 17.3% to $7,197,000 for the year ended December
31, 1996, from $6,138,000 in 1995. The increase in interest expense primarily
reflects an increase in average borrowings which was only partially offset
by a decrease in average rates. During the year ended December 31, 1996,
borrowings averaged $71,800,000 at an average rate of 9.3% as compared to
$60,500,000 and 9.7%, respectively, during 1995. Interest expense includes the
amortization of deferred debt issuance costs.
Salaries and employee benefits increased 15.6% to $3,233,000 for the year
ended December 31, 1996 from $2,798,000 in 1995 because of increases in
incentive compensation, salaries and the average number of employees in 1996.
The average number of employees increased to 56 in 1996 from 45 in 1995,
primarily as the result of the GEFCO acquisition. The number of full time
equivalents increased to 57 at December 31, 1996 compared to 55 at December 31,
1995. The small increase in the number of full-time equivalents despite the
significant growth in originations and the Serviced Portfolio described above is
partially the result of subcontracting servicing to a third party. As a result,
personnel costs as a percentage of revenues decreased to 13.4% for the year
ended December 31, 1996 compared to 16.0% in 1995.
Other operating expenses increased 52.1% to $3,225,000 for the year ended
December 31, 1996 from $2,120,000 for the same period in 1995 primarily as the
result of the subcontracting of servicing to a third party. As a percentage of
revenues, other operating expenses increased to 13.3% in 1996 compared to 12.1%
in 1995.
During 1996, the Company increased its provision for loan losses 119.6% to
$1,954,000 from $890,000 in 1995, primarily as the result of the overall
increase in the Serviced Portfolio as well as the proportionate increase in the
percentage of non-guaranteed loans in the Serviced Portfolio. Historically, the
loan loss rate for non-guaranteed loans has been higher than the rate for
guaranteed loans.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues increased 59.1% to $17,461,000 for the year ended December 31,
1995, from $10,975,000 for the year ended December 31, 1994. Net income for the
year ended December 31, 1995 increased 34.0% to $3,449,000 compared to
$2,573,000 in 1994. Net income as a percentage of revenues was 19.8% for the
year ended December 31, 1995 compared to 23.4% for the year ended December 31,
1994. This decrease was primarily due to the Company's strategy of retaining
more of its loans and the increased interest costs associated with long-term
debt incurred to support this strategy.
Interest and fees on loans increased 101.0% to $11,392,000 in 1995 from
$5,669,000 in 1994, primarily as the result of increases in loans and
subordinated pass-through certificates. Interest on loans, subordinated
pass-through certificates, cash and investments, and excess servicing revenue
comprised 74.5%, 10.4% and 8.6%, respectively, of interest and fees on loans for
the year ended December 31, 1995, compared with 70.1%, 12.0% and 6.9%,
respectively, for the prior year. Interest earned on loans, subordinated
pass-through certificates, cash and investments, and excess servicing revenue
increased 113.7%, 73.9% and 149.5%, respectively, for the year ended December
31, 1995. The average rate earned on loans owned and subordinated pass-through
certificates increased to 13.2% for the year ended December 31, 1995 from 12.6%
in 1994, primarily due to the effect of the higher yield of the VOI Loans. Fees
on loans comprised 6.5% of interest
and fees on loans in 1995 compared to 11.0% in 1994. Such fees increased 18.8%
in 1995 compared to 1994.
Gain on the sale of loans increased 6.5% to $5,161,000 in 1995 from
$4,847,000 in 1994. The volume of loans sold increased 62.3% to $65,115,000 for
the year ended 1995 from $40,116,000 in 1994. The primary reason the gain on
sale of loans increased less than the volume of loans sold was that the Company
did not recognize any gain on the sale of $27,155,000 of VOI Loans purchased
from GEFCO consistent with the purchase method of accounting.
Loans serviced for others increased 52.8% to $111,117,000 as of December
31, 1995 from $72,731,000 at December 31, 1994. This growth resulted in a 97.8%
increase in servicing and other fee income to $908,000 for the year ended
December 31, 1995, from $459,000 in 1994. In connection with the Company's
continued growth, the Company made a strategic decision to subcontract a portion
of its servicing rights in order to avoid incurring additional fixed overhead
costs associated with such servicing. Accordingly, the Company subcontracted the
servicing of VOI Loans to an unaffiliated third party in 1995 and its remaining
loans in April 1996.
Interest expense increased to $6,138,000 for the year ended December 31,
1995, from $3,158,000 in 1994. The increase in interest expense primarily
reflects an increase in borrowings. During the year ended December 31, 1995,
borrowings averaged $60,500,000 at an average rate of 9.7% as compared to
$32,000,000 and 9.3%, respectively, during 1994. Interest expense includes the
amortization of deferred debt issuance costs.
Salaries and employee benefits increased 57.5% to $2,798,000 for the year
ended December 31, 1995 from $1,776,000 in 1994 due to hiring additional staff
to support an increase in the Serviced Portfolio and an increase in certain
incentive based compensation. As a result of the Company's growth, the Company
increased total full-time equivalent employees to 55 in 1995 from 36 in 1994.
Personnel costs as a percentage of revenues remained relatively constant at
16.0% for the year ended December 31, 1995 compared to 16.2% in 1994.
Other operating expenses increased 82.1% to $2,120,000 for the year ended
December 31, 1995 from $1,164,000 for the same period in 1994. As a percentage
of revenues, other operating expenses increased to 12.1% in 1995 as compared to
10.6% in 1994. This increase is attributable to additional overhead incurred
with the significant growth of the Company primarily in connection with the
purchase of the GEFCO portfolio.
During 1995, the Company increased its provision for loan losses 59.2% to
$890,000 from $559,000 in 1994 primarily as the result of the increase in the
Serviced Portfolio.
Liquidity and Capital Resources
The Company's business requires continued access to short and long-term
sources of debt financing and equity capital. The Company's principal cash
requirements arise from loan originations, repayment of debt on maturity,
payments of operating and interest expenses and loan repurchases. The Company's
primary sources of liquidity are loan sales, short-term borrowings under secured
lines of credit, long-term debt and equity offerings and cash flows from
operations.
In connection with certain loan sales, the Company commits to repurchase
from investors any such loans that become 90 days or more past due. This
obligation is subject to various terms and conditions, including, in some
instances, a limitation on the amount of loans that may be required to be
repurchased. There were approximately $8,780,000 of loans at December 31, 1996
which the Company could be required to repurchase in the future should such
loans become 90 days or more past due. The Company repurchased $991,000,
$448,000, and $259,000 of such loans under the recourse provisions of loan sales
in 1996, 1995, and 1994, respectively. Also, in connection with certain
securitization programs, $18,647,000 of cash and cash equivalents are restricted
as credit enhancements at December 31, 1996.
The Company funds its loan purchases in part with borrowings under various
lines of credit. At December 31, 1996, the Company had a secured line of credit
of $30,000,000 from the Bank of Boston, as lead agent, and Fleet Bank. The
Company can elect to borrow all or part of the outstanding balance on the line
of credit at either the Bank's prime interest rate or the Eurodollar rate plus
2%. Outstanding borrowings under this line of credit at December 31, 1996 were
$26,200,000. The line of credit matures in April 1997, with renewal at the
lender's discretion. At December 31, 1995 the secured line of credit was
$15,000,000 at the Bank's prime interest rate plus 1%. There were no outstanding
borrowings under this credit line at December 31, 1995. The line of credit is
secured by consumer receivables and other secured loans.
On July 23, 1996, the Company entered into an additional secured line of
credit of $5,000,000 with another financial institution at that institution's
prime rate of interest plus 1.25%. This line of credit matures in July 1997.
There were no outstanding borrowings on this line of credit at December 31,
1996. This line of credit is secured by consumer receivables and other secured
loans. In January 1997, the secured line of credit was increased to $8,000,000
and the maturity was extended to January 1998.
On September 13, 1996, the Company entered into a $15,000,000 revolving
line of credit facility with the Bank of Scotland. The outstanding borrowings
under this facility at December 31, 1996 were $8,300,000. This facility is
secured by certain subordinated pass-through certificates, excess servicing
assets, cash collateral accounts and certain other loans and matures in
September 1999. Interest is payable quarterly in arrears at the Bank's prime
interest rate plus 1%. In January 1997, this facility was increased to
$20,000,000.
The Company is not required to maintain compensating balances or forward
sales commitments under the terms of the above lines of credit.
The Company also has a revolving line of credit and sale facility as part
of an asset backed commercial paper facility with Holland Limited
Securitization, Inc. ("HLS") a multi-seller commercial paper issuer sponsored by
Internationale Nederlanden (U.S.) Capital Markets, Inc. ("ING"). In October
1996, the Company amended the facility to increase the facility to $100,000,000,
subject to certain terms and conditions, reduce certain credit enhancement
requirements and expand certain loan eligibility criteria. The facility expires
in June 1998.
In connection with the facility, the Company formed a wholly owned
subsidiary, Litchfield Mortgage Securities Corporation 1994 ("LMSC"), to
purchase loans from the Company. LMSC either pledges the loans on a revolving
line of credit with HLS or sells the loans to HLS. HLS issues commercial paper
or other indebtedness to fund the purchase or pledge of loans from LMSC. HLS is
not affiliated with the Company or its affiliates. As of December 31, 1996, the
outstanding balance of loans sold under this facility was $77,521,000 and
outstanding borrowings under the line of credit were $1,799,000. Interest is
payable on the line of credit at an interest rate based on certain commercial
paper rates.
During the first quarter of 1995, the Company entered into a 10.43%,
$12,500,000 debt placement with an insurance company. Principal is payable
monthly based on collection of the underlying collateral. The note is redeemable
only with the approval of the noteholder. The note is collateralized by certain
of the Company's investments in subordinated pass-through certificates, excess
servicing assets and cash. At December 31, 1996 and 1995, the balance
outstanding on the note was $7,428,000 and $9,836,000 and the approximate value
of the underlying collateral was $13,772,000 and $17,700,000, respectively.
On March 15, 1995, the Company completed a public offering of $18,400,000
of 10% Notes due 2004 ("1995 Notes"). The 1995 Notes allow for a maximum annual
redemption at the election of the noteholders of $920,000 and contain certain
restrictions regarding the payment of cash dividends and require the maintenance
of certain financial ratios. On April 1, 1996 the noteholders redeemed, and the
Company paid $120,000 of the 1995 Notes. On October 31, 1995, the Company
completed a public offering of 1,250,000 shares of common stock at a price of
$15 per share. The net proceeds to the Company were approximately $17,325,000
after deducting expenses related to the offering.
Previously, the Company significantly increased its capital base through a
$9,500,000 initial public offering in February, 1992 and public debt offerings
of $15,065,000 in November 1992 ("1992 Notes") and $17,570,000 in May 1993
("1993 Notes"). The 1992 Notes and the 1993 Notes bear interest at 10% and 8
7/8%, respectively, and are due 2002 and 2003, respectively. The 1992 Notes and
the 1993 Notes are unsecured obligations of the Company and each such issuance
allows for a maximum annual redemption by noteholders of 5% of the original
principal amount thereof. On November 1, 1996, the Company repaid $103,000 of
the 1992 Notes due 2002 pursuant to the noteholders' annual redemption rights.
On August 1, 1996 and June 1, 1996, the Company repaid $20,000 and $163,000,
respectively of the 1993 Notes due 2003 pursuant to the noteholders' annual
redemption rights.
The Company manages its exposure to changes in interest rates by attempting
to match its proportion of fixed versus variable rate assets, liabilities and
loan sale facilities. The Company has mitigated its interest rate exposure due
to interest rate declines by instituting interest rate floors on its adjustable
rate loans.
Historically, the Company has not required major capital expenditures to
support its operations.
Credit Quality and Allowances for Loan Losses
The Company maintains allowances for loan losses at levels which, in the
opinion of management, provide adequately for possible losses on loans, loans
sold and subordinated pass-through certificates. Past-due loans (loans 30 days
or more past due which are not covered by dealer/developer reserves and
guarantees) as a percentage of the Serviced Portfolio were 1.34% at December 31,
1996 compared to 1.73% at December 31, 1995. Management evaluates the adequacy
of the allowances on a quarterly basis by examining current delinquencies, the
characteristics of the accounts, the value of the underlying collateral, and
general economic conditions and trends. Management also evaluates the extent to
which dealer/developer reserves and guarantees can be expected to absorb loan
losses. A provision for loan losses is recorded in an amount deemed sufficient
by management to maintain the allowances at adequate levels. Total allowances
for loan losses and loans sold increased to $4,528,000 at December 31, 1996
compared to $3,715,000 at December 31, 1995, decreasing the allowance ratio to
1.87% at December 31, 1996 from 2.10% at December 31, 1995. The decrease in the
allowance ratio reflects the increase in Dealer/Other Loans as a percentage of
the portfolio. Historically, Dealer/Other Loans have experienced significantly
lower delinquency, defaults and loss rates compared with Land Loans and VOI
Loans.
As part of the Company's financing of Land Loans and VOI Loans,
arrangements are entered into with dealers and resort developers, whereby
reserves are established to protect the Company from potential losses associated
with such loans. As part of the Company's agreement with the dealers and resort
developers, a portion of the amount payable to each dealer and resort developer
for a Land Loan or a VOI Loan is retained by the Company and is available to the
Company to absorb loan losses for those loans. The Company negotiates the amount
of the reserves with the dealers and developers based upon various criteria, two
of which are the financial strength of the dealer or developer and credit risk
associated with the loans being purchased. Dealer/developer reserves amounted to
$10,628,000 at December 31, 1996 and $9,644,000 at December 31, 1995. The
Company generally returns any excess reserves to the dealer/developer on a
quarterly basis as the related loans are repaid by borrowers.
Inflation
Inflation has not had a significant effect on the Company's operating
results to date.
LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------
1996 1995
---------- ----------
ASSETS
Cash and cash equivalents $ 5,557,000 $ 18,508,000
Restricted cash 18,923,000 16,345,000
Loans held for sale, net of allowance
for loan losses of $817,000 and
$1,100,000 in 1996 and 1995, respectively 12,260,000 14,380,000
Loans held for investment, net of allowance
for loan losses of $1,200,000 and $413,000
in 1996 and 1995, respectively 79,996,000 33,613,000
Subordinated pass-through certificates
held to maturity, net of allowance
for loan losses of $1,400,000 and
$1,270,000 in 1996 and 1995, respectively 18,004,000 13,468,000
Excess servicing asset 12,019,000 10,058,000
Other 7,041,000 7,019,000
------------ ------------
Total assets $153,800,000 $113,391,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Lines of credit $36,299,000 --
Term note payable 7,428,000 9,836,000
Accounts payable and accrued liabilities 3,811,000 4,442,000
Dealer/developer reserves 10,628,000 9,644,000
Allowance for loans sold 1,111,000 932,000
Deferred income taxes 5,080,000 3,740,000
---------- ----------
64,357,000 28,594,000
---------- ----------
10% Notes due 2002 12,785,000 12,888,000
8 7/8 % Notes due 2003 15,930,000 16,113,000
10% Notes due 2004 18,280,000 18,400,000
---------- ----------
46,995,000 47,401,000
========== ==========
Stockholders' equity:
Preferred stock, $.01 par value;
authorized 1,000,000 shares,
none issued and outstanding -- --
Common stock, $.01 par value;
authorized 8,000,000 shares,
5,444,399 shares issued and
outstanding in 1996;
5,223,715 shares issued and
5,174,715 shares outstanding
in 1995 54,000 52,000
Additional paid in capital 34,633,000 31,873,000
Retained earnings 7,761,000 6,065,000
Less 49,000 common shares held
in treasury, at cost, in 1995 -- (594,000)
Total stockholders' equity 42,448,000 37,396,000
------------- -------------
Total liabilities and stockholders' equity $ 153,800,000 $ 113,391,000
============= =============
See accompanying notes to consolidated financial statements.
LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
-------------------------------
1996 1995 1994
----- ---- -----
Revenues:
Interest and fees on loans $15,396,000 $11,392,000 $5,669,000
Gain on sale of loans 7,331,000 5,161,000 4,847,000
Servicing and other fee income 1,456,000 908,000 459,000
---------- ---------- ----------
24,183,000 17,461,000 10,975,000
---------- ---------- ----------
Expenses:
Interest expense 7,197,000 6,138,000 3,158,000
Salaries and employee benefits 3,233,000 2,798,000 1,776,000
Other operating expenses 3,225,000 2,120,000 1,164,000
Provision for loan losses 1,954,000 890,000 559,000
---------- ---------- ---------
15,609,000 11,946,000 . 6,657,000
---------- ---------- ---------
Income before income taxes
and extraordinary item 8,574,000 5,515,000 4,318,000
Provision for income taxes 3,301,000 2,066,000 1,619,000
--------- --------- ---------
Income before extraordinary item 5,273,000 3,449,000 2,699,000
Extraordinary item (net of
applicable tax benefit of $76,000) --- --- (126,000)
---------- ---------- ----------
Net income $5,273,000 $3,449,000 $2,573,000
========== ========== ==========
Primary per common share amounts:
Income before extraordinary item $ .93 $ .76 $ .63
Extraordinary item --- --- ( .03)
----- ----- ------
Net income $ .93 $ .76 $ .60
===== ===== ======
Primary weighted average number of
shares 5,674,264 4,522,983 4,280,006
Fully-diluted per common share amounts:
Income before extraordinary item $ .92 $ .76 $ .63
Extraordinary item --- --- ( .03)
----- ----- ------
Net income $ .92 $ .76 $ .60
===== ===== ======
Fully-diluted weighted average number
of shares 5,736,467 4,543,009 4,280,006
See accompanying notes to consolidated financial statements.
LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Common Paid In Retained Treasury
Stock Capital Earnings Stock Total
------ ------- -------- --------- -----------
Balance, December 31, 1993 $36,000 $9,662,000 $5,024,000 $ --- $14,722,000
Issuance of 178,313 shares
in connection with 5%
stock dividend 2,000 2,183,000 (2,185,000) --- ---
Issuance of 12,995 shares --- 23,000 --- --- 23,000
Repurchase of 49,100 shares --- --- --- (595,000) (595,000)
Dividends ($.03 per share) --- --- (113,000) --- (113,000)
Net income --- --- 2,573,000 --- 2,573,000
------ ---------- --------- -------- ----------
Balance, December 31, 1994 38,000 11,868,000 5,299,000 (595,000) 16,610,000
Issuance of 186,819 shares
in connection with 5%
stock dividend 2,000 2,473,000 (2,475,000) --- ---
Issuance of 1,282,551 shares
(including reissuance of
100 shares held in treasury) 12,000 17,532,000 --- 1,000 17,545,000
Dividends ($.04 per share) --- --- (208,000) --- (208,000)
Net income --- --- 3,449,000 --- 3,449,000
------ ---------- --------- -------- ----------
Balance, December 31, 1995 52,000 31,873,000 6,065,000 (594,000) 37,396,000
Issuance of 259,124 shares
in connection with 5%
stock dividend 3,000 3,301,000 (3,304,000) --- ---
Issuance of 10,560 shares
(including reissuance of
ten shares held in treasury) --- 52,000 --- --- 52,000
Retirement of 48,990 shares
held in treasury (1,000) (593,000) --- 594,000 ---
Dividends ($.05 per share) --- --- (273,000) --- (273,000)
Net income --- --- 5,273,000 --- 5,273,000
------- ----------- ---------- -------- -----------
Balance, December 31, 1996 $54,000 $34,633,000 $7,761,000 $ --- $42,448,000
======= =========== ========== ======== ===========
See accompanying notes to consolidated financial statements.
LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------------------
1996 1995 1994
---------- ----------- -----------
Cash flows from operating activities:
Net income $5,273,000 $ 3,449,000 $2,573,000
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Gain on sale of loans (7,331,000) (5,161,000) (4,847,000)
Loss on retirement of 10% Notes
due 2002 --- --- 88,000
Amortization and depreciation 520,000 511,000 490,000
Amortization of excess servicing
asset 3,444,000 2,267,000 1,996,000
Provision for loan losses 1,954,000 890,000 559,000
Provision for deferred
income taxes 1,340,000 1,209,000 1,101,000
Net changes in operating assets
and liabilities:
Restricted cash (2,578,000) (4,957,000) (6,791,000)
Loans held for sale (532,000) (11,978,000) 2,220,000
Dealer /developer reserves 984,000 3,069,000 1,649,000
Net change in other assets
and liabilities (2,701,000) 881,000 (3,549,000)
Net cash provided by (used in) ----------- ----------- -----------
operating activities 373,000 (9,820,000) (4,511,000)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of investments
held to maturity --- (5,595,000) (2,011,000)
Redemption of investments
held to maturity 118,000 9,232,000 7,890,000
Net originations and principal
payments on loans held for
investment (47,170,000) (18,022,000) (7,051,000)
Sale of loans originally held
for investment --- --- 1,011,000
Collections on subordinated
pass-through certificates 590,000 --- ---
Capital expenditures and other
assets (126,000) (1,676,000) (1,697,000)
Net cash used in investing ------------ ------------ -----------
activities (46,588,000) (16,061,000) (1,858,000)
------------ ------------ -----------
Cash flows from financing activities:
Net borrowings (repayments)
on lines of credit 36,299,000 (5,823,000) 5,823,000
Proceeds from issuance of
long-term notes --- 18,400,000 ---
Redemption of long-term notes (406,000) (895,000) (2,406,000)
Proceeds from term note --- 12,500,000 ---
Payments of term note (2,408,000) (2,664,000) ---
Net proceeds from issuance of
common stock 52,000 17,544,000 23,000
Reissuance (purchase) of
treasury stock --- 1,000 (595,000)
Dividends paid (273,000) (208,000) (113,000)
Net cash provided by ----------- ----------- ----------
financing activities 33,264,000 38,855,000 2,732,000
----------- ----------- ----------
Net (decrease) increase in cash
and cash equivalents (12,951,000) 12,974,000 (3,637,000)
Cash and cash equivalents,
beginning of period 18,508,000 5,534,000 9,171,000
Cash and cash equivalents, ----------- ----------- -----------
end of period $5,557,000 $18,508,000 $5,534,000
=========== =========== ===========
Supplemental Schedule of Noncash
Financing and Investing Activities:
Exchange of loans for subordinated
pass-through certificates $3,540,000 $8,842,000 $ ---
========== ========== =========
Exchange of loans for investments
held to maturity $ --- $ 358,000 $ ---
========== ========== =========
Transfers from loans to real
estate acquired through
foreclosure $1,654,000 $1,991,000 $843,000
========== ========== =========
Supplemental Cash Flow
Information:
Interest paid $6,674,000 $5,766,000 $2,972,000
========== ========== ==========
Income taxes paid $1,411,000 $1,151,000 $ 448,000
========== ========== ==========
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
Litchfield Financial Corporation (the "Company") is a specialty consumer
finance company which provides financing for the purchase of rural and vacation
properties ("Land Loans") and financing of vacation ownership interests ("VOI
Loans"), popularly known as timeshare interests. In addition, the Company makes
loans to rural land dealers and resort developers secured by consumer
receivables and other secured loans (collectively, "Dealer/Other Loans".)
Basis of Presentation The consolidated financial statements include the
accounts of Litchfield Financial Corporation and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Interest income
Interest income from loans and subordinated pass-through certificates held
to maturity is recognized using the interest method. Accrual of interest is
suspended when collection is doubtful and, in any event, when a loan is
contractually delinquent for ninety days and it is determined that amounts
cannot be recovered from dealer/developer reserves or guarantees. The accrual is
resumed when the loan becomes contractually current as to principal and interest
and past-due interest is recognized at that time.
Gain on sale of loans
Loans are typically sold to investors with the Company retaining a
participation in cash flows derived from the loans sold. Gain on sales of loans
are recorded on the settlement date based upon the difference between the
selling price and the carrying value of the loans sold using the specific
identification method. The gain is increased by the present value of the
differential between the interest to be collected from the borrower and the
interest to be passed on to the purchaser of the loan during the estimated
average life of the loans, less fees for normal servicing of the loans (referred
to as excess servicing asset). The excess servicing asset is calculated using
prepayment, default, and interest rate assumptions prevalent in the marketplace
at the time of sale for similar instruments. The Company provides an allowance
for expected losses under the recourse provisions at the time of the loan sale.
The excess servicing asset is amortized over the estimated life of the loans
using the interest method. Because a significant portion of the Company's
revenues is comprised of gains realized upon sales of loans, the timing of such
sales has a significant effect on the Company's results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On a quarterly basis, the Company assesses the carrying value of the excess
servicing asset by comparing actual versus assumed prepayment rates on a
disaggregated basis reflecting factors such as origination dates of the loans
and the types of loans. The Company will adjust the carrying value of the excess
servicing asset for any unfavorable changes.
Loans
Loans held for sale are carried at the lower of aggregate cost or market
value. Market value is determined by outstanding commitments from investors or
current investor yield requirements.
Provisions for loan losses and impairment of loans
Provisions for loan losses are charged to income in amounts sufficient to
maintain the allowances at levels considered adequate to cover anticipated
losses on outstanding loans, including loans sold and subordinated pass-through
certificates. Management evaluates allowance requirements on a quarterly basis
by examining current delinquencies, historical loan losses, the value of the
underlying collateral and general economic conditions and trends. Management
also evaluates the availability of dealer/developer reserves to absorb loan
losses. The Company determines those loans that are uncollectible based upon
detailed review of all loans and any charge-offs are charged to the allowance
for loan losses.
Land Loans and VOI Loans which consist of large groups of smaller balance
loans are evaluated collectively for impairment and are stated at the lower of
cost or fair value.
Dealer/Other Loans are evaluated individually for impairment based on the
factors described above. No such loans were impaired at December 31, 1996 or
1995.
Loan origination fees and related costs
The Company defers the excess of loan origination fees over related direct
costs and recognizes such amount as interest income over the estimated life of
the related loans using the interest method.
Real estate acquired through foreclosure
Real estate acquired through foreclosure is carried at the lower of fair
value less estimated costs to sell or cost. On a quarterly basis, the Company
evaluates the carrying value of the real estate and establishes a valuation
allowance if the fair value of the asset less the estimated costs to sell the
asset is less than the carrying value of the asset. Subsequent increases in the
fair market value less the estimated cost to sell the asset would reduce the
valuation allowance, but not below zero. There was no such valuation allowance
at December 31, 1996 or 1995. Other real estate owned of $1,775,000 and
$1,288,000 is included in other assets at December 31, 1996 and 1995,
respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Dealer/developer reserves
As part of the Company's financing of loans through dealer/developers, the
Company retains a portion of the proceeds from the purchased loans as a reserve
to offset potential losses on those loans. The Company negotiates the amount of
reserves with the dealer/developers based upon various criteria, including the
credit risk associated with the dealer/developer and the loans being purchased.
The Company generally returns any excess reserves to the dealer/developer on a
quarterly basis as the related loans are repaid by borrowers.
Income taxes
The Company uses the liability method of accounting for income taxes in
its financial statements.
Net income per common share
Primary and fully diluted earnings per share were computed by dividing net
income by the weighted average number of shares of common stock and common stock
equivalents outstanding for each period.
Cash and cash equivalents
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Restricted cash
Restricted cash and cash equivalents represent accounts established as
credit enhancements for certain loan sales and escrow deposits held for
customers.
Investments held to maturity and Subordinated pass-through certificates held to
maturity
Management determines the appropriate classification of debt securities at
the time of purchase. Debt securities are classified as held to maturity when
the Company has the intent and ability to hold the investments to maturity.
Investments held to maturity are carried at amortized cost and are included in
other assets.
The Company classifies its subordinated pass-through certificates as held
to maturity based on its ability and expressed intent to hold the certificates
of maturity. Historically, the Company has not sold its subordinated
pass-through certificates and cannot sell such certificates without the consent
of the senior certificate holders. In addition, the Company has pledged certain
pass-through certificates as collateral for certain liabilities and cannot sell
such certificates without the further consent of the lenders.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Subordinated pass-through certificates held to maturity are carried at
amortized cost less an allowance for loan losses. On a quarterly basis, the
Company assesses the carrying value of the subordinated pass-through
certificates for impairment. The Company considers the affect of changes in
prepayment, default and interest rates on the cash flows underlying the
subordinated pass-through certificates. The Company will adjust the carrying
value for any impairment of carrying value that it considers to be other
than-temporary.
Deferred debt issuance costs
Deferred debt issuance costs are amortized over the life of the related
debt. The unamortized balance of $1,820,000 and $2,211,000 is included in other
assets at December 31, 1996 and 1995, respectively. The amount of the
accumulated amortization was $1,051,000 and $675,000 at December 31, 1996 and
1995 respectively. Mortgage servicing rights
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122 "Accounting for Mortgage Servicing
Rights, an Amendment of FASB Statement No. 65." The Company adopted the
provisions of the standard in 1996. The standard requires the Company to
allocate the cost of purchasing or originating mortgage loans to the mortgage
servicing rights and the loans (without the servicing rights) based on their
relative fair values if the Company sells or securitizes the loans and retains
the servicing rights. Any cost allocated to mortgage servicing rights is
recognized as a separate asset. Mortgage servicing rights are amortized in
proportion to and over the period of estimated net servicing income and are
evaluated for impairment based on their fair value.
In the absence of fair market values for the servicing of Land and VOI
Loans, the Company uses fair values derived from cash flows to estimate fair
value. Such estimates consider assumptions about prepayments, defaults and
interest rates consistent with those used in the Company's gain on sale of loan
models described above.
Because estimated future cash flows from servicing approximate the cost of
servicing the related Land and VOI Loans, the Company did not allocate any cost
to mortgage servicing rights in 1996.
Reclassification
Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform to the 1996 presentation.
New accounting standards
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." In general, the
provisions of this standard are effective for financial statements for transfers
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996, and shall be applied prospectively. In future periods,
the Company's excess servicing asset will be reclassified as interest only
strips and will be accounted for under the provisions of the Statement of
Financial Accounting Standards No. 115 "Accounting For Certain Investments in
Debt and Equity Securities."
2. Investments Held to Maturity and Subordinated Pass-Through Certificates
Held to Maturity
The following is a summary of investments and subordinated pass-through
certificates held to maturity:
Gross Unrealized Fair
----------------
December 31, 1996 Cost Gains Losses Value
----------------- ---- ----- ------ ------
Mortgage-backed securities $142,000 $ --- $ --- $ 142,000
Subordinated pass-through
certificates 18,004,000 185,000 --- 18,189,000
----------- -------- ------ -----------
Total debt securities $18,146,000 $185,000 $ --- $18,331,000
=========== ======== ====== ===========
Gross Unrealized Fair
-----------------
December 31, 1995 Cost Gains Losses Value
----------------- ---------- ------- ------ ---------
Mortgage-backed securities $ 260,000 $ --- $ --- $ 260,000
Subordinated pass-through
certificates 13,468,000 15,000 --- 13,483,000
----------- ------- ----- -----------
Total debt securities $13,728,000 $15,000 $ --- $13,743,000
=========== ======= ===== ===========
The amortized cost and estimated fair value of debt securities at December
31, 1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.
Mortgage-backed securities are included in other assets.
Estimated
Cost Fair Value
------ -----------
Due in one year or less $ --- $ ---
Due after one year
through five years 18,146,000 18,331,000
----------- -----------
Total debt securities $18,146,000 $18,331,000
=========== ===========
In 1990, the Company began privately placing issues of pass-through
certificates evidencing an undivided beneficial ownership interest in pools of
loans held by a trust. The principal and part of the interest payments on the
loans transferred to the trust are collected by the Company, as the servicer of
the loan pool, remitted to the trust for the benefit of the investors, and then
distributed by the trust to the investors in the pass-through certificates.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In certain of the Company's issues of pass-through certificates, credit
enhancement was achieved by dividing the issue into a senior portion which was
sold to the investors and a subordinated portion which was retained by the
Company. The Company had investments in pass-through certificates of $18,004,000
and $13,468,000 at December 31, 1996 and 1995, respectively. In certain other of
the Company's private placements, credit enhancement was achieved through cash
collateral. The Company had $18,647,000 and $16,179,000 of restricted cash at
December 31, 1996 and 1995 representing credit enhancements.
If borrowers default in the payment of principal or interest on the loans
underlying these issues of pass-through certificates, losses would be absorbed
first by the subordinated portion or cash collateral retained by the Company and
might, therefore, have to be charged against the allowance for the loan losses
to the extent dealer/developer guarantees and reserves are not available.
3. Loans
Loans at December 31, 1996 and 1995 consisted of the following:
December 31,
----------------------
Loans held for sale 1996 1995
------------------- ------- ---------
Land $11,833,000 $ 9,125,000
VOI 2,194,000 7,546,000
Discount, net of accretion (950,000) (1,191,000)
Allowance for loan losses (817,000) (1,100,000)
------------ ------------
Loans, net $12,260,000 $14,380,000
============ ===========
December 31,
------------------------
Loans held for investment 1996 1995
------------------------- --------- ----------
Land $ 1,861,000 $ 1,429,000
VOI 1,313,000 3,698,000
Dealer/Other 79,374,000 30,140,000
Discount, net of accretion (1,352,000) (1,241,000)
Allowance for loan losses (1,200,000) (413,000)
------------ ------------
Loans, net $79,996,000 $33,613,000
============ ============
Contractual maturities of loans as of December 31, 1996 are as follows:
December 31,
1996
----------
1996 $13,654,000
1997 14,669,000
1998 10,517,000
1999 3,690,000
2000 4,613,000
Thereafter 45,113,000
-----------
$92,256,000
===========
It is the Company's experience that a substantial portion of the loans will
be repaid before contractual maturity dates. Consequently, the above tabulation
is not to be regarded as a forecast of future cash collections.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Allowances for Loan Losses
An analysis of the allowances for loan losses follows:
Loans owned and subordinated Year ended December 31,
--------------------------------
pass-through certificates 1996 1995 1994
-------------------------- ---------- -------- ----------
llowance at beginning of period $2,783,000 $384,000 $464,000
Net charge-offs of uncollectible
accounts (1) (1,395,000) (539,000) (80,000)
Provision for loan losses 1,735,000 761,000 ---
Allocation of purchase
adjustment (2) 294,000 2,177,000 ---
---------- ---------- --------
Allowance at end of period $3,417,000 $2,783,000 $384,000
========== ========== ========
Year ended December 31,
----------------------------------
Loans sold 1996 1995 1994
----------- ---------- --------- ----------
Allowance at beginning of period $ 932,000 $880,000 $600,000
Net charge-offs of uncollectible
accounts (3) (570,000) (407,000) (279,000)
Provision for loan losses 219,000 129,000 559,000
Allocation of purchase
adjustment (2) 530,000 330,000 ---
---------- -------- ---------
Allowance at end of period $1,111,000 $932,000 $880,000
========== ======== =========
(1) Net of recoveries of $240,000 in 1996 and $42,000 in 1994. There were no
recoveries in 1995.
(2) Represents allocation of purchase adjustment related to the purchase of
pools of certain loans including the GEFCO portfolio in 1995. (See Note
12.)
(3) Net of recoveries of $70,000, $11,000 and $5,000 in 1996, 1995 and 1994,
respectively.
Net charge-offs by major loan and collateral types experienced by the
Company are summarized as follows:
Year ended December 31,
-------------------------------------------
1996 1995 1994
---------- -------- -------
Land $ 669,000 $546,000 $359,000
VOI 1,284,000 45,000 ---
Dealer/Other 12,000 355,000 ---
---------- -------- --------
Total $1,965,000 $946,000 $359,000
========== ======== ========
5. Excess Servicing Asset
The activity in the excess servicing asset is summarized as follows:
Year ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
Balance, beginning of period $10,058,000 $ 8,925,000 $4,931,000
Gain on sale of loans 4,641,000 3,232,000 5,971,000
Recapture on repurchase of loans (70,000) (52,000) (366,000)
Amortization (2,610,000) (2,047,000) (1,611,000)
----------- ------------ -----------
Balance, end of period $12,019,000 $10,058,000 $8,925,000
=========== =========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Derivative financial instrument held for purposes other than trading
In June, 1994, the Company entered into an interest rate cap agreement with
a bank in order to manage its exposure to certain interest rate increases. The
Company's objective in managing interest rate exposure is to match its
proportion of fixed versus variable rate assets, liabilities and loan sale
facilities. The interest rate cap entitles the Company to receive an amount,
based upon an amortizing notional amount, when commercial paper rates exceed 8%.
The notional amount was $5.4 million at December 31, 1996.
The premium paid for this interest rate cap agreement is amortized ratably
in the interest expense during the life of the agreement of seven years.
Payments to be received as a result of the cap agreement are accrued as a
reduction of interest expense. The unamortized cost of the premium is included
in other assets. The Company is exposed to credit loss in the event of
non-performance by the cap provider. The balance of the unamortized premium at
December 31, 1996 was $196,000.
7. Debt
Financial data relating to the Company's lines of credit is as follows:
Year ended December 31,
-----------------------------
1996 1995
----------- -----------
Lines of credit available:
Unsecured lines of credit $ --- $ ---
Secured lines of credit (1) 51,799,000 15,000,000
Total lines of credit ----------- -----------
available $51,799,000 $15,000,000
=========== ===========
Borrowings outstanding at
end of period:
Unsecured lines of credit $ --- $ ---
Secured lines of credit (1) 36,299,000 ---
Total borrowings outstanding ----------- ----------
at end of period $36,299,000 $ ---
=========== ==========
Weighted average interest rate
at end of period:
Unsecured lines of credit ---% ---%
Secured lines of credit 7.9% 9.5%
Total weighted average
interest rate 7.9% 9.5%
Maximum borrowings outstanding
at any month end:
Unsecured lines of credit $ --- $3,000,000
=========== ==========
Secured lines of credit $36,299,000 $5,000,000
=========== ==========
Average amount outstanding
during period:
Unsecured lines of credit $ --- $ 231,000
=========== ==========
Secured lines of credit $15,948,000 $2,306,000
=========== ==========
Weighted average interest rate
during the period (determined by
dividing interest expense by
average borrowings):
Unsecured lines of credit ---% 13.0%
Secured lines of credit 7.6% 9.8%
Total weighted average
interest rate during the period 7.6% 10.1%
(1) Amount includes $1,799,000 of outstanding borrowings at December 31, 1996 on
the revolving line of credit with Holland Limited Securities, Inc. (See Note
11.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company had a secured line of credit of $30,000,000 from the Bank of
Boston as lead agent, and Fleet Bank. The Company can elect to borrow all or
part of the outstanding balance on the line of credit at either the Bank's prime
interest rate or the Eurodollar rate plus 2%. Outstanding borrowings under this
line of credit at December 31, 1996 were $26,200,000. The line of credit matures
in April 1997, with renewal at the lender's discretion.
The Company also entered into an additional secured line of credit of
$5,000,000 with another financial institution at that institution's prime rate
of interest plus 1.25%. This line of credit matures in July 1997. There were no
outstanding borrowings on this line of credit at December 31, 1996. In January
1997, the secured line of credit was increased to $8,000,000 and the maturity
was extended to January 1998. The above lines of credit are secured by consumer
receivables and other secured loans.
The Company also entered into a $15,000,000 line of credit facility with
the Bank of Scotland. The outstanding borrowings under this facility at December
31, 1996 were $8,300,000. This facility is secured by certain subordinated
pass-through certificates, excess servicing assets, cash collateral accounts and
certain other loans and matures in September 1999. Interest is payable quarterly
in arrears at the Bank's prime interest rate plus 1%. In January 1997, this
facility was increased to $20,000,000.
The Company is not required to maintain compensating balances or forward
sales commitments under the terms of these lines of credit. As described in Note
11, the Company also has line of credit as part of an asset backed commercial
paper facility.
At December 31, 1995 the secured line of credit from the Bank of Boston as
lead agent was $15,000,000 at the Bank's prime interest rate plus 1%. There were
no outstanding borrowings at December 31, 1995.
During the first quarter of 1995, the Company entered into a 10.43%,
$12,500,000 debt placement with an insurance company. Principal is payable
monthly based on collection of the underlying collateral. The note is redeemable
only with the approval of the noteholder. The note is collateralized by certain
of the Company's investments in subordinated pass-through certificates, excess
servicing assets, and cash. At December 31, 1996 and 1995, the balance
outstanding on the note was $7,428,000 and $9,836,000 and the approximate value
of the underlying collateral was $13,772,000 and $17,700,000, respectively.
On March 15, 1995, the Company completed a public offering of $18,400,000
of 10% Notes due 2004 ("1995 Notes"). The 1995 Notes allow for a maximum annual
redemption at the election of the noteholders of $920,000 and contain certain
restrictions regarding the payment of cash dividends and require the maintenance
of certain financial ratios. On April 1, 1996 the noteholders redeemed, and the
Company paid $120,000 of the 1995 Notes.
Previously, the Company completed public offerings of $15,065,000 in
November 1992 ("1992 Notes") and $17,570,000 in May 1993 ("1993 Notes"). The
1992 Notes and the 1993 Notes bear interest at 10% and 8 7/8%, respectively, and
are due 2002 and 2003, respectively. The 1992 Notes and the 1993 Notes are
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
unsecured obligations of the Company and each such issuance allows for a maximum
annual redemption by noteholders of 5% of the original principal amount thereof.
On November 1, 1996, the Company repaid $103,000 of the 1992 Notes due 2002
pursuant to the noteholders' annual redemption rights. On August 1, 1996 and
June 1, 1996, the Company repaid $20,000 and $163,000, respectively of the 1993
Notes due 2003 pursuant to the noteholders' annual redemption rights.
8. Retirement Plans
Effective January 1, 1996, the Company implemented the Litchfield Financial
Corporation Employee 401(k) Plan ("the Plan"), a defined contribution plan for
all eligible employees at least 21 years of age and who have been employed by
the Company for at least six months. Participating employees may elect to defer
up to fifteen percent of their annual gross earnings. The Company will match an
amount equal to one hundred percent of the employee's pretax contributions up to
five percent of the employee's eligible compensation contributed into the Plan.
Contributions made by the Company in 1996 were $101,000.
The Company established a Simplified Employee Pension (SEP) Plan in 1992.
The SEP is a defined contribution plan for all eligible employees at least 21
years of age and who have worked for the Company in at least three of the
immediately preceding five years. Contributions to the SEP were made entirely at
the discretion of the Company. Contributions to the SEP in 1994 were $92,000.
There were no contributions in 1995 and the plan was discontinued in 1996.
9. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
December 31
1996 1995
Deferred Tax Assets:
Loan loss allowance $ 350,000 $ 348,000
Other 282,000 109,000
------- -------
Total deferred tax assets 632,000 457,000
Valuation allowance --- ---
Net deferred tax assets 632,000 457,000
------- --------
Deferred Tax Liabilities:
Depreciation 50,000 28,000
Mortgage loan income recognition. 3,696,000 2,746,000
Accretion income 1,662,000 1,423,000
Other 304,000 ---
--------- ---------
Total deferred tax liabilities 5,712,000 4,197,000
--------- ----------
Net deferred tax liabilities $5,080,000 $3,740,000
========== ==========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Significant components of the provision for income taxes attributable
to continuing operations are as follow:
Year ended December 31,
----------------------------------
1996 1995 1994
---- ---- ----
Current:
Federal $1,911,000 $ 819,000 $ 462,000
State 50,000 38,000 56,000
--------- --------- ---------
Total Current 1,961,000 857,000 518,000
--------- --------- ---------
Deferred:
Federal 1,288,000 1,191,000 1,098,000
State 52,000 18,000 3,000
---------- --------- ---------
Total Deferred 1,340,000 1,209,000 1,101,000
---------- --------- ---------
$3,301,000 $2,066,000 $1,619,000
========== ========== ==========
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:
Year ended December 31,
-----------------------------------
1996 1995 1994
------ ------ ------
Tax at U.S. statutory rates 35.0% 34.0% 34.0%
State income taxes, net of
federal tax benefit 3.4 3.4 3.5
Other - net 0.1 0.1 ---
----- ----- -----
38.5% 37.5% 37.5%
===== ===== =====
10. Stockholders' Equity and Stock Option Plans
Stockholders' Equity
In July 1996, the Board of Directors declared a five percent stock dividend
of the Company's Common Stock paid August 9, 1996 to stockholders of record on
July 23, 1996. Accordingly, weighted average share and per share amounts have
been restated for periods presented. The Company also declared 5% stock
dividends in 1995 and 1994.
Stock Option Plans
The Company has reserved 1,122,319 shares of common stock for issuance to
officers, directors and employees on exercise of options granted under a stock
option plan established in 1990. Options were granted at prices equal to or in
excess of the fair market value of the stock on the date of the grant. There
were 615,000 and 384,000 shares exercisable at December 31, 1996 and 1995,
respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Information with respect to options granted is as follows:
Number Exercise
of price
Shares per share
------- --------------
Outstanding at December 31, 1993 503,644
Granted 200,656 $11.11 - $11.67
Canceled or exercised (26,831) $1.15 - $11.23
-------
Outstanding at December 31, 1994 677,469
Granted 81,588 $9.98 - $11.56
Canceled or exercised (43,385) $1.44 - $11.67
-------
Outstanding at December 31, 1995 715,672
Granted 204,311 $11.55 - $14.05
Canceled or exercised (13,175) $1.15 - $11.55
-------
Outstanding at December 31, 1996 906,808
=======
In April 1995, the Company established the Stock Option Plan for
Non-Employee Directors which provides for the grant of options to purchase 5,513
shares of common stock to each non-employee director serving on the Board at the
time the plan was approved and to each new non-employee director elected in the
five year period commencing April 1995. The maximum number of shares for which
options may be granted under the plan is 66,150 shares. Options for 22,052
shares were granted at an exercise price of $12.02 per share in 1995 which was
the fair market value on the date of grant. There were 22,052 options
outstanding at December 31, 1996 and 1995. There were 7,352 options that were
exercisable at December 31, 1996. There were no options exercisable at December
31, 1995.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.23%
and 6.31%; a dividend yield of .35%, volatility factors of the expected market
price of the Company's common stock of .24; and a weighted-average expected life
of the option of 7.5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
1996 1995
----- -----
Pro forma net income $4,983,000 $3,363,000
Pro forma earnings per share
Primary $ .88 $ .74
Fully-diluted $ .87 $ .74
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1997.
11. Sale of Loans
The Company has sold $249,451,000 and $194,515,000 of loans at face value
through December 31, 1996 and 1995, respectively. The principal amount remaining
on the loans sold was $129,619,000 and $111,117,000 at December 31, 1996 and
1995, respectively. The Company guarantees, through replacement or repayment,
loans in default up to a specified percentage of loans sold. Dealer/developer
guaranteed loans are secured by repurchase or replacement guarantees in addition
to, in most instances, dealer/developer reserves.
The Company's exposure to loss on loans sold in the event of nonperformance
by the consumer, the dealer/developer on its guarantee, and the determination
that the collateral is of no value was $8,780,000, $10,259,000, and $12,456,000
at December 31, 1996, 1995 and 1994, respectively. Such amounts have not been
discounted. The Company repurchased $991,000, $448,000 and $259,000 of loans
under the recourse provisions of loan sales in 1996, 1995, and 1994,
respectively. Net charge-offs on loans repurchased under recourse provisions
were $570,000, $407,000, and $279,000 in 1996, 1995, and 1994, respectively. In
addition, when the Company sells loans through securitization programs, the
Company commits either to replace or repurchase any loans that do not conform to
the requirements thereof in the operative loan sale document.
The Company's Serviced Portfolio is geographically diversified with
collateral and consumers located in 41 and 50 states, respectively. At December
31, 1996, 14.3% of the collateral by principal balance was located in Texas and
14.4% and 12.2% of the borrowers by collateral location were located in Texas
and Florida, respectively. No other state accounted for more than 10.0% of the
total.
The Company has a revolving line of credit and sale facility as part of an
asset backed commercial paper facility with Holland Limited Securitization, Inc.
("HLS") a multi-seller commercial paper issuer sponsored by Internationale
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Nederlanden (U.S.) Capital Markets, Inc. ("ING"). In October 1996, the Company
amended the facility to increase the facility to $100,000,000, subject to
certain terms and conditions, reduce credit enhancement requirements and expand
certain loan eligibility criteria. The facility expires in June 1998.
In connection with the facility, the Company formed a wholly owned
subsidiary, Litchfield Mortgage Securities Corporation 1994 ("LMSC"), to
purchase loans from the Company. LMSC either pledges the loans on a revolving
line of credit with HLS or sells the loans to HLS. HLS issues commercial paper
or other indebtedness to fund the purchase or pledge of loans from LMSC. HLS is
not affiliated with the Company or its affiliates. As of December 31, 1996, the
outstanding balance of the loans sold under this facility was $77,521,000 and
outstanding borrowings under the line of credit were $1,799,000. Interest is
payable on the line of credit at an interest rate based on certain commercial
paper rates.
12. Portfolio Acquisition
On April 27, 1995, the Company purchased a portfolio of VOI Loans, loans to
developers secured by VOI Loans, other performing and non performing loans, and
other related assets from GEFCO. The purchase price and allocation of the
purchase price was as follows:
Purchase Price:
Cash paid to GEFCO $37,985,000
Net liabilities assumed from GEFCO 1,688,000
Other direct costs of acquisition 1,263,000
---------
Total $40,936,000
===========
Allocation of purchase price:
VOI Loans $34,138,000
Loans secured by VOI Loans 2,799,000
Other loans and assets 3,999,000
---------
Total $40,936,000
===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Market for Common Stock (Unaudited)
The Company's Common Stock is traded on The Nasdaq Stock Market's National
Market under the symbol "LTCH." The following table sets forth, for the periods
indicated, the high and low stock prices of the Company's Common Stock. All
share prices have been adjusted for a 5% stock dividend in each of 1996, 1995
and 1994.
High Low Dividends
1994
1st Quarter................ 12 3/8 9 1/4 ---
2nd Quarter................ 11 7/8 10 3/8 ---
3rd Quarter................ 13 3/8 10 3/8 ---
4th Quarter................ 11 3/8 9 1/2 $.03
1995
1st Quarter................ 10 7/8 9 5/8 ---
2nd Quarter................ 12 7/8 10 ---
3rd Quarter................ 16 12 3/8 ---
4th Quarter................ 15 1/4 12 3/8 $.04
1996
1st Quarter................ 13 5/8 11 ---
2nd Quarter................ 14 1/4 12 7/8 ---
3rd Quarter................ 15 11 1/2 ---
4th Quarter................ 15 12 1/2 $.05
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Quarterly Results of Operations (Unaudited)
First Second Third Fourth Total
--------- ---------- ---------- --------- -----------
1994
Total revenues ................ $ 1,952,000 $ 2,979,000 $ 3,672,000 $ 2,372,000 $ 10,975,000
Total expenses ................ 1,435,000 1,670,000 1,579,000 1,973,000 6,657,000
Income before
extraordinary item ......... 318,000 805,000 1,346,000 230,000 2,699,000
Extraordinary item (net of
applicable taxes) .......... -- (125,000) (2,000) 1,000 (126,000)
Net income .................... 318,000 680,000 1,344,000 231,000 2,573,000
Income before extraordinary
item per common share ... .07 .19 .31 .05 .63
Extraordinary item per
common share ............... -- (.03) -- -- (.03)
Net income per common share ... .07 .16 . 31 .05 .60
Weighted average number of
shares outstanding ......... 4,293,753 4,308,684 4,287,744 4,236,444 4,280,006
1995
Total revenues ................ $ 2,750,000 $ 4,574,000 $ 5,464,000 $ 4,673,000 $ 17,461,000
Total expenses ................ 2,157,000 3,013,000 3,137,000 3,639,000 11,946,000
Net income .................... 370,000 975,000 1,454,000 650,000 3,449,000
Net income per common share ... .09 .22 .33 .13 .76
Weighted average number of
shares outstanding ......... 4,233,442 4,345,396 4,412,366 5,198,700 4,543,009
1996
Total revenues ................ $ 4,715,000 $ 6,261,000 $ 7,136,000 $ 6,071,000 $ 24,183,000
Total expenses ................ 3,420,000 3,720,000 3,967,000 4,502,000 15,609,000
Net income .................... 798,000 1,564,000 1,946,000 965,000 5,273,000
Primary net income per
common share ............... .14 .27 .34 .17
.93
Primary weighted average
number of shares outstanding 5,637,643 5,708,160 5,697,094 5,706,037 5,674,264
Fully-diluted net income per
common share ............... .14 .27 .34 .17
.92
Fully-diluted weighted average
number of shares outstanding 5,700,891 5,708,191 5,720,924 5,754,250 5,736,467
A significant portion of the Company's revenues consists of gains on sales
of loans. Thus, the timing of loan sales has a significant effect on the
Company's Accruals of approximately $510,000 and $285,000 for salary
compensation as the result of the realization of performance criteria by certain
executive and management personnel were recorded in the fourth quarter of 1995
and 1994. In 1996, such amounts were accrued throughout the year including
$128,000 in the fourth quarter.
To the Stockholders and Noteholders of
LITCHFIELD FINANCIAL CORPORATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. They include amounts
based on informed judgment and estimates. The representations in the financial
statements are the responsibility of management. Financial information elsewhere
in the Annual Report is consistent with that in the financial statements.
To meet management's responsibility, the Company maintains a system of
internal control designed to provide reasonable assurance that errors or
irregularities that could be material to the financial statements are prevented
or would be detected within a timely period. The system of internal control
includes statements of policies and business practices, widely communicated to
employees, which are designed to require them to maintain high ethical standards
in their conduct of Company affairs. The internal controls are augmented by
organizational arrangements that provide for appropriate delegation of authority
and division of responsibility and by a program of internal audit with
management follow-up.
The financial statements have been audited by Ernst & Young LLP. Their
audit was conducted in accordance with generally accepted auditing standards and
included a review of internal controls and selective tests of transactions.
The Audit Committee of the Board of Directors, composed entirely of outside
directors, meets periodically with the independent auditors and management to
review accounting, auditing, internal accounting controls and financial
reporting matters. The independent auditors have free access to this committee
without management present.
Ernst & Young LLP
Boston, Massachusetts
January 31, 1997
The Board of Directors and Stockholders
LITCHFIELD FINANCIAL CORPORATION
We have audited the accompanying consolidated balance sheets of Litchfield
Financial Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Litchfield
Financial Corporation at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
Ronald E. Rabidou Norah K. Bresett
Chief Financial Officer Chief Accounting Officer and Controller
Corporate Officers
Richard A. Stratton
Chief Executive Officer and President
Heather A. Sica
Executive Vice President and Treasurer
Ronald E. Rabidou, C.P.A.
Chief Financial Officer
Wayne M. Greenholtz
Senior Vice President
James H. Shippee
Senior Vice President
Michael A. Spadacino, Esq.
Senior Vice President
James A. Yearwood
First Vice President
Norah K. Bresett, C.P.A.
Chief Accounting Officer
and Controller
General Counsel
Hutchins, Wheeler & Dittmar,
A Professional Corporation
Boston, MA
Transfer Agent
State Street Bank and Trust Company
c/o Boston EquiServe
Boston, MA
Independent Auditors
Ernst & Young LLP
Boston, MA
Board of Directors
John A. Costa
Managing Director of Planning and Business Development for Cardholder
Management Services
Donald R. Dion, Jr., Esq.
Chairman and Chief Executive Officer of Dion Money Management Advisors, Inc.
David J. Ferrari
President, Argus Management Corporation
Gerald Segel
Retired Chairman, Tucker, Anthony & R.L. Day, Inc.
Heather A. Sica
Executive Vice President and Treasurer
Richard A. Stratton
Chief Executive Officer and President
James Westra, Esq.
Stockholder of Hutchins, Wheeler & Dittmar, A Professional Corporation
Nasdaq Symbol
The common stock is traded under the symbol "LTCH".
Copies of the Company's Form 10-K Report, filed with the Securities and
Exchange Commission, may be obtained from the office of the Treasurer,
Litchfield Financial Corporation, 789 Main Road, Stamford, VT 05352.
As of January 31, 1997, there were 1,467 stockholders of record.
Corporate Headquarters
Litchfield Financial Corporation
Physical Address:
789 Main Road
Stamford, VT 05352
Mailing Address:
P.O. Box 488
Williamstown, MA 01267
Tel: (802) 694-1200
Fax: (802) 694-1237
Western Regional Office
Litchfield Financial Corporation
13701 West Jewell Avenue
Suite 200
Lakewood, CO 80228
Tel: (303) 985-1030
Fax: (303) 985-5375