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FORM 10-K
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
TO
COMMISSION FILE NO. 0-23381
BINGHAM FINANCIAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF MICHIGAN 38-3313951
State of Incorporation I.R.S. Employer I.D. No.
260 EAST BROWN STREET
SUITE 200
BIRMINGHAM, MICHIGAN 48009
(248) 644-8838
(Address of principal executive offices and telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of March 23, 2001, the aggregate market value of the Registrant's voting
stock held by non-affiliates of the Registrant was approximately $3,016,396,
based on the closing sales price of one share of common stock on such date as
reported by the Nasdaq SmallCap Market.
As of March 23, 2001, there were 2,623,462 shares of the Registrant's
common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement to be filed in
connection with its 2001 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Report.
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REFERENCES AND FORWARD-LOOKING STATEMENTS
References made in this annual report to "we, "us', "our", "Bingham," the
"Company," "BFSC" or the "Registrant" refer to Bingham Financial Services
Corporation and its subsidiaries.
This annual report contains forward-looking statements based on our current
expectations, estimates and projections about our industry, management's beliefs
and certain assumptions made by us. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," "may," "will" and
variations of these words or similar expressions are intended to identify
forward-looking statements. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. Such statements are not guarantees of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Therefore, our actual results could differ materially and adversely
from those anticipated in any forward-looking statements as a result of numerous
factors, many of which are described in the "Factors That May Affect Future
Results" section in Item 1 below and Management's Discussion and Analysis of
Financial Condition and Results of Operations in Item 7 below. You should
carefully consider those risks, in addition to the other information in this
annual report and in our other filings with the SEC. We undertake no obligation
to revise or update publicly any forward-looking statements for any reason.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Bingham is a specialized financial services company that provides and
services loans used to finance commercial real estate and manufactured homes.
Our operations are carried on through our subsidiaries, including Bloomfield
Acceptance Company, L.L.C., Bloomfield Servicing Company, L.L.C., Dynex
Financial, Inc., Dynex Insurance Agency, Inc. and Hartger & Willard Mortgage
Associates, Inc. In February 2001, Dynex Financial changed its name to Origen
Financial, Inc. We continue to refer to this subsidiary as Dynex Financial in
this document.
Our executive office is located at 260 East Brown Street, Suite 200,
Birmingham, Michigan 48009 and our telephone number is (248) 644-8838. Bingham,
which is a Michigan corporation, employed approximately 218 people as of March
15, 2001.
HISTORY OF BINGHAM
Bingham was incorporated in August 1996 by Sun Communities, Inc., a
fully-integrated, publicly held real estate investment trust traded on the New
York Stock Exchange under the symbol "SUI", and began transacting business in
January 1997. When Bingham completed its initial public offering in November
1997, our business was focused primarily on providing financing for new and
previously owned manufactured homes by making conventional loans under
installment loan contracts secured by borrowers' manufactured homes, primarily
to residents in manufactured home communities owned and managed by Sun. In
addition to providing financing to residents in Sun's manufactured home
communities, we have expanded our manufactured home lending business to
originate loans through manufactured home dealers and loan originators and have
expanded our business into the commercial lending and mortgage servicing
industry. Sun does not currently own any shares of our common stock.
Proceeds from our initial public offering were used to repay in full a
demand note payable to Sun, which we used to fund our initial manufactured home
loan contracts. In connection with the subordinated debt facility described
below, we issued warrants to Sun to purchase up to 400,000 shares of common
stock at the initial public offering price of $10 per share. In exchange for
offering us as a preferred financing service to potential home buyers in Sun's
communities, we granted Sun options to purchase 330,000 shares of our common
stock. These options vest in eight equal annual amounts beginning in January
2001. In April 1999, we began to pay Sun a 1% origination fee for loans
originated in Sun's communities, similar to our arrangements with our other
dealers. For the year ended December 31, 2000, we paid Sun approximately $44,000
under this arrangement.
In March 1998, we acquired Bloomfield Acceptance Company, L.L.C. and its
mortgage servicing affiliate Bloomfield Servicing Company, L.L.C., expanding our
business into commercial real estate lending and servicing. As consideration for
the Bloomfield transaction, we issued 338,732 shares of our common stock to the
members of Bloomfield Acceptance and Bloomfield Servicing. We issued an
additional 9,091 shares of our common stock to certain members of Bloomfield
Acceptance and Bloomfield Servicing to be held in escrow, of which 6,061 shares
remain in escrow. Bloomfield Acceptance originated $514.2 million in commercial
real estate loans in the year ended December 31, 2000.
In June 1999, we acquired Hartger & Willard Mortgage Associates, Inc. from
DMR Financial Services, Inc., an affiliate of Detroit Mortgage and Realty
Company. We issued 66,667 shares of our common stock to DMR Financial as
consideration for the transaction. In addition, we loaned $1.5 million to DMR
Financial under a promissory note dated July 31, 1999. The loan is guaranteed by
Detroit Mortgage and Realty and secured by the pledge of our common stock that
DMR Financial received in the acquisition. DMR Financial is in default under the
note, and we are foreclosing on the pledged shares. Hartger & Willard, which has
been in business over 50 years, provides mortgage banking services and arranges
permanent mortgage financing on a variety of commercial and industrial
properties. The acquisition of Hartger & Willard
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strengthened our origination capabilities and loan servicing portfolio as well
as adding several important correspondent relationships to our existing
commercial real estate lending business. Hartger & Willard and Bloomfield
Acceptance together comprise one of the largest commercial mortgage banking
operations in Michigan.
In December 1999, we acquired Dynex Financial, Inc., for $4.0 million in
cash. Dynex Financial specializes in manufactured home loan lending and
servicing. Dynex Financial originated approximately $161.2 million in
manufactured home loans in the year ended December 31, 2000. While we believe
Dynex Financial is structurally capable of originating $1 billion in loans per
year, we limited originations in the fiscal year ending December 31, 2000 as we
integrated the operations of Dynex Financial into the operations of our other
subsidiaries.
With the acquisition of Dynex Financial, our subsidiaries now service over
$2.4 billion in loans and, in addition to offering a wide variety of commercial
mortgage products and services, are able to provide a vast range of financial
services to the manufactured housing market, including construction financing,
retail lending, permanent financing, bridge financing, earn-out financing and
equity financing.
In connection with the integration of the operations of Dynex Financial, we
closed certain of its district and regional offices. When we acquired Dynex
Financial, it had regional offices in Dallas, TX, Atlanta, GA, Cincinnati, OH,
Charlotte, NC, and Vancouver, WA; district offices in Troy, MI, Columbia, SC,
Houston, TX and Phoenix, AZ; a national business center office in Richmond, VA;
and a national servicing center office in Fort Worth, TX. We have closed the
Charlotte, Vancouver, Troy, Columbia, Houston and Phoenix offices. We have also
relocated the Dallas regional office into our Fort Worth facility.
As part of our plan to conduct all of our manufactured home loan
origination operations through Dynex Financial, in March 2000 Dynex Financial
purchased $66.9 million of loans from MHFC, Inc., a subsidiary of Bingham
specializing in manufactured home lending and we sold MHFC to Gwenuc, LLC, a
limited liability company owned by Gary A. Shiffman, Chairman of Bingham. Gwenuc
paid us $400,000 in cash and assumed $2.7 million of seller financed debt to us.
We now conduct all of our manufactured home loan origination activities through
Dynex Financial.
MANUFACTURED HOME LENDING AND SERVICING
Overview
We conducted our manufactured home loan business through our MHFC, Inc.
subsidiary until we acquired Dynex Financial in December 1999. In March 2000, we
consolidated our manufactured home loan business in Dynex Financial when Dynex
Financial purchased substantially all of MHFC's manufactured home loans and we
sold MHFC. Dynex Financial originates loans that generally range in size from
$10,000 to $100,000 and have a term of 7-30 years. We initially focused our
marketing efforts principally through manufactured home community owners and
operators, specifically targeting Sun's manufactured home communities, where
MHFC's services were, and Dynex Financial's services continue to be, offered as
the preferred source of financing. Dynex Financial currently originates the
majority of its manufactured home loans through retail dealers other than Sun.
Our manufactured home finance business is generally subject to seasonal
trends, reflecting the general pattern of sales of manufactured homes peaking
during the spring and summer months and declining to lower levels from
mid-November through February.
Dealers
Each loan submitted to Dynex Financial by a dealer is subject to criteria
established by Dynex Financial relating to loan term, advance amounts, down
payment requirements and other pertinent program parameters. Dynex Financial
performs initial and periodic reviews of dealers with which it does business to
ensure that these dealers are in good corporate and financial standing. Dealers
are provided a rate and term schedule that establishes a customer rate for each
particular loan being submitted.
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Reports are continuously generated and analyzed to track dealer
performance. Performance factors tracked include loan approval rates, booking
rates, dealer delinquency, dealer chargeoff activity and volume of loans booked.
Dealer performance goals established by Dynex Financial are then monitored and,
if necessary, relationships with non-performing dealers are terminated.
Underwriting
Dynex Financial underwrites loans based on its review of loan applications
to ensure loans will comply with internal company guidelines as well as industry
standards. All loans secured by mortgages on both manufactured homes and the
underlying real estate, or "land/home" loans, are underwritten using Dynex
Financial's Internal Credit Rating grid, a traditional underwriting method that
primarily takes into account the applicant's credit history. In September 1999,
Dynex Financial began underwriting retail installment loans secured only by
manufactured homes, or "home only" loans, using Portal(TM), its
internally-developed proprietary credit scoring system. Portal was developed to
predict defaults using empirical modeling techniques and takes into account
information from applicants' credit applications and credit reports. Each
applicant's credit history, stability, capacity, down payment and security type
are taken into account by the Portal model. The Portal model is integrated into
our origination system and is based on Dynex Financial's historical lending
experience. Because the land/home and home only business lines have different
characteristics, and because we have not experienced significant losses or
defaults on land/home loans (a necessary component of a successful predictive
model), predictive modeling is only possible for home only applications, which
make up approximately 93% of our total manufactured home loan applications.
Loan Collateral
Dynex Financial retains a security interest in each manufactured home it
finances. Procedures for perfecting security interests vary by state.
Servicing
From April 1999 to February 2000, manufactured home loan contracts owned by
MHFC were serviced by Bloomfield Servicing. Beginning in February 2000, MHFC's
manufactured home loan contracts were serviced by Dynex Financial, which has
continued to service its own loan contracts since we acquired it in December
1999. We sold MHFC in March 2000, and since then all of our manufactured home
loan contracts have been serviced by Dynex Financial. Dynex Financial collects
principal and interest payments from borrowers and remits them to investors as
required under the relevant servicing contract. Dynex Financial also manages
collections on delinquent accounts. As of December 31, 2000, Dynex Financial's
servicing portfolio totaled approximately $1.2 billion.
Delinquency and Repossession
Dynex Financial is responsible for the servicing of each manufactured home
loan contract from the time of funding until the loan is paid in full. This
servicing includes processing payments, collecting delinquent accounts,
remitting funds to investors and repossessing and reselling the homes on
defaulted contracts. The repossession process includes issuing delinquent
notices between 15 and 18 days after a payment is past due, and a notice of
default is sent between 30 and 90 days after a payment is past due. Dynex
Financial then hires a local attorney to assist with its collection efforts
after the expiration of the notice of default. Next, a demand letter is issued,
at which time full payment must be made on all arrearages including late fees
and attorney fees. Dynex Financial generally repossesses the manufactured home
after payments have become 60 to 90 days delinquent if it is not able to work
out a satisfactory arrangement with the borrower.
Bingham maintains a reserve for estimated credit losses on manufactured
home loan contracts it owns, and a separate liability for potential recourse
obligations on loans that have been periodically sold to third parties with full
or partial recourse. At December 31, 2000, the aggregate principal balance of
manufactured home loan contracts in Bingham's portfolio was approximately $95.2
million and the aggregate principal balance of manufactured home loan contracts
sold to third parties with recourse was approximately
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$161.7 million. Bingham provides for losses on loans it owns and recourse
obligations in amounts necessary to maintain loan loss reserves and recourse
liabilities at levels it believes are sufficient to provide for future losses
based on historical loss experience, current economic conditions and portfolio
performance measures. For the year ended December 31, 2000, the three months
ended December 31, 1999 and the year ended September 30, 1999, as a result of
expenses incurred due to defaults and repossessions, $5.8 million, $346,000 and
$580,000, respectively, was charged to the reserve for loan losses. As of
December 31, 2000, approximately $146,000 had been charged to the recourse
liability set up for estimated losses on loans sold with recourse. Bingham's
reserve for loan losses and recourse liability at December 31, 2000 were $2.2
million and $9.3 million respectively as compared to $274,000 and $376,000,
respectively at December 31, 1999.
Bingham's inventory of repossessed homes was 52 homes at December 31, 2000
as compared to 72 homes at December 31, 1999. The estimated net realizable value
of the repossessed homes in Bingham's inventory at December 31, 2000 was
approximately $972,000 as compared to approximately $1.5 million at December 31,
1999. The net losses resulting from repossessions on Bingham-originated loans as
a percentage of the average principal amount of such loans outstanding for the
years ended December 31, 2000 and September 30, 1999 was 43.7% and 28.9%,
respectively.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note C to Bingham's audited consolidated financial
statements for more information on the delinquency of Bingham's manufactured
home loan contracts.
COMMERCIAL MORTGAGE BANKING
Overview
Through Bloomfield Acceptance, Bloomfield Servicing and Hartger & Willard,
we participate in and are active in all aspects of commercial real estate
mortgage banking, including originating, underwriting, placing, securitizing,
and servicing commercial real estate loans. Bloomfield Acceptance, which is one
of the largest commercial banking firms in Michigan, acts as both a direct
lender, making commercial real estate loans for its own portfolio as well as for
accumulation and securitization, and as a traditional mortgage banker, placing
commercial real estate loans with several institutional investors. Bloomfield
Acceptance has also placed loans in several commercial mortgage-backed
securitizations. Bloomfield Acceptance is an approved seller/servicer under the
Federal National Mortgage Association's pilot Aggregation program for
manufactured home communities, under which FNMA purchases manufactured home
loans on a non-recourse basis. Bloomfield Acceptance is also an approved
seller/servicer under the Federal Home Loan Mortgage Corporation's Program Plus
program, under which FHLMC purchases multi-family mortgages from lenders meeting
certain loan origination and servicing standards.
Portions of Bloomfield Acceptance's activities are focused on the
manufactured home community industry and Bingham believes that Bloomfield
Acceptance is one of the largest originators of commercial real estate loans to
manufactured home community owners in the country. For the year ended December
31, 2000, Bloomfield Acceptance originated approximately $144.4 million of loans
to manufactured home community owners.
Lending
Bloomfield Acceptance pursues lending opportunities on a nationwide basis
from direct borrower inquiry as well as from mortgage bankers and brokers. Loan
applications are processed at our offices in Birmingham, Michigan where we
perform due diligence, including an analysis of property operating history,
appraisal report, environmental report, borrower creditworthiness, credit
history and experience. Bloomfield Acceptance performs on-site property
inspection and local market analysis.
Bloomfield Acceptance currently originates loans for placement with outside
investors. It also originates loans to hold for sale under various mortgage loan
purchase agreements and under various loan participation
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arrangements with third party investors. As of December 31, 2000, Bloomfield
Acceptance maintained a portfolio of approximately $3.5 million of loans.
Traditional Mortgage Banking
Bloomfield Acceptance places commercial real estate mortgage loans with
several institutional investors, primarily life insurance companies that it
represents on an exclusive or semi-exclusive basis. The bulk of these activities
take place in Michigan. The acquisition of Hartger & Willard has enhanced our
commercial mortgage banking business by adding new loan officers and new
investors.
Servicing
Bloomfield Servicing services loans that Bloomfield Acceptance and Hartger
& Willard originate. Historically, the majority of the loans made on a direct
lending basis were serviced until the loan was securitized, at which time
Bloomfield Servicing received a servicing termination fee. In May 1998,
Bloomfield Servicing began retaining the servicing of its direct loans and it is
expected that the size of Bloomfield Servicing's servicing portfolio will
continue to increase.
In addition to servicing loans for Bloomfield Acceptance and Hartger &
Willard, Bloomfield Servicing services commercial real estate loans on behalf of
29 institutional investors. The majority of these loans are in Michigan.
As of December 31, 2000, Bloomfield Servicing's servicing portfolio totaled
approximately $1.2 billion. The entire commercial loan portfolio was current as
of December 31, 2000.
Delinquency and Repossession
Bloomfield Servicing is responsible for the servicing of each commercial
mortgage loan from the time of funding until the loan is paid in full. No
commercial mortgage serviced by Bloomfield Servicing was delinquent as of
December 31, 2000. If a commercial mortgage loan becomes delinquent, the
borrower is contacted by late notice letter and by telephone. If the loan
continues to be delinquent for more than 30 days, a default and acceleration
letter is sent, specifying the legal period to cure the default. During the cure
period attempts are made to obtain payment or to modify the loan terms to
provide a payment plan that was satisfactory to the lender and borrower to bring
the loan current. If the borrower and lender do not agree to a workout
arrangement during the cure period, Bloomfield Servicing retains local counsel
to institute foreclosure proceedings and the property is offered at a
foreclosure sale. Bloomfield Servicing or its representative must make a bid at
the foreclosure sale to insure an appropriate upset price is obtained upon
foreclosure. If the lender is the successful bidder, the property is turned over
to the lender to liquidate against the loan balance. If the successful bidder is
a third party, the proceeds of the sale are applied to the outstanding balance
of the loan. All costs of foreclosure are the responsibility of the lender and
the lender absorbs any losses.
INSURANCE
Dynex Insurance Agency, Inc., a subsidiary of Dynex Financial, is a
licensed agent placing property and casualty, life and warranty insurance,
primarily for Dynex Financial's manufactured home loans.
COMPETITION
The manufactured housing finance industry is fragmented and highly
competitive. There are numerous non-traditional consumer finance sources serving
this market. Many of these financing sources are larger than Bingham and have
greater financial resources. In addition, some of the manufactured housing
industry's larger manufacturers maintain their own finance subsidiaries to
provide financing for purchasers of their manufactured homes. Historically,
traditional financing sources (commercial banks, savings and loans, credit
unions and other consumer lenders), many of which have significantly greater
resources than Bingham and may be able to offer more attractive terms to
potential customers, have not consistently served this market. There is no
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assurance that we will be able to effectively compete against our existing
competitors or any future competitors.
The commercial real estate lending industry is highly competitive and
Bloomfield Acceptance and Hartger & Willard operate on a nationwide basis
against a host of local, regional and national lenders. Many of our competitors
are larger and have greater financial resources than we do. Traditionally, our
competitors included banks and thrifts, life insurance companies, mortgage
bankers and credit companies. More recently, the competition has expanded to
encompass Wall Street brokerage houses, either directly or through proxies or
"conduits." We believe that the industry is in a state of transition and rapid
consolidation, and there can be no assurances that we will be able to compete
effectively in this environment.
REGULATION AND SUPERVISION
We are currently subject to regulation and licensing under various federal
and state statutes and regulations.
Our manufactured home finance business encompasses both consumer lending
(manufactured homes only) and residential mortgage lending (land-home
transactions) as well as loan servicing, typically for loans originated by
manufactured housing dealers and loan origination companies. Currently, Bingham,
through its subsidiaries, conducts consumer lending and servicing in 34 states.
In some states, we conduct only manufactured home lending and not land-home
lending. Most states where our subsidiaries operate:
- require compliance with state guidelines concerning qualifying to do
business, licensing, and lending and finance activities and other
consumer protection measures and fair trade practices (including
prohibiting discrimination based on race, color, national origin, gender,
age, disability, marital status, or other bases);
- limit the interest rates and other charges that may be imposed related to
the loan, or prescribe certain other terms of the loan contracts,
including requirement of specific notice provisions, loan terms, or other
items (some of these state laws are preempted by federal laws applicable
to us);
- regulate the sale and type of insurance products that our subsidiaries
may offer and the insurers for which they will act as agent; and
- define our subsidiaries' rights to collect loan payments, and foreclose
and/or repossess and sell collateral.
Our subsidiaries are licensed to conduct consumer finance operations in
most states where they do business. In a limited number of states, our
subsidiaries are not required to hold a specific license to conduct their
business activities. Bloomfield Acceptance and Dynex Financial are each a
HUD-approved Investing Mortgagee.
In addition to state laws regulating their conduct, our consumer lending
and servicing activities of Bingham and its subsidiaries are subject to numerous
federal laws and the rules and regulations promulgated thereunder, including the
Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, and, in some instances, the Fair Debt Collections Practices Act
and the Home Mortgage Disclosure Act, as well as certain rules of the Federal
Trade Commission. These laws require that certain disclosures be made to
applicants, prohibit misleading advertising and protect against discriminatory
financing or unfair credit practices. The Truth in Lending Act and Regulation Z
promulgated thereunder require disclosure of, among other things, the terms of
repayment, the final maturity, the amount financed, the total finance charge and
the annual percentage rate charged on each manufactured home loan contract. The
Equal Credit Opportunity Act prohibits creditors from discriminating against
loan applicants (including retail installment contract obligors) on the basis of
race, color, national origin, gender, age, marital status, reliance upon public
assistance income or the consumer's exercise of rights under the Consumer Credit
Protection Act. Under the Equal Credit Opportunity Act, creditors are required
to make certain disclosures to consumers regarding their rights, and to provide
certain notices of adverse credit decisions to consumers who have applied for
credit. The rules of the Federal Trade Commission limit the types of property a
creditor may accept as collateral to secure a consumer
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loan, and its "holder in due course" rules provide for the preservation of a
consumer's claims and defenses when a consumer obligation is sold or assigned to
a third party.
The sale of insurance products by Dynex Insurance Agency, Inc., our
insurance subsidiary, is subject to various state insurance laws (including
licensure requirements) and regulations which govern allowable charges and other
practices.
Our commercial mortgage lending activities do not usually require
state-by-state licensure. However, our commercial mortgage loans are required to
comply with parts of the Equal Credit Opportunity Act, certain civil rights
laws, and a number of state laws and regulations related to required or
prohibited loan terms, interest rate limits, permitted collateral and related
terms, servicing and collection, and similar issues.
The regulatory procedures discussed above are subject to changes by the
regulatory authorities. There are no assurances that future regulatory changes
will not occur. These regulatory changes could place additional burdens on us
and our subsidiaries.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Bingham's prospects are subject to certain uncertainties and risks. Any of
the following risks could materially and adversely affect our business and
quarterly and annual results of operations. Also, other one-time events and
other important factors discussed previously and from time to time in our other
filings with the SEC may affect out future results.
WE MAY NOT HAVE SUFFICIENT WORKING CAPITAL AND FUNDS TO MEET OUR ANTICIPATED
NEEDS
We currently have the following financing arrangements:
- a term loan from Sun for $4.0 million;
- two demand lines of credit from Sun for $60.0 million in the aggregate;
- a credit agreement with Residential Funding Corporation under which we
may borrow up to $25.0 million to fund the acquisition and origination of
certain loans;
- a $10.0 million revolving credit facility with Michigan National Bank
limited to the amount of servicing advances outstanding; and
- a repurchase arrangement with Lehman Commercial Paper Inc.
At March 27, 2001, the following amounts were outstanding under our
financing arrangements:
- $4.0 million under the term loan from Sun;
- an aggregate of $27.4 million under the demand loans from Sun;
- $8.8 million under the credit agreement with Residential Funding
Corporation.
- $6.2 million under the credit facility with Michigan National Bank; and
- $9.1 million under the repurchase arrangement with Lehman.
The majority of Bingham's loan portfolio at December 31, 2000 was financed
by advances under the repurchase agreement with Lehman. Under the repurchase
agreement, Dynex Financial and Bloomfield Acceptance transfer loans from time to
time to Lehman against the transfer of funds from Lehman. Commercial mortgage
loans may be financed on the facility for up to nine months and manufactured
home loans may be financed on the facility for up to six months. Loans that
remain financed on the facility longer than these time frames are required to be
repurchased. In November 2000 the repurchase agreement with Lehman expired. A
temporary agreement was negotiated extending the facility through February 28,
2001 and reducing the available borrowing limit from $150.0 million to $95.0
million. Currently, the Company is still financing loans with Lehman with the
expectation that a replacement agreement can be negotiated and executed.
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Bingham's future liquidity and capital requirements depend on numerous
factors, many of which are outside of its control. Bingham currently anticipates
that it will have sufficient working capital and funds to meet its anticipated
needs for the next twelve months through a combination of funds from operations,
including loan sales and securitizations, proceeds from its existing credit
facilities and a renewed repurchase facility with Lehman or replacement
repurchase facility with a different lender and proceeds from the sale of assets
or debt or equity securities. There can be no assurance, however, that adequate
funds will be available on terms favorable to us, or at all. If we are not able
to sell or securitize loans, renew or replace the Lehman repurchase agreement or
sell assets or securities as anticipated, or if Sun were to demand payment under
its lines of credit with us, our ability to continue operations would be
jeopardized. See "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
WE HAVE GENERAL RISKS ASSOCIATED WITH ALL THE LOANS WE MAKE.
We are in the business of making loans. Factors that could affect the value
of our assets include the following:
Manufactured Home Lending
We concentrate a significant portion of our loan portfolio in manufactured
home loans. Manufactured home loan borrowers may be deemed to be relatively high
credit risks due to various factors, including, among other things, the poor
manner in which they have handled previous credit, the absence or limited extent
of their prior credit history or limited financial resources. Consequently, the
manufactured home loans we originate bear a higher rate of interest, have a
higher probability of default and may involve higher delinquency rates and
greater servicing costs relative to loans to more creditworthy borrowers. Our
profitability depends upon our ability to properly evaluate the creditworthiness
of borrowers and price each loan accordingly, limit our default rates and
foreclosure costs and to efficiently service the contracts. To the extent that
aggregate repossessions and resale of foreclosed collateral results in losses
which were not anticipated by the interest rates charged on loans, there would
be an adverse effect on profitability.
In addition, because a significant portion of our loan portfolio is
concentrated in manufactured home loans, our business is subject to business
cycles and to seasonality. The manufactured housing industry historically has
been cyclical and is generally subject to many of the same national and regional
economic and demographic factors that affect the housing industry generally.
These factors include consumer confidence, inflation, interest rates, regional
population and employment trends, availability of and cost of alternative
housing, weather conditions and general economic conditions. In addition, sales
typically peak during the spring and summer seasons and decline to lower levels
from mid-November through February.
Commercial Real Estate Lending
Commercial real estate loans have distinct risk characteristics. Commercial
real estate properties tend to be unique and difficult to value. Commercial real
estate loans also tend to have short maturities and may not be fully amortizing,
meaning that they may have a significant principal balance or "balloon" payment
due on maturity. In addition, commercial real estate properties, particularly
industrial and warehouse properties, are subject to environmental risks and to
the corresponding burdens and costs of compliance with environmental laws and
regulations. Also, there may be costs and delays involved in enforcing rights of
a property owner against tenants in default under the terms of leases with
respect to commercial properties. For example, tenants may seek the protection
of the bankruptcy laws, which could result in termination of lease contracts.
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WE MAY NOT BE ABLE TO DISPOSE OF LOANS IN THE SECONDARY MARKET ON FAVORABLE
TERMS.
We either broker, sell or securitize (meaning we will pool closed loans and
sell them to a trust for a cash purchase price and in some cases retain an
interest in the loans) a substantial portion of the manufactured home loans and
commercial real estate loans we originate. Any impairment in our ability to
dispose of loans could have a material adverse effect on our business. Factors
affecting our ability to dispose of loans include:
- conditions in the securities markets generally;
- conditions in the asset-backed and commercial mortgage-backed securities
markets specifically;
- the performance of the securities issued in connection with the our
securitizations;
- the price and credit quality of our loans;
- our relationship with our correspondent investors;
- compliance of our loans with the eligibility requirements for a
particular securitization;
- our ability to adequately service our loans; and
- any material negative rating agency action pertaining to certificates
issued in our securitizations.
The "gain on sale" from the sale of loans is a significant component of our
revenues, and retained interests in loan securitizations will be established as
balance sheet assets in connection with securitizations, based in part upon
estimates of future credit losses and prepayments. We may retain subordinated
securities issued in connection with our securitization program. If actual
credit losses or prepayment speeds on securitized loans exceed the estimates
made at the time of the securitizations, we could be required to record an
expense to reduce the carrying value of the retained interests and securities
classified as available-for-sale, if any, on our balance sheet. This could have
a material impact on our earnings.
OUR PROFITABILITY MAY BE AFFECTED IF WE ARE UNABLE TO EFFECTIVELY MANAGE
INTEREST RATE RISK.
We derive our income in part from the difference or "spread" between the
interest earned on loans, and interest paid on borrowings. In general, the wider
the spread, the more we earn. When market rates of interest change, the interest
we receive on our assets and the interest we pay on our liabilities will
fluctuate. This can cause increases or decreases in our spread and can affect
our income. In addition, interest rates affect how much money we can lend. For
example, when interest rates rise, loan originations tend to decrease. Factors
such as inflation, recession, unemployment, money supply, international
disorders, instability in domestic and foreign financial markets and other
factors beyond our control may affect interest rates.
While we employ an interest rate management strategy to control our risk
from changes in market interest rates, an effective interest rate risk
management strategy is complex and no such strategy can completely insulate us
from interest rate changes.
In the future we may use interest rate risk management strategies other
than or in addition to those we have used in the past. These strategies could
include interest rate caps, floors and swaps, mandatory forward sales, mandatory
or optional sales of futures and other financial futures transactions including
U.S. Treasury obligations. We will determine the nature and quantity of future
hedging transactions based on various factors, including market conditions and
the expected duration and exit strategy of the loans.
The nature and timing of interest rate risk management strategies may
impact their effectiveness. Poorly designed strategies may increase rather than
mitigate risk and may adversely affect our profitability.
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THE VALUE OF OUR SERVICING RIGHTS MAY BE ADVERSELY AFFECTED BY VARIOUS
CONDITIONS.
Our servicing rights are treated as an asset in accordance with generally
accepted accounting principles. The fair value of the servicing rights may be
adversely affected by factors such as:
- increases in prepayments, which tend to shorten the life of the servicing
asset;
- higher than expected rate of loan defaults; and
- the underlying loans' average custodial balances, the amount deposited by
borrowers for taxes, replacement reserves and other deposits.
We may also incur loss of revenues if any of our servicing contracts are
terminated.
WE HAVE A HISTORY OF LOSSES AND WE MAY NOT BE PROFITABLE IN THE FUTURE.
We have experienced net losses while growing our loan origination platform
and business, including net losses of $110,000 and $574,000 for the fiscal years
ended September 30, 1997 and September 30, 1998, respectively, net income of
$776,000 for the fiscal year ended September 30, 1999, a net loss of $185,000
for the three months ended December 31, 1999 and a net loss of $16.3 million for
the fiscal year ended December 31, 2000. We may continue to incur significant
operating losses and capital expenditures. As a result, we will need to generate
significant revenues to achieve and maintain profitability. If we are unable to
achieve and maintain sufficient revenue growth, we may not be profitable in the
future. Even if we do achieve profitability, we may not sustain or increase
profitability on a quarterly or annual basis.
THE COMPETITION WE FACE COULD ADVERSELY AFFECT OUR PROFITABILITY.
We face competition in originating loans. This competition could adversely
affect our profitability. Competition in originating manufactured home loans
comes primarily from non-traditional consumer finance sources and some of the
manufactured housing industry's larger manufacturers. Competition in originating
commercial real estate mortgage loans comes primarily from savings institutions,
commercial banks, mortgage bankers and insurance companies. We compete for these
loans based on interest rates, types of products, loan fees charged and the
quality of customer service that we provide to borrowers. Due to their size,
some of our competitors have significantly greater resources and offer a broader
range of products and services than we do.
OUR STOCK PRICE HAS BEEN VOLATILE
Historically, the market price of our common stock has fluctuated widely.
Since our initial public offering in November 1997, the market price has ranged
from a low of $0.6875 per share to a high of $28.50 per share. Fluctuations may
occur, among other reasons, in response to:
- operating results;
- announcements by competitors;
- regulatory and legislative changes;
- economic changes;
- market valuation of financial service firms; and
- general market conditions.
The trading price of our common stock could continue to be subject to wide
fluctuations in response to these or other factors, many of which are beyond our
control. If the market price of our common stock decreases, stockholders may not
be able to sell their stock at a profit.
ITEM 2. PROPERTIES
Our corporate headquarters is located in approximately 14,800 square feet
of leased space in Birmingham, Michigan. The lease, which terminates on October
31, 2001, currently provides for monthly rent of
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$35,000, including base rent and a pro rata share of operating expenses and real
estate taxes. We have an option to renew the lease for an additional three
years.
Bloomfield Acceptance leases space in Juno Beach, Florida and Solana Beach,
California for a portion of its commercial mortgage origination operations. The
Juno Beach lease covers approximately 262 square feet with a monthly rent of
$1,035. The lease expires in December, 2001. The Solana Beach space covers 144
square feet and has a monthly rent of $800. This lease expires in March, 2001.
Hartger & Willard subleases space to a tenant in Grand Rapids, Michigan.
The lease covers approximately 4,300 square feet with a monthly rent of $5,400.
Hartger & Willard also subleases space to a tenant in Bloomfield Hills,
Michigan. The sublease covers a space of approximately 2,100 square feet with a
monthly rent of $3,900. The lease agreement expires in July 2001. The sublease
tenant has the option to extend the sublease to up to six months after that
date.
Dynex Financial leases office space for its various offices throughout the
country. It currently has a lease expiring in July 2003 for approximately 9,700
square feet of office space in Glen Allen, Virginia with a current monthly rent
of approximately $13,000; a lease expiring in September 2003 for approximately
6,100 square feet of office space in Duluth, Georgia with a current monthly rent
of approximately $8,000; a lease expiring in December 2002 for approximately
4,700 square feet of office space in Loveland, Ohio with a current monthly rent
of approximately $4,000; and a lease expiring in August 2004 for approximately
21,000 square feet of office space in Fort Worth, Texas with a current monthly
rent of approximately $27,000. Dynex Financial is also a party to several leases
for space in which it formerly operated offices and is in the process of
negotiating subleases or terminations of these leases.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to our business and the business of our
subsidiaries, or proceedings known by us to be contemplated by governmental
authorities, to which we or our subsidiaries are a party or to which any of our
or their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 13, 2000, Bingham held its annual meeting of shareholders. The
only matter voted upon at the meeting was the election of three directors to
serve until the 2003 Annual Meeting of Shareholders or until their respective
successors shall be elected and shall qualify. The results of the election
appear below:
VOTES AGAINST ABSTENTIONS OR
NAME VOTES FOR OR WITHHELD BROKER NON-VOTES
---- --------- ------------- ----------------
Daniel E. Bober....................................... 1,606,493 17,100 0
Robert H. Orley....................................... 1,606,493 17,100 0
Gary A. Shiffman...................................... 1,606,493 17,100 0
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock is traded on the Nasdaq SmallCap Market under the symbol
"BFSC." The following table presents the per share high and low bid prices of
our common stock for the periods indicated as reported by the Nasdaq SmallCap
Market. The stock prices do not include retail mark-ups, mark-downs or
commissions.
HIGH LOW
---- ---
FISCAL YEAR ENDED SEPTEMBER 30, 1999
First Quarter 1999.......................................... $18.000 $ 9.000
Second Quarter 1999......................................... 18.500 13.625
Third Quarter 1999.......................................... 16.500 12.000
Fourth Quarter 1999......................................... 14.500 8.438
OCTOBER 1, 1999 THROUGH DECEMBER 31, 1999................... $11.250 $ 7.000
FISCAL YEAR ENDED DECEMBER 31, 2000
First Quarter 2000.......................................... $10.500 $ 6.000
Second Quarter 2000......................................... 8.125 5.000
Third Quarter 2000.......................................... 5.500 1.313
Fourth Quarter 2000......................................... 3.688 0.688
On March 23, 2001, the closing sales price of the common stock was $1.688
and our common stock was held by approximately 59 holders of record.
We have never declared nor paid any cash dividends on our common stock. We
currently anticipate that we will retain any future earnings for the development
and operation of our business. Accordingly, we do not anticipate paying cash
dividends on our capital stock in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
Within the period covered by this report, we have issued and sold
unregistered securities in the amounts, at the times and for the aggregate
amounts of consideration listed as follows:
During the period from October 1, 1999 through December 31, 2000, we issued
options to purchase an aggregate of 85,750 shares of common stock to our
employees and directors. These sales were made pursuant to an exemption from
registration afforded by Section 4(2) and Rule 701 of the Securities Act of
1933.
During the period from October 1, 1999 through December 31, 2000, we issued
an aggregate of 55,381 shares of common stock to our employees. All of these
shares were issued as compensation and are restricted by the terms of restricted
stock award agreements. These sales were made pursuant to an exemption from
registration afforded by Section 4(2) and Rule 701 of the Securities Act of
1933.
No underwriters were engaged in connection with the foregoing sales of
securities. The recipients of the above securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had access, through their
relationship with us, to information about us.
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ITEM 6. SELECTED FINANCIAL DATA
THREE MONTHS YEAR ENDED
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -------------------
2000 1999 1999 1998
------------ ------------ ---- ----
(DOLLARS IN THOUSANDS)
Statement of Operations Data:
Revenue........................................ $ 25,486 $ 7,066 $ 16,277 $ 6,141
Income (loss) before income taxes.............. (24,629) 576 1,217 (793)
Income (loss) before cumulative effect of
change in accounting principle.............. (16,255) 378 776 (574)
Net income (loss).............................. (16,255) (185) 776 (574)
Income (loss) per common share, diluted........ (6.19) (0.07) 0.36 (0.46)
Balance Sheet Data:
Total assets................................... $147,881 $162,873 $128,473 $94,859
Total debt..................................... 113,617 124,802 101,070 78,230
Stockholders' equity........................... 10,840 26,139 26,068 13,457
Selected Ratios
Return on average assets....................... (9.32)% (0.12)% 0.85% (1.23)%
Return on average equity....................... (80.9)% (0.71)% 5.36% (4.13)%
Average equity to average assets............... 11.52% 17.33% 15.87% 29.77%
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company commenced operations in January 1997, for the primary purpose
of originating loans on manufactured home "Contracts" located within the
communities owned by Sun Communities, Inc ("Sun"). The Company was formed by Sun
in response to its growing need to provide timely and competitive financing to
residents in manufactured home communities. The Company provides financing for
new and previously owned manufactured homes to borrowers whose credit needs may
or may not be met by traditional financial institutions due to credit
expectations or other factors. In December 1999 Bingham acquired Dynex
Financial, Inc., which specializes in manufactured home lending and loan
servicing. Dynex Financial commenced its loan origination activity in 1996, and
had originated more than $1.0 billion in manufactured home loans prior to its
acquisition by Bingham. Bingham now conducts all of its manufactured home loan
origination and servicing activities through Dynex Financial. The Company
through one of its subsidiaries also provides warranty and disability insurance
on the contracts it finances.
Through acquisitions the Company's business has expanded to include
commercial real estate lending and servicing for income producing properties.
The Company may extend its business to include other types of installment loans,
expand its loan servicing operations and engage in other related businesses
through the initiation of new businesses or through the acquisition of existing
businesses.
On February 4, 2000 the Company changed its fiscal year end from a twelve
month period ending September 30 to a twelve month period ending December 31.
The consolidated statements of operations and cash flows are presented for the
year ended December 31, 2000, the three months ended December 31, 1999, and the
years ended September 30, 1999 and September 30, 1998.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 VS. YEAR ENDED SEPTEMBER 30, 1999:
Results for the year ended December 31, 2000 include the following:
- Manufactured home loan originations for the year ended December 31, 2000
were $161.2 million versus $65.1 million in the year ended September 30,
1999, an increase of 147.6%.
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- Commercial loan originations for the year ended December 31, 2000
increased 95.7% to $514.2 million compared to $262.8 million in the year
ended September 30, 1999 and increased 97.8% over originations of $260.0
million for the year ended September 30, 1998.
- In the year ended December 31, 2000, Bingham completed the sale of
approximately $130.2 million of fixed rate manufactured home loans and
the securitization and sale of approximately $94.3 million of commercial
mortgage loans. The proceeds from these transactions were used to pay
down the Company's existing debt.
- Results of operations for the year ended December 31, 2000 include
additions to the allowance for loan losses of approximately $7.7 million.
The increased addition to the reserve resulted primarily from losses on
non-performing loans and charge-offs of $3.9 million on loans originated
by MHFC, Inc., Bingham's previous manufactured home loan origination
subsidiary, which was sold in March, 2000.
- Results of operations for the year ended December 31, 2000 also include
nonrecurring charges of $2.1 million related to an unsuccessful merger
attempt with Franklin Bank, $796,000 on the sale of MHFC, Inc. and
$403,000 in severance compensation related to closed offices.
Bingham reported a net loss of $16.3 million for the year ended December
31, 2000 compared to net income of $776,000 for the year ended September 30,
1999. The loss for the current year was due primarily to the addition of
approximately $7.7 million to its loan loss reserve, an approximately 184 basis
point increase in its average borrowing rate and a significant increase in
personnel and general and administrative costs as a result of the acquisition
and integration of Dynex Financial, which Bingham acquired in December 1999.
Such increased costs were not offset by income from loan originations as the
turmoil in the manufactured housing industry significantly curtailed loan
origination volume.
For the year ended December 31, 2000 interest income on loans increased
53.7% to $14.6 million, compared to $9.5 million for the year ended September
30, 1999. The increase is primarily due to a 31.7% increase in the average
outstanding loan receivable balance, which was $143.9 million for the year ended
December 31, 2000 versus $111.7 million for the year ended September 30, 1999.
The larger percentage of higher yielding manufactured home loans in the
portfolio for the year ended December 31 2000 compared to the year ended
September 30, 1999 resulted in the average yield on the loan receivables
increasing to 10.1% for the year ended December 31, 2000 versus 8.5% in the year
ended September 30, 1999.
For the year ended December 31, 2000 interest expense was $14.2 million
compared to $6.9 million for the year ended September 30, 1999, an increase of
105.8%. Average outstanding interest bearing liabilities increased 45.2% to
$146.2 million for the year ended December 31, 2000 versus $100.7 million in the
year ended September 30, 1999. The weighted average borrowing rate also
increased to 9.72% for the year ended December 31, 2000 compared to 6.81% for
the year ended September 30, 1999. The increase is primarily the result of a 125
basis point increase in the average LIBOR rate which negatively impacts
Bingham's variable rate debt and an increase in fees associated with its
borrowing facilities.
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The following tables set forth the extent to which the Company's net
interest income has been affected by changes in average interest rates and
average balances of interest earning assets and interest bearing liabilities.
YEARS ENDED DECEMBER 31, 2000 AND SEPTEMBER 30, 1999
---------------------------------------------------------------------------------------
AVERAGE BALANCE AVERAGE RATE INTEREST INCREASE VARIANCE DUE TO:
------------------- ------------- ---------------- ---------- -----------------
2000 1999 2000 1999 2000 1999 (DECREASE) VOLUME RATE
---- ---- ---- ---- ---- ---- ---------- ------ ----
(DOLLARS IN THOUSANDS)
Interest-earning
assets:
Loans................ $143,915 $111,715 10.14% 8.48% $14,593 $9,477 $ 5,116 $ 4,652 $ 464
Cash and
equivalents....... 6,713 4,283 5.69 2.33 382 100 282 246 36
-------- -------- ----- ----- ------- ------ ------- ------- -----
$150,628 $115,998 9.94% 8.80% $14,975 $9,577 $ 5,398 $ 4,898 $ 500
-------- -------- ----- ----- ------- ------ ------- ------- -----
Interest-bearing
Liabilities
Term loan............ $ 4,000 $ 4,000 11.68% 11.68% $ 467 $ 467 $ -- $ -- $ --
Revolving line of
credit............ 43,690 20,879 8.86 7.62 3,843 1,591 2,252 2,187 65
Loans sold under
repurchase........ 98,478 75,784 10.04 6.33 9,892 4,798 5,094 4,391 703
-------- -------- ----- ----- ------- ------ ------- ------- -----
$146,168 $100,663 9.72% 6.81% $14,202 $6,856 $ 7,346 $ 6,578 $ 768
-------- -------- ----- ----- ------- ------ ------- ------- -----
Interest rate spread... 0.23% 1.99%
Excess average earning
assets............... $ 4,460 $ 15,335 9.94% 8.80%
======== ======== ===== =====
Net interest margin.... 0.51% 2.35% $ 773 $2,721 $(1,948) $(1,680) $(268)
===== ===== ======= ====== ======= ======= =====
Mortgage origination fees represent fees earned on commercial mortgage
loans originated and placed with outside investors. For the year ended December
31, 2000, Bingham originated $441.8 million in commercial mortgage loans that
were placed with outside investors and recorded origination and placement fees
of $2.9 million compared to $155.0 million in loans originated and placed and
$1.6 million of placement and origination fees for the year ended September 30,
1999.
Servicing fees collected for the year ended December 31, 2000 were $7.9
million compared to approximately $500,000 for the year ended September 30,
1999. The large increase was the direct result of an increase in the average
principal balance of approximately $960.0 million to approximately $1.2 billion
of manufactured home loans serviced for outside investors and an increase in the
average principal balance of approximately $500.0 million to approximately $1.2
billion of commercial mortgage loans serviced for outside investors. The
increases were primarily the result of the acquisition in December 1999 of Dynex
Financial, which had a servicing portfolio balance of $980.0 million, and the
acquisition in June 1999 of Hartger & Willard Mortgage Associates, Inc., an
originator and servicer of commercial mortgage loans, which had a servicing
portfolio of $440.0 million. The Company also sold approximately $15.8 million
of manufactured home loans and sold or placed with outside investors a total of
approximately $467.2 million of commercial mortgage loans in the year ended
December 31, 2000 while retaining the related servicing rights.
Gain on sale of loans represents the difference between the proceeds from
the sale or securitization of loans and the allocated carrying cost of the loans
sold or securitized. The gain recognized is also net of estimated recourse
obligations. For the year ended December 31, 2000 Bingham sold or securitized
approximately $94.3 million in principal balance of commercial mortgage loans
and approximately $130.2 million in principal balance of manufactured home loans
and recorded a gain on loans sold of $27,000. In the year ended September 30,
1999 the Company sold approximately $20.4 million of manufactured home loans and
securitized and sold approximately $80.3 million of commercial mortgage loans
resulting in gains of $4.4 million. The gain recognized in the year ended
September 30, 1999, includes a recovery of $2.4 million related to the valuation
of the loan portfolio and related hedge positions.
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Provision for credit losses is recorded in amounts sufficient to maintain
an allowance at a level considered adequate to cover losses from loans. The
provision for credit losses increased to $7.7 million for the year ended
December 31, 2000 from $653,000 for the year ended September 30, 1999. The large
increase is primarily attributable to a decline in recovery rates due to an
increased supply of new and used manufactured homes in the marketplace and
charge-offs on the loans originated by MHFC which totaled $3.9 million for the
year ended December 31, 2000 compared to $580,000 for the year ended September
30, 1999. The increase is also affected by the increase in repossessed and
non-performing manufactured home loans, which were $5.1 million at December 31,
2000 versus $2.5 million at September 30, 1999.
As part of the Company's plan to conduct all of its manufactured home loan
origination operations through Dynex Financial, in March 2000, Dynex Financial
purchased $66.9 million of loans from MHFC and Bingham sold MHFC to Gwenuc, LLC
a limited liability company owned by Gary A. Shiffman, Chairman of Bingham.
Gwenuc paid Bingham $400,000 in cash and assumed $2.7 million of debt to Dynex
Financial. The Company now conducts all of its manufactured home loan
origination activities through Dynex Financial.
As a result of the sale of MHFC, for the year ended December 31, 2000 the
Company incurred approximately $396,000 in non-recurring costs to shut down the
operations of MHFC. These costs include approximately $322,000 in salaries and
severance pay to terminated employees and $74,000 of general and administrative
costs. The Company also recognized a $400,000 loss on the ultimate disposition
of MHFC.
General and administrative and other operating expenses totaled
approximately $24.9 million for the year ended December 31, 2000. This was an
increase of approximately 227.6% over general and administrative expenses of
$7.6 million in the year ended September 30, 1999. The largest part of the
increase is directly attributable to personnel costs related to the acquisition
of Dynex Financial in December 1999. The acquisition increased the number of the
Company's full-time employees to 218 at December 31, 2000 from 90 at September
30, 1999 and resulted in personnel costs of $17.0 million for the current year
as compared to $3.9 million for the year ended September 30, 1999, an increase
in personnel costs of 335.9%. The acquisition also increased the number of
leased office locations for the origination and servicing of manufactured home
loans to five at December 31, 2000 as compared to two at September 30, 1999.
THREE MONTHS ENDED DECEMBER 31, 1999 VS. THREE MONTHS ENDED DECEMBER 31, 1998:
The Company reported a net loss of $185,000 for the three months ended
December 31, 1999 compared to net income of $764,000 in the three months ended
December 31, 1998. The decrease in net income was due primarily to the
cumulative effect of a change in accounting principle of $563,000, net of tax,
and an increase in general and administrative expenses of approximately $1.8
million. The change in accounting principle relates to start up costs that were
previously capitalized and amortized over five years but are now required to be
expensed as incurred. The change was retroactive and the Company was required to
expense currently all previously capitalized start up costs. The significant
increase in general and administrative expenses was the result of the continued
growth in the size of the Company including the acquisition of Dynex Financial.
Interest income on loans increased to $4.0 million for the period, or
approximately 92% over interest income of $2.1 million in the comparable period
in 1998. The large increase was primarily due to an increase in the average
outstanding loan receivable balance of $153.8 million for the three months ended
December 31, 1999 versus $97.6 million for the three months ended December 31,
1998, an increase of 57.6%. The increase in interest income was also the result
of an increase in the average yield on the loan receivable portfolio of 10.6%
for the period in 1999 versus 8.7% in 1998. This was due to a larger percentage
of the loan portfolio being made up of higher yielding manufactured home loans
versus commercial mortgage loans.
Interest expense for the three months ended December 31, 1999 was $2.8
million as compared to $1.7 million for the comparable period ended December 31,
1998, an increase of 65.0%. The increase in interest expense was driven by the
increase in the average outstanding balance of debt used to finance the loan
receivables and fund operations. Average outstanding debt increased to $136.9
million, or 47.2% for the period in 1999 versus $93.0 million in the comparable
period in 1998. Adding to the increase in interest expense was an increase in
the cost of borrowings to 8.3% for the quarter ended December 31, 1999 compared
to 7.3% in the same period in 1998.
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The following table sets forth the extent to which the Company's net
interest income has been affected by changes in average interest rates and
average balances of interest earning assets and interest bearing liabilities.
THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
----------------------------------------------------------------------------------------
AVERAGE BALANCE AVERAGE RATE INTEREST
--------------- ------------ -------- INCREASE VARIANCE DUE TO:
1999 1998 1999 1998 1999 1998 (DECREASE) VOLUME RATE
---- ---- ---- ---- ---- ---- ---------- ------ ----
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans................... $153,758 $ 97,550 10.59% 8.68% $4,069 $2,118 $1,951 $1,485 $466
Cash and equivalents.... 3,923 4,331 2.44% 3.42% 24 37 (13) (2) (11)
-------- -------- ------ ------ ------ ------ ------ ------ ----
157,681 101,881 10.38% 8.46% 4,093 2,155 1,938 1,483 455
-------- -------- ------ ------ ------ ------ ------ ------ ----
Interest-bearing
Liabilities
Term loan............... 4,000 4,000 11.68% 11.68% 117 117 -- -- --
Revolving line of
credit............... 41,881 20,262 7.88% 8.13% 825 412 413 426 (13)
Loans sold under
repurchase........... 91,066 68,797 8.30% 6.81% 1,890 1,170 720 464 256
-------- -------- ------ ------ ------ ------ ------ ------ ----
136,947 93,059 8.27% 7.30% 2,832 1,699 1,133 889 244
-------- -------- ------ ------ ------ ------ ------ ------ ----
Interest rate spread...... 2.11% 1.16%
Excess average earning
assets.................. $ 20,734 $ 8,822 10.38% 8.46%
======== ======== ====== ======
Net interest margin....... 3.20% 1.79% $1,261 $ 456 $ 805 $ 593 $212
====== ====== ====== ====== ====== ====== ====
Mortgage origination fees are related to commercial mortgage loans
originated and placed with outside investors. Placement fees increased 173% to
$762,000 on placed commercial mortgage loans of $105.9 million for three months
ended December 31, 1999 compared to $279,000 in fees on placed commercial
mortgage loans of $24.5 million in the comparable period in 1998.
Gain on sale of loans represents the difference between the proceeds from
sale and the allocated carrying cost of the loans sold. The gain is also net of
required reserves for the potential loss due to repossession and ultimate
charge-off of loans sold with recourse that are required to be repurchased. For
the quarter ended December 31, 1999 the Company sold approximately $100 million
of its manufactured home loan receivables resulting in a net gain of $1.6
million as compared to sales of $5 million of manufactured home loan receivables
resulting in gains of $289,000 for the comparable period in 1998. The three
months ended December 31, 1998 also included a recovery of $1.25 million related
to the valuation of the loan portfolio and related hedge positions.
Provision for credit losses is recorded in amounts sufficient to maintain
an allowance at a level considered adequate to cover losses from liquidating
manufactured home loans and loans sold with recourse. Provision for credit
losses increased approximately 273% to $362,000 for the three months ended
December 31, 1999 compared to $97,000 for the same period in 1998. The large
increase was primarily related to a 274% increase in average outstanding
principal balance of manufactured home loans which was $95.7 million for the
period ended December 31, 1999 as compared to $25.6 million for the period ended
December 31, 1998. The provision increase was also affected by the increase in
non-performing manufactured home loans which were 2.95% of the manufactured home
loan outstanding principal balance at December 31, 1999 versus .25% of the
outstanding principal balance for the comparable period in 1998.
General and administrative and other operating expenses totaled
approximately $3.3 million for the three months ended December 31, 1999. This
was an increase of $2.1 million or 175% over general and administrative expenses
of $1.2 million in the comparable three months in 1998. The largest part of the
increase was directly related to personnel costs. The Company increased its
number of existing full time employees to 95 and also added approximately 200
full time employees with its acquisition of Dynex Financial in mid-December
1999, resulting in personnel costs of $2.2 million for the three months ended
December 31, 1999 or an increase of 277%. This is compared to 40 full time
employees with personnel costs of $583,000 for
19
20
the three months ended December 31, 1998. These increases reflect the costs of
the Company's expansion of its manufactured home lending operations to
communities outside those owned and operated by Sun and the expansion of its
commercial mortgage lending business through the acquisition of Hartger &
Willard in the fourth quarter of 1999. The increase in personnel resulted in an
increase in occupancy and office expenses to $470,000 for the period ended
December 31, 1999 or a 123% increase over the comparable period in 1998 of
$211,000.
YEAR ENDED SEPTEMBER 30, 1999 VS. YEAR ENDED SEPTEMBER 30, 1998.
The Company had income before federal income tax of $1.2 million on gross
revenues of $16.3 million and expenses of $15.1 million for the year ended
September 30, 1999 compared to a loss before federal income tax benefit of
$793,000 for the year ended September 30, 1998 on gross revenues of $6.1 million
and expenses of $6.9 million. The large increase in gross revenues was primarily
related to the significant increase in interest income and the gain on sale of
loans. The large increase in gross expenses relates to increased interest
expense and a large increase in personnel costs.
Interest income on loans increased to $9.5 million in the year ended
September 30, 1999, or approximately 188% over interest income of $3.3 million
in the year ended September 30, 1998. The large increase was primarily due to an
increase in the average outstanding loan receivable balance of $111.7 million in
the year ended September 30, 1999 versus $51.5 million in the year ended
September 30, 1998, an increase of 116.9% The increase in interest income as a
result of the higher average outstanding receivable balance was slightly offset
by a decrease in the average yield on the loan receivable portfolio of 8.48% in
the year ended September 30, 1999 versus 8.60% in the year ended September 30,
1998.
Interest expense for the year ended September 30, 1999 was $6.9 million as
compared to $1.9 million for the year ended September 30, 1998, an increase of
263%. The increase in interest expense was driven by the increase in the average
outstanding balance of debt used to finance the loan receivables and fund
operations. Average outstanding debt increased to $100.6 million, or 118.2% in
the year ended September 30, 1999 versus $46.1 million the year ended September
30, 1998. Offsetting some of the increase in average outstanding debt was a
decrease in the cost of borrowings to 6.81% in the year ended September 30, 1999
compared to 7.52% in the year ended September 30, 1998.
The following table sets forth the extent to which the Company's net
interest income has been affected by changes in average interest rates and
average balances of interest-earning assets and interest-bearing liabilities:
YEAR ENDED SEPTEMBER 30, 1999 AND 1998
------------------------------------------------------------------------------------
VARIANCE
AVERAGE BALANCE AVERAGE RATE INTEREST INCREASE DUE TO:
------------------ --------------- --------------- ---------- --------------
1999 1998 1999 1998 1999 1998 (DECREASE) VOLUME RATE
---- ---- ---- ---- ---- ---- ---------- ------ ----
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Loans................... $111,715 $51,480 8.48% 8.60% $9,477 $3,296 $6,181 $6,315 $(134)
Cash and equivalents.... 4,283 3,839 2.33% 3.75% 100 84 16 77 ( 61)
-------- ------- ------ ------ ------ ------ ------ ------ -----
115,998 55,319 8.80% 8.26% 9,577 3,380 6,197 6,392 (195)
-------- ------- ------ ------ ------ ------ ------ ------ -----
Interest-bearing
Liabilities
Term loan............... 4,000 4,000 11.68% 11.75% 467 392 75 -- 75
Revolving line of
credit............... 20,879 9,540 7.62% 7.00% 1,591 668 923 794 129
Loans sold under
repurchase........... 75,784 32,549 6.33% 7.15% 4,798 873 3,924 4,545 (621)
-------- ------- ------ ------ ------ ------ ------ ------ -----
100,663 46,089 6.81% 7.52% 6,856 1,933 4,922 5,339 (417)
-------- ------- ------ ------ ------ ------ ------ ------ -----
Interest rate spread...... 1.99% .74%
Excess average earning
assets.................. $ 15,335 $ 9,230 8.80% 8.26%
======== ======= ====== ======
Net interest margin....... 2.35% 2.00% $2,721 $1,447 $1,275 $1,053 $ 222
====== ====== ====== ====== ====== ====== =====
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Mortgage origination fees are related to commercial mortgage loans
originated and placed with outside investors. Placement fees increased 32% to
$1.6 million on placed commercial mortgage loans of $155 million for the year
ended September 30, 1999 compared to $1.2 million in fees on placed commercial
mortgage loans of $140 million in the year ended September 30, 1998. Origination
of commercial mortgage loans and related placement fees for the year ended
September 30, 1998 cover the period from March 1, 1998, the date of the
acquisition of Bloomfield Acceptance and Bloomfield Servicing, through September
30, 1998.
Gain on sale of loans represents the difference between the proceeds from
sale and the allocated carrying cost of the loans sold. The gain is also net of
required reserves for the potential refund of any premium for loans that are
prepaid in the first twelve months after the date of sale on loans sold with
recourse. For the year ended September 30, 1999 the gain on sale of loans also
includes a recovery of $2.4 million related to the valuation of the loan
portfolio and related hedge positions. In the year ended September 30, 1999 the
Company sold approximately $20.4 million of manufactured home loans and
securitized and sold approximately $80.3 million of commercial mortgage loans
resulting in gains of $4.4 million as compared to sales of $11.6 million of
manufactured home loans resulting in gains of $0.7 million for the comparable
period in 1998.
Provision for credit losses is recorded in amounts sufficient to maintain
an allowance at a level considered adequate to cover losses from liquidating
manufactured home loans and loans sold with recourse. Provision for credit
losses increased approximately 344% to $653,000 in the year ended September 30,
1999 compared to $147,000 in the year ended September 30, 1998. The large
increase was primarily related to a 184% increase in outstanding principal
balance of manufactured home loans which was $64.5 million at September 30, 1999
as compared to $22.7 million at September 30, 1998. The provision increase was
also affected by the increase in nonperforming manufactured home loans which
were 2.59% of the manufactured home loan outstanding principal balance at
September 30, 1999 versus .85% of the outstanding principal balance at September
30 1998.
General and administrative and other operating expenses totaled
approximately $7.6 million in the year ended September 30, 1999. This was an
increase of $5.1 million or 204% over general and administrative expenses in the
year ended September 30, 1998 of $2.5 million. The largest part of the increase
was directly related to personnel costs. The Company increased its number of
full time employees to 90 at September 30, 1999 resulting in personnel costs of
$3.9 million for the year, or an increase of 179%. This is compared to 25 full
time employees with personnel costs of $1.4 million for the year ended September
30, 1998. These increases reflect the costs of the Company expanding its
manufactured home lending operations to communities outside those owned and
operated by Sun and the expansion of its commercial mortgage lending business
through the acquisition of Hartger and Willard in the third quarter of 1999. The
increase in personnel resulted in an increase in occupancy and office expenses
to $817,000 for the year ended September 30, 1999 or 233% increase over the
comparable period in 1998 of $245,000.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the measurement of the Company's ability to have adequate cash
or access to cash at all times in order to meet financial obligations when due
as well as to fund corporate expansion or other activities. The Company expects
to meet its liquidity requirements through a combination of working capital
provided by operating activities, draws on its revolving lines of credit,
advances under its master repurchase agreement, whole loan sales and periodic
securitizations of its loan portfolio. The Company may also issue additional
shares of capital stock when it believes existing shareholders are likely to
benefit from such offerings.
During the year ended December 31, 2000 total borrowings decreased to
$113.6 million from $124.8 million at December 31, 1999. The decrease in total
borrowings resulted primarily from the sale of approximately $130.2 million of
the Company's manufactured home loan portfolio and approximately $94.2 million
of its commercial mortgage loan portfolio. The loan sales and securitizations
resulted in proceeds to the Company of approximately $223.0 million which were
used to pay down Bingham's existing lines of credit. This compares to sales of
approximately $20.4 million of manufactured home loans and $91.6 million of
commercial mortgage loans in the year ended September 30, 1999. The increased
liquidity provided by the sale of portions of the Company's loan portfolio was
offset by a $96.1 million increase in the origination of manufactured home
21
22
loans to $161.2 million for the year ended December 31, 2000 compared to $65.1
million for the year ended September 30, 1999. The liquidity resulting from the
loan sales was also offset by the approximately $2.3 million in borrowings used
for costs related to the restructuring of Dynex Financial and approximately $2.1
million in costs related to the proposed merger with Franklin Bank.
Through its operating subsidiary, Sun Communities Operating Limited
Partnership, Sun currently provides financing to the Company through three
separate facilities: a $4.0 million subordinated term loan, bearing interest at
the rate of 9.75% per annum (the "Term Loan"); a $10.0 million subordinated
demand line of credit, bearing interest at a rate of LIBOR plus a spread (the
'$10 Million Line"); and a $50.0 million subordinated demand line of credit,
bearing interest at a rate of LIBOR plus a spread (the "$50 Million Line" and,
together with the Term Loan and $10 Million Line, the "Subordinated Debt
Facilities"). The Term Loan matures on September 30, 2004. The Term Loan may be
paid in full or in part without premium or penalty subject to approval of the
Company's non-employee directors.
The entire unpaid principal balance of each of the $10 Million Line and the
$50 Million Line, together with all accrued and unpaid interest, will be due and
payable in full within ten days after the date of demand. The Sun operating
partnership in its sole discretion may refuse to make advances under the $50
Million Line. As of December 31, 2000 there was $4.0 million outstanding under
the Term Loan, no borrowings under the $10 Million Line, and $35.8 million
outstanding under the $50 Million Line.
Bingham has granted the Sun operating partnership a security interest in
substantially all of its assets to secure its obligations under the Subordinated
Debt Facilities, which is subordinate to the security interest held by Lehman
Commercial Paper Inc. discussed below.
In March 2000, Bingham and Dynex Financial entered into a revolving credit
facility with Michigan National Bank. Under this facility, Bingham and Dynex
Financial may borrow up to $10.0 million. Interest at a rate of LIBOR plus a
spread is payable on the outstanding balance. The outstanding principal balance
on this credit facility as of December 31, 2000 was approximately $6.8 million.
To secure the loan from Michigan National Bank, Dynex Financial and Bingham have
granted Michigan National Bank a security interest in their rights under three
servicing agreements under which Dynex Financial services manufactured home
loans.
In April 2000, Bloomfield Acceptance and Bloomfield Servicing entered into
a warehousing credit agreement with Residential Funding Corporation. Under the
credit agreement, Bloomfield Acceptance and Bloomfield Servicing may borrow up
to $25.0 million to fund the acquisition and origination of FNMA loans, FHLMC
loans, bridge mortgage loans and similar mortgage loans. Interest at an annual
rate of up to LIBOR plus a spread is payable on the outstanding balance of
advances made under the agreement. As of December 31, 2000, Bloomfield
Acceptance and Bloomfield Servicing had no outstanding borrowings under this
agreement.
Bingham's subsidiaries have sold a significant number of commercial real
estate and manufactured home loan contracts to unrelated financial institutions.
The subsidiaries may sell these contracts with or without retaining servicing,
in some cases with full or limited recourse to the Company or its subsidiaries
in the event of a default by the borrower.
In March 2000, Dynex Financial and Bloomfield Acceptance entered into an
amended and restated master repurchase arrangement with Lehman Commercial Paper
Inc. Under this agreement, Dynex Financial and Bloomfield Acceptance transfer
loans from time to time to Lehman against the transfer of funds from Lehman.
Bingham guaranteed the obligations of Dynex Financial and Bloomfield Acceptance
under this agreement and granted Lehman a security interest in substantially all
of its assets as security for the guaranty. Under the repurchase arrangement,
commercial mortgage loans may be financed on the facility for up to nine months
and manufactured home loans may be financed on the facility for up to six
months. Loans that remain financed on the facility longer than these time frames
are required to be repurchased by Bingham. Bingham periodically removes the
loans from the repurchase facility with proceeds from either whole loan sales or
securitizations. As of December 31, 2000, the aggregate amount advanced by
Lehman under the repurchase agreement was approximately $67.2 million.
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23
In November 2000 the repurchase agreement with Lehman expired. A temporary
agreement was negotiated extending the facility through February 28, 2001 and
reducing the available borrowing limit to $95.0 million. Currently, the Company
is still financing loans with Lehman with the expectation that a replacement
agreement can be negotiated and executed.
The majority of Bingham's loan portfolio at December 31, 2000 was financed
by advances under its master repurchase agreement with Lehman. As of March 27,
2001 Bingham completed the securitization of approximately $140.0 million of its
manufactured home loan portfolio, which proceeds were used to repay amounts
owing on the master repurchase agreement and the $50 Million Line with Sun. The
impact of the securitization on Bingham's finances and results of operations
will be included in Bingham's Quarterly Report on Form 10-Q for the quarter
ending March 31, 2001.
Bingham's future liquidity and capital requirements depend on numerous
factors, many of which are outside of its control. Bingham currently anticipates
that it will have sufficient working capital to meet its anticipated needs for
the next twelve months through a combination of funds from operations, including
loan sales and securitizations, proceeds from its existing credit facilities and
a renewed repurchase facility with Lehman or replacement repurchase facility
with a different lender and proceeds from the sale of assets or debt or equity
securities. Bingham expects to meet its long-term capital requirements through a
merger or joint venture with another entity or through the sale of debt or
equity securities. See "Factors That May Affect Our Future Results -- We may not
have sufficient working capital to meet our anticipated needs."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
prices and interest rates. The Company's market risk arises from interest rate
risk inherent in its financial instruments. The Company is not currently subject
to foreign currency exchange rate risk or commodity price risk.
In the normal course of business, the Company also faces risks that are
either nonfinancial or nonquantifiable. Such risks principally include credit
risk and legal risk and are not included in the following table.
23
24
The following table shows the Company's expected maturity dates of its
assets and liabilities. For each maturity category in the table the difference
between interest-earning assets and interest-bearing liabilities reflects an
imbalance between repricing opportunities for the two sides of the balance
sheet. The consequences of a negative cumulative gap at the end of one year
suggests that, if interest rates were to rise, liability costs would increase
more quickly than asset yields, placing negative pressure on earnings.
MATURITY
----------------------------------------------------------------
0 TO 3 4 TO 12 1 TO 5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
------ ------- ------ ------ -----
(IN THOUSANDS)
ASSETS
Cash and equivalents................. $ 3,521 $ -- $ -- $ -- $ 3,521
Restricted cash...................... 1,628 -- -- -- 1,628
Loans receivable..................... 3,629 7,412 42,834 44,758 98,633
Servicing rights..................... 327 980 5,225 2,611 9,143
Servicing advances................... 7,266 1,837 -- -- 9,103
Furniture, fixtures and equipment,
net................................ 213 638 1,703 -- 2,554
Deferred federal income taxes........ -- 680 7,766 -- 8,446
Loan sale proceeds receivable........ 236 707 3,773 1,887 6,603
Other assets......................... 4,138 1,459 1,508 1,145 8,250
-------- -------- -------- -------- --------
Total assets....................... $ 20,958 $ 13,713 $ 62,809 $ 50,401 $147,881
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses........................... $ 9,825 $ 3,967 $ 260 $ 59 $ 14,111
Recourse liability................... 333 998 5,321 2,661 9,313
Advances under repurchase
agreements......................... 67,256 -- -- -- 67,256
Subordinated debt, net of debt
discount of $366................... (19) (58) 3,741 -- 3,664
Notes payable........................ 42,697 -- -- -- 42,697
-------- -------- -------- -------- --------
Total liabilities.................. 120,092 4,907 9,322 2,720 137,041
Preferred stock, no par value,
10,000,000 shares authorized; no
shares issued and outstanding...... -- -- -- -- --
Common stock, no par value,
10,000,000 shares authorized;
2,639,681 shares issued and
outstanding........................ -- -- -- 27,488 27,488
Paid-in capital...................... -- -- -- 727 727
Accumulated other comprehensive
income (loss)...................... -- -- -- 116 116
Unearned stock compensation.......... -- -- -- (1,142) (1,142)
Retained earnings (deficit).......... -- -- -- (16,349) (16,349)
-------- -------- -------- -------- --------
Total stockholders' equity
(deficiency).................... -- -- -- 10,840 10,840
-------- -------- -------- -------- --------
Total liabilities and stockholders'
equity (deficiency)............. $120,092 $ 4,907 $ 9,322 $ 13,560 $147,881
======== ======== ======== ======== ========
Reprice difference................... $(99,134) $ 8,806 $ 53,487 $ 36,841
Cumulative gap....................... $(99,134) $(90,328) $(36,841) --
Percent of total assets.............. (66.16)% (60.20)% (24.91)%
Management believes the negative effect of a rise in interest rates is
reduced by the anticipated short duration of the Company's loans receivable.
Management intends that its loans receivable will be securitized or sold prior
to the end of fiscal 2001. Proceeds from securitizations or sales would be used
to pay down corresponding debt. If the Company were unable to securitize or sell
loans it would be necessary to renegotiate
24
25
its funding sources described in Note G to the Consolidated Financial Statements
or find alternative funding sources.
The Company may manage interest rate risk through the use of forward sales
of U.S. Treasury securities, Treasury security rate locks and forward interest
rate swaps to hedge a portion of the fixed rate loans in the commercial and
manufactured home loan portfolio. The Company may use these instruments in an
attempt to reduce risk by essentially creating offsetting market exposures. As
of December 31, 2000 the Company's hedging instruments consisted entirely of
interest rate swaps as described in Note N to the Consolidated Financial
Statements.
A forward interest rate swap is an obligation to enter into a swap or cash
settlement on a future date for the difference between the market rate on that
date and an agreed upon swap rate. This transaction is similar to a Treasury
rate lock in that it allows you to lock in a rate starting in the future. The
difference is that you will be locking in a future swap rate, not a forward
treasury yield. A forward interest rate swap allows the positive or negative
effect of a change in the value of the underlying loans to be offset by the
positive or negative payment on the settlement of the hedging transaction. If
interest rates rise the value of the loan portfolio will have decreased but the
decrease will be offset by an increase in the value of the hedge equal to
approximately the present value of the decrease in value of the hedged loan
portfolio. If interest rates are declining the reverse would hold true, The
value of the loan portfolio will increase and be offset by a decrease in the
value of the swap approximately equal to the present value of the hedged loan
portfolio increase.
The following table shows the Company's financial instruments that are
sensitive to changes in interest rates, categorized by expected maturity, and
the instruments' fair values at December 31, 2000.
CONTRACTUAL MATURITY
-------------------------------------------------------------------------
TOTAL
2001 2002 2003 2004 2005 THEREAFTER FAIR VALUE
---- ---- ---- ---- ---- ---------- ----------
(DOLLARS IN THOUSANDS)
Interest sensitive assets:
Loans receivable............. $ 10,689 $12,502 $12,386 $11,648 $9,719 $48,470 $105,416
Average interest rate........ 11.59% 11.59% 11.59% 11.59% 11.59% 11.59% 11.59%
Interest bearing deposits.... 6,713 -- -- -- -- -- 6,713
Average interest rates....... 5.69% -- -- -- -- -- 5.69%
-------- ------- ------- ------- ------ ------- --------
Total interest sensitive
assets............... $ 17,402 $12,502 $12,386 $11,648 $9,719 $48,470 $112,129
======== ======= ======= ======= ====== ======= ========
Interest sensitive liabilities:
Borrowings:
Advances under repurchase
agreements.............. $ 67,256 $ -- $ -- $ -- $ -- $ -- $ 67,256
Average interest rate..... 8.47% -- -- -- -- -- 8.47%
Subordinated debt......... -- -- -- 3,664 -- -- 3,664
Average interest rate..... -- -- -- 11.68% -- -- 11.68%
Note payable.............. 42,697 -- -- -- -- -- 42,697
Average interest rate..... 9.10% -- -- -- -- -- 9.15%
-------- ------- ------- ------- ------ ------- --------
Total interest sensitive
liabilities.......... $109,953 $ -- $ -- $ 3,664 $ -- $ -- $113,617
======== ======= ======= ======= ====== ======= ========
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26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BINGHAM FINANCIAL SERVICES CORPORATION
FINANCIAL STATEMENTS FURNISHED PURSUANT TO
THE REQUIREMENTS OF FORM 10-K
AND
REPORTS OF INDEPENDENT ACCOUNTANTS
FOR THE YEAR AND PERIOD ENDED DECEMBER 31, 2000 AND 1999, AND THE
YEARS ENDED SEPTEMBER 30, 1999 AND 1998
26
27
BINGHAM FINANCIAL SERVICES CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Reports of Independent Accountants.......................... 28
Financial Statements:
Consolidated Balance Sheets -- December 31, 2000, December
31, 1999 and September 30, 1999........................ 30
Consolidated Statements of Operations for the year and
period ended December 31, 2000 and 1999, and the years
ended September 30, 1999 and 1998...................... 31
Consolidated Statements of Changes in Stockholders' Equity
for the year and period ended December 31, 2000 and
1999 and the years ended September 30, 1999 and 1998... 32
Consolidated Statements of Cashflows for the year and
period ended December 31, 2000 and 1999 and the years
ended September 30, 1999 and 1998...................... 33
Notes to Consolidated Financial Statements................ 34
27
28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Bingham Financial Services Corporation
In our opinion, the accompanying consolidated statements of operations,
changes in stockholders' equity and of cash flows present fairly, in all
material respects, the Bingham Financial Services Corporation and subsidiaries
results of operations and cash flows for the year ended September 30, 1998, in
conformity with accounting principles generally accepted in the United States of
America. 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 audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Detroit, Michigan
December 18, 1998
28
29
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Bingham Financial Services Corporation
We have audited the accompanying consolidated balance sheets of Bingham
Financial Services Corporation as of December 31, 2000, December 31, 1999 and
September 30, 1999 and the related consolidated statements of changes in
stockholders' equity, income and cash flows for the periods then ended. These
consolidated financial statements are the responsibility of the corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Bingham Financial Services Corporation as of December 31, 2000, December 31,
1999 and September 30, 1999 and the consolidated results of their operations and
their cash flows for the periods then ended, in conformity with generally
accepted accounting principles.
March 28, 2001
Auburn Hills, MI
/s/ PLANTE & MORAN, LLP
29
30
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARES)
DECEMBER 31,
------------ SEPTEMBER 30,
2000 1999 1999
---- ---- -------------
ASSETS
Cash and equivalents........................................ $ 3,521 $ -- $ 730
Restricted cash............................................. 1,628 -- --
Loans receivable............................................ 98,633 140,881 118,092
Servicing rights............................................ 9,143 9,736 2,120
Servicing advances.......................................... 9,103 -- --
Furniture, fixtures and equipment, net...................... 2,554 3,029 1,100
Deferred federal income taxes............................... 8,446 72 (12)
Loan sale proceeds receivable............................... 6,603 -- --
Other assets................................................ 8,250 9,155 6,443
-------- -------- --------
Total assets........................................... $147,881 $162,873 $128,473
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses..................... $ 14,111 $ 11,434 $ 1,131
Recourse liability........................................ 9,313 376 --
Advances under repurchase agreements...................... 67,256 80,469 69,026
Subordinated debt, net of debt discount of $336, $414 and
$433, respectively..................................... 3,664 3,586 3,567
Notes payable............................................. 42,697 40,747 28,477
-------- -------- --------
Total liabilities...................................... 137,041 136,612 102,201
-------- -------- --------
Minority Interest......................................... -- 122 204
-------- -------- --------
Stockholders' equity
Preferred stock, no par value, 10,000,000 shares
authorized; no shares issued and outstanding........... -- -- --
Common Stock, no par value, 10,000,000 shares authorized;
2,631,681, 2,539,716 and 2,528,473 shares issued and
outstanding at December 31, 2000 and 1999 and September
30, 1999, respectively................................. 27,488 26,799 26,696
Paid-in capital........................................... 727 641 619
Accumulated other comprehensive income (loss)............. 115 (106) (304)
Unearned stock compensation............................... (1,142) (1,102) (1,035)
Retained earnings (deficit)............................... (16,348) (93) 92
-------- -------- --------
Total stockholders' equity............................. 10,840 26,139 26,068
-------- -------- --------
Total liabilities and stockholders' equity............. $147,881 $162,873 $128,473
======== ======== ========
The accompanying notes are an integral part of these financial statements.
30
31
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR SHARES)
THREE MONTHS
YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------------
2000 1999 1999 1998
------------ ------------ ---- ----
REVENUES
Interest income on loans...................... $ 14,593 $ 4,069 $ 9,477 $ 3,296
Mortgage origination and servicing fees....... 10,800 1,319 2,069 1,361
Gain on sale of loans......................... 27 1,603 4,399 738
Sale of mortgage servicing rights............. -- -- -- 618
Other income.................................. 66 75 332 128
--------- --------- --------- ---------
Total revenues........................... 25,486 7,066 16,277 6,141
--------- --------- --------- ---------
COSTS AND EXPENSES
Interest expense.............................. 14,202 2,832 6,856 1,933
Provision for credit losses................... 7,671 362 653 147
General and administrative.................... 23,353 2,352 5,215 1,250
Provision for unrealized hedge loss........... -- -- -- 2,400
Unrealized loss on interest rate swap......... 1,300 -- -- --
Acquisition costs............................. 2,071 -- -- --
Other operating expenses...................... 1,518 944 2,336 1,204
--------- --------- --------- ---------
Total costs and expenses................. 50,115 6,490 15,060 6,934
--------- --------- --------- ---------
Income (loss) before income tax expense
(benefit).................................. (24,629) 576 1,217 (793)
Federal income tax expense (benefit)..... (8,374) 198 441 (219)
--------- --------- --------- ---------
Income (loss) before cumulative effect of
change in accounting principle............. (16,255) 378 776 (574)
Cumulative effect of change in accounting
principle, net of tax...................... -- (563) -- --
--------- --------- --------- ---------
Net income (loss)............................. $ (16,255) $ (185) $ 776 $ (574)
========= ========= ========= =========
Weighted average common shares outstanding.... 2,625,765 2,539,716 1,966,288 1,261,031
========= ========= ========= =========
Weighted average common shares outstanding,
diluted.................................... 2,625,765 2,539,716 2,145,939 1,261,031
========= ========= ========= =========
Earnings (loss) per share before cumulative
effect of change in accounting principle:
Basic...................................... $ (6.19) $ 0.15 $ 0.39 $ (0.46)
========= ========= ========= =========
Diluted.................................... $ (6.19) $ 0.15 $ 0.36 $ (0.46)
========= ========= ========= =========
Cumulative effect of change in accounting
principle:
Basic...................................... $ -- $ (0.22) $ -- $ --
========= ========= ========= =========
Diluted.................................... $ -- $ (0.22) $ -- $ --
========= ========= ========= =========
Earnings (loss) per share:
Basic...................................... $ (6.19) $ (0.07) $ 0.39 $ (0.46)
========= ========= ========= =========
Diluted.................................... $ (6.19) $ (0.07) $ 0.36 $ (0.46)
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
31
32
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR SHARES)
ACCUMULATED
OTHER UNEARNED RETAINED TOTAL
COMMON PAID-IN COMPREHENSIVE STOCK EARNINGS STOCKHOLDER'S
STOCK CAPITAL INCOME (LOSS) COMPENSATION (DEFICIT) EQUITY
------ ------- ------------- ------------ --------- -------------
Balance, October 1, 1997....... -- -- -- -- (110) (110)
Issuance of 1,295,000 shares of
common stock................. 11,583 -- -- -- -- 11,583
Issuance of 281,818 shares of
common stock in conjunction
with acquisition............. 2,025 (119) -- -- -- 1,906
Issuance of 400,000 warrants
with subordinated debt....... -- 577 -- -- -- 577
Option amortization............ -- 75 -- -- -- 75
Net loss....................... -- -- -- -- (574) (574)
------- ----- ----- ------- -------- --------
Balance, September 30, 1998.... $13,608 $ 533 $ -- $ -- $ (684) $ 13,457
Issuance of 867,001 shares
common stock................. 11,968 -- -- -- -- 11,968
Issuance of 84,658 stock
awards....................... 1,120 -- -- (1,120) -- --
Stock award amortization....... -- -- -- 85 -- 85
Option amortization............ -- 86 -- -- -- 86
Net income..................... -- -- -- -- 776 776
Comprehensive income:
Unrealized loss on securities
available for sale, net of
tax........................ -- -- (304) -- -- (304)
--------
Total comprehensive
income.................. -- -- -- -- -- 472
------- ----- ----- ------- -------- --------
Balance, September 30, 1999.... $26,696 $ 619 $(304) $(1,035) $ 92 $ 26,068
Issuance of 11,243 stock
awards....................... 103 -- -- (103) -- --
Stock award amortization....... 36 36
Option amortization............ -- 22 -- -- -- 22
Net loss....................... -- -- -- -- (185) (185)
Comprehensive income:
Unrealized gain on securities
available for sale, net of
tax........................ -- -- 198 -- -- 198
--------
Total comprehensive
income.................. -- -- -- -- -- 13
------- ----- ----- ------- -------- --------
Balance, December 31, 1999..... $26,799 $ 641 $(106) $(1,102) $ (93) $ 26,139
Issuance of 44,138 stock
awards....................... 336 -- -- (336) -- --
Issuance of 66,005 shares of
common stock for BAC
earnout...................... 503 -- -- -- -- 503
Cancellation of 10,178 stock
awards....................... (150) -- -- 150 -- --
Stock award amortization....... -- -- -- 146 -- 146
Option amortization............ -- 86 -- -- -- 86
Net loss....................... -- -- -- -- (16,255) (16,255)
Comprehensive income:
Unrealized gain on securities
available for sale, net of
tax........................ -- -- 221 -- -- 221
--------
Total comprehensive loss... -- -- -- -- -- (16,034)
------- ----- ----- ------- -------- --------
Balance, December 31, 2000..... $27,488 $ 727 $ 115 $(1,142) $(16,348) $ 10,840
======= ===== ===== ======= ======== ========
The accompanying notes are an integral part of these financial statements.
32
33
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASHFLOWS
(IN THOUSANDS)
THREE MONTHS YEAR ENDED
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31 ---------------------
2000 1999 1999 1998
------------ ------------ ---- ----
Cash flows from operating activities:
Net income (loss)............................ $ (16,255) $ (185) $ 776 $ (574)
Adjustments to reconcile net income to net
Cash provided by operating activities:
Provision for unrealized hedge (gain)
loss.................................... -- -- (2,400) 2,400
Unrealized loss on interest rate swaps.... 1,300 -- -- --
Provision for credit losses............... 7,671 362 653 147
Depreciation and amortization............. 3,600 1,637 1,135 516
Provision for deferred taxes.............. (8,374) (84) 914 (902)
Originations of loans held for sale....... (207,171) (126,789) (144,344) (92,806)
Principal collections on loans held for
sale.................................... 19,363 1,709 3,256 2,191
Proceeds from sale of loans held for
sale.................................... 223,128 100,888 113,494 12,513
Loss (gain) on sale of investment
securities.............................. -- 35 (3) (13)
Gain on sale of loans..................... (27) (1,603) (1,999) (738)
Increase in other assets..................... (13,374) (3,366) (6,234) (1,484)
Increase in other liabilities................ 5,835 7,028 3,860 115
--------- --------- --------- --------
Net cash provided by (used in) operating
activities........................... 15,696 (20,368) (30,892) (78,635)
--------- --------- --------- --------
Cash flows from investing activities:
Purchase of Hartger & Willard............. -- -- (1,900) --
Purchase of Dynex Financial, Inc.......... -- (4,001) --
Purchase of investment securities......... -- -- (1,529) --
Proceeds from the sale of investment
securities.............................. -- 24 369 71
Capital expenditures...................... (911) (98) (485) (27)
--------- --------- --------- --------
Net cash provided by (used in) investing
activities........................... (911) (4,075) (3,545) 44
--------- --------- --------- --------
Cash flows from financing activities:
Issuance of common stock.................. -- -- 11,968 11,582
Issuance of subordinated debt, including
discount................................ -- -- -- 4,000
Advances under repurchase agreements...... 154,041 102,876 98,990 56,892
Repayment of advances under repurchase
agreements.............................. (167,254) (91,434) (86,855) --
Advances on note payable.................. 252,664 100,364 109,164 30,117
Repayment of note payable................. (250,715) (88,093) (100,079) (22,021)
--------- --------- --------- --------
Net cash provided by (used in) financing
activities........................... (11,264) 23,713 33,188 80,570
--------- --------- --------- --------
Net change in cash and cash equivalents........ 3,521 (730) (1,249) 1,979
Cash and cash equivalents, beginning of
period....................................... -- 730 1,979 --
--------- --------- --------- --------
Cash and cash equivalents, end of period....... $ 3,521 $ -- $ 730 $ 1,979
========= ========= ========= ========
Supplemental disclosures of cash flow
information:
Interest paid................................ $ 13,875 $ 2,828 $ 6,785 $ 2,128
Federal income taxes paid.................... $ -- $ -- $ 420 $ 290
The accompanying notes are an integral part of these financial statements.
33
34
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: The Company's principal operations involve
origination, underwriting, placement or sale, and servicing of commercial real
estate and manufactured home loans.
The Company's manufactured home loans are made through its subsidiary,
Dynex Financial, Inc. ("Dynex Financial") primarily to finance the purchase of
manufactured homes. These loans are generally conventionally amortizing loans
that range in amount from $10,000 to $100,000 and have terms of seven to 30
years. The Company also provides warranty and disability insurance through one
of its subsidiaries.
The Company's commercial real estate mortgage loans are made through its
subsidiary, Bloomfield Acceptance Company, L.L.C. ("Bloomfield Acceptance").
Manufactured home loan and commercial real estate loan servicing is performed by
Dynex Financial and Bloomfield Servicing Company, L.L.C. ("Bloomfield
Servicing"), a subsidiary, respectively.
The Company generally sells, securitizes or places the manufactured home
and commercial real estate mortgage loans it originates with institutional
investors and retains the rights to service loans sold on behalf of those
investors.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts and transactions of the Company and its subsidiaries. Significant
intercompany accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION: Interest and origination fee revenue from loans
receivable is recognized using the interest method. Certain loan origination
costs on loans receivable are deferred and amortized using the interest method
over the term of the related loans as a reduction of interest income on loans.
The accrual of interest on loans receivable is discontinued at the time a loan
is determined to be impaired. Servicing fees are recognized when received.
The Company periodically sells loans either as whole loans or through
securitizations. Estimated gains or losses from such sales or securitizations
are recognized in the period in which the sale or securitization occurs. In
determining the gain or loss on each qualifying sale of loans receivable, the
Company's investment in each sold loan receivable pool is allocated between the
portion sold and any retained interests based on their relative fair values at
the date of sale. The retained interests include interest-only strips,
restricted cash held by securitization trusts, recourse liabilities and
servicing rights.
CHANGE IN FISCAL YEAR END: On February 4, 2000 the Company changed its
fiscal year end from a twelve month period ending September 30 to a twelve month
period ending December 31. The consolidated statements of operations and cash
flows are presented for the year ended December 31, 2000, the three months ended
December 31, 1999, and the years ended September 30, 1999 and September 30,
1998.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: 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 revenues and expenses during the reporting period,
including significant estimates regarding allowances for loan losses, recourse
liabilities and deferred tax asset realization. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents represent short-term
highly liquid investments with original maturities of three months or less and
include cash and interest bearing deposits at banks. The Company has restricted
cash related to loans serviced for others which is held in trust for subsequent
payment to the owners of those loans.
LOANS RECEIVABLE: Loans receivable consist of commercial real estate loans,
manufactured home loans and floor plan loans. The commercial loans primarily
consist of fixed rate loans collateralized by mortgages on
34
35
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commercial property. Manufactured home loans are primarily conventional fixed
rate loans under contracts collateralized by the borrowers' manufactured homes.
All loans receivable are held for sale and are carried at the lower of aggregate
cost or fair value. Loans receivable include accrued interest and are presented
net of deferred loan origination costs and an allowance for estimated loan
losses.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company periodically uses derivative
instruments, including forward sales of U.S. Treasury securities, U.S. Treasury
rate locks and forward interest rate swaps to hedge interest rate risk related
to its loans receivable and anticipated sales or securitizations. Deferral
(hedge) accounting is applied if a derivative financial instrument reduces the
risk of the underlying hedged item, is designated at inception as a hedge and is
expected to be effective as a hedge. Hedges are measured for effectiveness both
at inception and on an ongoing basis, and hedge accounting is terminated if a
derivative instrument ceases to be effective as a hedge or its designation as a
hedge is terminated. In the event of termination of a hedge, any gains or losses
during the period a derivative instrument qualified as a hedge are recognized as
a component of the hedged item and subsequent gains or losses are recognized in
earnings. Derivative financial instruments that do not qualify for hedge
accounting are carried at fair value and changes in fair value are recognized
currently in earnings.
Effective January 1, 2001 the Company will be required to adopt the
provisions of Statement of Financial Accounting No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). Under SFAS 133, all
derivative instruments will be recorded on the balance sheet at fair value and
changes in fair value will be recorded in current earnings or other
comprehensive income, depending on whether a derivative instrument qualifies for
hedge accounting and, if so, whether the hedge transaction represents a fair
value or cash flow hedge. The Company is currently evaluating the impact of SFAS
133: at present the Company does not believe it will have a material effect on
the consolidated financial position or results of operations.
ALLOWANCE FOR LOAN LOSSES: The Company maintains an allowance for loan
losses at a level believed adequate by management to absorb potential losses on
loans receivable. The allowance for loan losses is determined based on an
analysis of the loans receivable portfolio and its aging, current economic
conditions and trends, historical credit loss experience, collateral value and
borrowers' ability to pay.
SERVICING RIGHTS: The Company accounts for loan servicing rights related to
originated and sold loans by recognizing a separate servicing asset or
liability. These servicing assets or liabilities are determined by allocating
the carrying amount of the loans sold between the loan and the servicing rights
based on the relative fair values of each at the date of sale. The fair value of
the servicing rights is based on discounted cash flows incorporating estimated
servicing fees and costs as well as ancillary servicing revenue and projected
prepayment rates. The Company capitalized $1.5 million, $7.6 million and $2.0
million, respectively of loan servicing rights for the periods ended December
31, 2000, December 31, 1999 and September 30, 1999.
The carrying amount of loan servicing rights is assessed for impairment
each quarter by comparison to fair value and a valuation allowance is
established in the event the carrying amount exceeds the fair value. Fair value
is estimated based on the present value of expected future cash flows and
periodically by independent appraisal. There was no valuation allowance
recognized at December 31, 2000. The estimated fair value of loan servicing
rights was approximately $16.5 million at December 31, 2000.
INTEREST ON LOANS: Interest on loans is credited to income when earned. An
allowance for interest on loans is provided when a loan becomes more than 90
days past due as the collection of these loans is considered doubtful.
LOAN FEES: Loan origination fees and certain direct loan origination costs
are deferred and recognized over the lives of the related loans as an adjustment
of the yields using a level-yield method.
35
36
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REPOSSESSED HOMES: Manufactured homes acquired through foreclosure or
similar proceedings are recorded at the lesser of the related loan balance plus
any operating expenses of such homes or the estimated fair value of the home.
OTHER ASSETS: Other assets is comprised of prepaid expenses, deferred
financing costs, goodwill and other miscellaneous receivables. Prepaid expenses
are amortized over the expected service period. Deferred financing costs are
capitalized and amortized over the life of the corresponding line of credit.
LOAN SALE PROCEEDS RECEIVABLE: The loan sale proceeds receivable relates to
the sale of approximately $114.4 million principal balance of manufactured home
loans. The loans were sold with recourse and with a deferred proceeds component
equal to 1.5% of the outstanding principal balance at the time of sale. Bingham
receives on a monthly basis .125% (an annual rate of 1.5% divided by 12) of the
outstanding principal balance of eligible loans (loans on which a payment was
received from the obligor during the month). The deferred loan sale proceeds
receivable is assessed for impairment on a periodic basis based on the fair
value of the receivable calculated on a discounted basis.
LOANS SOLD UNDER AGREEMENTS TO REPURCHASE: The Company enters into sales of
loans under agreements to repurchase the loans. The agreements are short-term
and are accounted for as secured borrowings. The obligations to repurchase the
loans sold are reflected as a liability, and the loans that collateralize the
agreements are reflected as assets in the balance sheet.
DEPRECIATION: Provisions for depreciation are computed using the
straight-line method over the estimated useful lives of office properties and
equipment, as follows: leasehold improvements -- life of the lease; furniture
and fixtures -- seven years; capitalized software -- five years;
computers -- five years.
INCOME TAXES: The Company uses the liability method in accounting for
income taxes. Deferred tax assets or liabilities are recognized for temporary
differences between the tax bases of assets and liabilities and their carrying
amounts in the consolidated financial statements and net operating loss
carryforwards. Deferred tax assets and liabilities are measured using currently
enacted tax rates.
GOODWILL: Goodwill, which represents the excess of purchase price over the
fair value of net assets acquired, is amortized on a straight-line basis over
the expected periods to be benefited, generally 25 years.
PER SHARE DATA: Basic earnings per share are computed by dividing net
income (loss) available to common shareholders by the weighted average common
shares outstanding. At December 31, 2000 there were approximately 900,000
potential shares of common stock from stock options and warrants outstanding.
Had these stock options and warrants been exercised they would have had an
anti-dilutive effect on the net loss. The effect of the anti-dilutive shares is
not included in the earnings (loss) per share calculation.
36
37
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents a reconciliation of the numerator (income
applicable to common shareholders) and denominator (weighted average common
shares outstanding) for the basic loss per share calculation:
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
------------------- -------------------
2000 1999
------------------- -------------------
EARNINGS EARNINGS
(LOSS) (LOSS)
SHARES PER SHARE SHARES PER SHARE
------ --------- ------ ---------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Basic earnings (loss) per share before
Cumulative effect of change in accounting principle....... 2,626 $(6.19) 2,540 $ 0.15
Cumulative effect of change in accounting principle....... -- -- -- $(0.22)
Net dilutive effect of:
Options................................................... -- -- -- --
Warrants.................................................. -- -- -- --
----- ------ ----- ------
Diluted loss per share...................................... 2,626 $(6.19) 2,540 $(0.07)
===== ====== ===== ======
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1999 1998
------------------- -------------------
EARNINGS
EARNINGS (LOSS)
SHARES PER SHARE SHARES PER SHARE
------ --------- ------ ---------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Basic earnings (loss) per share............................. 1,966 $ 0.39 1,261 $(0.46)
Net dilutive effect of:
Options................................................... 22 -- -- --
Warrants.................................................. 158 (0.03) -- --
----- ------ ----- ------
Diluted earnings (loss) per share........................... 2,146 $ 0.36 1,261 $(0.46)
===== ====== ===== ======
SECURITIES: Marketable securities owned as of December 31, 2000 are
classified as available for sale. Securities classified as available for sale
are carried at market value with a corresponding market value adjustment carried
as a separate component of the equity section of the balance sheet on a net of
tax basis. Securities consisted of a single equity security with a carrying
amount of $1.7 million, which is included in other assets. The adjusted cost of
the securities would be used to compute realized gains or losses if the
securities are sold.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE: In April 1998 the
Financial Accounting Standards Board issued Statement of Position Number 98-5
(SOP 98-5) "Reporting on the Cost of Start-Up Activities". This statement, which
is required to be adopted for fiscal years beginning after December 15, 1998
establishes guidance for the accounting of start-up activities. It states that
the cost of start-up activities, including organizational costs, should be
expensed as incurred. The Company had deferred organizational costs related to
the formation of its manufactured home lending subsidiary and the filing of its
application to become a unitary thrift holding company and for the formation of
a federally chartered savings bank. In the period ended December 31, 1999 the
Company expensed approximately $563,000 net of federal income tax benefit of
previously capitalized organization costs.
B. ACQUISITIONS
In March 1998 the Company acquired 100% of the outstanding ownership
interest of Bloomfield Acceptance and Bloomfield Servicing for 281,818 shares of
the Company's common stock valued at
37
38
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $2.1 million. Bloomfield is engaged in the business of the
origination of mortgages and real estate lending. Loans originated by Bloomfield
Acceptance primarily consist of fixed rate loans secured by mortgages on
commercial property. Bloomfield Servicing was formed to service the loans
originated by Bloomfield Acceptance and other investors.
In addition to the shares of common stock issued to the former owners of
Bloomfield Acceptance and Bloomfield Servicing, additional consideration of
$500,000, in the form of the Company's common stock, was paid to the owners in
March, 2000 based on the performance of the merged entities after a two year
period following the date of merger.
Each of the acquisitions was accounted for as a purchase. The results of
operations for the year ended September 30, 1998 include the results of
operations for each of the acquired companies since the date of their respective
acquisitions.
The aggregate purchase price for the acquisitions completed for the year
ended September 30, 1998, was $2.1 million. The purchase price was allocated to
the assets acquired and liabilities assumed based on the related fair values at
the date of acquisition. The excess of the aggregate purchase price over the
fair values of the assets acquired and liabilities assumed has been allocated to
goodwill and is being amortized on a straight-line method over 25 years.
On July 1, 1999 pursuant to a Reorganization Agreement dated as of June 30,
1999 (the "Reorganization Agreement") the Company acquired all of the issued and
outstanding stock of Hartger and Willard Mortgage Associates, Inc. ("Hartger &
Willard") from DMR Financial Services, Inc. ("DMRFS"), an affiliate of Detroit
Mortgage and Realty Company ("DMR"). Pursuant to the terms of the agreement,
66,667 shares of Bingham common stock, without par value, were issued to DMRFS.
In connection with the acquisition of Hartger & Willard the Company loaned
$1.5 million to DMRFS pursuant to a Promissory Note dated July 31, 1999. The
loan was guaranteed by DMR and secured by the pledge of the 66,667 shares of
Bingham common stock DMRFS received in the acquisition. The Company is seeking
to foreclose on the pledged shares in full payment of the principal amount of
the loan. The effect of this transaction is that the Company has acquired the
Hartger & Willard shares for $1.5 million in cash.
The Hartger & Willard acquisition was accounted for as a purchase. The
results of operations for the year ended September 30, 1999 include the results
of operations for the acquired company since the date of the acquisition.
The aggregate purchase price for the acquisition of $1.9 million, including
expenses of the acquisition, was allocated to the assets acquired and
liabilities assumed based on the related fair values at the date of acquisition.
The excess of the aggregate purchase price over the fair values of the assets
acquired and liabilities assumed has been allocated to goodwill and is being
amortized on a straight-line method over 20 years.
In conjunction with the acquisition in July, 1999, liabilities assumed and
other non-cash consideration was as follows (in thousands, unaudited):
Fair value of assets acquired............................... $ 1,642
Goodwill.................................................... 262
Cash paid in consideration and expenses of company
acquired.................................................. (1,900)
-------
Liabilities assumed......................................... $ 4
=======
38
39
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes pro forma unaudited results of operations as
if the acquisition completed during 1999 had occurred at the beginning of each
year presented:
SEPTEMBER 30,
----------------------
1999 1998
---- ----
(IN THOUSANDS, EXCEPT
EARNINGS PER SHARE)
Revenues.................................................... $16,933 $5,674
Income (loss) before income taxes........................... 1,158 (521)
Net income (loss)........................................... 733 (400)
Basic earnings (loss) per share............................. $ 0.37 $(0.32)
Diluted earnings (loss) per share........................... 0.34 (0.32)
In December 1999, the Company completed the acquisition of Dynex Financial
from Dynex Holding, Inc., a subsidiary of Dynex Capital, Inc. ("DCI"). The
Company acquired certain manufactured home loans from Dynex Financial, all of
the issued and outstanding stock of Dynex Financial and all of the rights to
DCI's manufactured home lending business for approximately $4.0 million in cash
funded by borrowings on the Company's demand lines of credit. Dynex Financial
specializes in lending to buyers of manufactured homes and has corporate and
regional offices in four states. In addition Dynex Financial provides servicing
for manufactured home and land/home loans.
The Dynex Financial acquisition was accounted for using the purchase
method. The consideration and acquisition costs for the DFI acquisition were
allocated to the acquired assets and assumed liabilities, resulting in excess of
the fair value of the acquired net assets over the purchase price of
approximately $3.2 million, which was recognized as a reduction in the amount
allocated to purchased loan servicing rights. During the quarter ended March 31,
2000, Bingham revised its initial estimates of the fair value of the assets
acquired, specifically the manufactured home loan portfolio associated with the
transaction, effectively reducing the excess of fair value of acquired net
assets by $2.0 million. Accordingly, the Company recognized the revised estimate
by retroactively adjusting the purchase price allocation increase to the amount
previously allocated to purchased loan servicing rights.
In connection with the Dynex Financial acquisition, Bingham recognized
accrued liabilities of $5.0 million related to its plans to close certain of
Dynex Financial's regional and district offices and terminate or relocate
certain of its employees. As of December 31, 2000, Bingham had revised its
estimate of the costs to implement its plan and as a result has made an
adjustment to the purchase price allocation. The change in estimate has resulted
in an increase of $2.3 million in the excess of fair value over the assets
acquired. Bingham has recognized this increase as an adjustment to the amount
previously allocated to purchased loan servicing rights.
For the year ended December 31, 2000, there were approximately $2.5 million
of costs paid related to the accrued acquisition liabilities. Such costs
consisted of $1.4 million for severance payments and personnel costs and $1.1 in
costs connected with closed locations incurred subsequent to the cessation of
operations.
39
40
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes pro forma unaudited results of operations
for the Dynex Financial acquisition as if it had occurred at the beginning of
each period presented:
THREE MONTHS YEAR ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, -----------------------
1999 1999 1998
------------ ---- ----
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Revenues................................................. $ 9,114 $36,047 $38,119
Income (loss) before cumulative effect of change in
accounting principle................................... (2,141) 1,236 1,857
Cumulative effect of change in accounting principle, net
of tax................................................. (563) -- --
Net income (loss)........................................ (2,704) 1,236 1,857
Basic earnings (loss) per share.......................... $ (1.06) $ 0.63 $ 1.47
Diluted earnings (loss) per share........................ (1.06) 0.58 1.47
In the year ended December 31, 2000 the Company attempted a merger with
Franklin Bank which was unsuccessful. Costs incurred totaled $2.1 million all of
which were charged to operations in the fourth quarter of 2000 when the merger
attempt was terminated.
C. LOANS RECEIVABLE
The carrying amounts and fair value of loans receivable consisted of the
following:
DECEMBER 31,
------------------- SEPTEMBER 30,
2000 1999 1999
---- ---- -------------
(IN THOUSANDS)
Manufactured home loans..................................... $95,234 $ 75,321 $ 64,501
Commercial loans............................................ 3,547 65,465 52,904
Floor plan loans............................................ 1,731 -- --
Accrued interest receivable................................. 794 940 740
Deferred fees............................................... (869) (571) 205
Deferred hedge loss......................................... 364 -- --
Allowance for loan loss..................................... (2,168) (274) (258)
------- -------- --------
$98,633 $140,881 $118,092
======= ======== ========
40
41
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the average loan balance, weighted average
loan yield and weighted average initial term:
MANUFACTURED HOME
-----------------------------------------
DECEMBER 31,
---------------------- SEPTEMBER 30,
2000 1999 1999
---- ---- -------------
(DOLLARS IN THOUSANDS)
Principal balance loans receivable, net..................... $ 95,234 $ 75,321 $ 64,501
Number of loans receivable.................................. 2,304 1,907 2,190
Average loan balance........................................ $ 41 $ 38 $ 29
Weighted average loan yield................................. 11.75% 10.90% 11.33%
Weighted average initial term............................... 26 years 25 years 22 years
COMMERCIAL MORTGAGE
---------------------------------------
DECEMBER 31,
---------------------- SEPTEMBER 30,
2000 1999 1999
---- ---- -------------
(DOLLARS IN THOUSANDS)
Principal balance loans receivable, net..................... $ 3,547 $ 65,930 $ 53,157
Number of loans receivable.................................. 2 27 20
Average loan balance........................................ $ 1,773 $ 2,442 $ 2,645
Weighted average loan yield................................. 8.7% 9.8% 8.5%
Weighted average initial term............................... 6.9 years 6.5 years 5.8 years
The following table sets forth the concentration by state of the loan
portfolio:
MANUFACTURED HOME
----------------------------------------------------------------
DECEMBER 31,
------------------------------------------ SEPTEMBER 30,
2000 1999 1999
------------------- ------------------- ------------------
PRINCIPAL % PRINCIPAL % PRINCIPAL %
--------- - --------- - --------- -
(DOLLARS IN THOUSANDS)
Michigan.................................. 6,446 6.7% 6,569 8.7% 25,102 38.9%
Indiana................................... 1,892 2.0% 3,819 5.1% 10,128 15.7%
Texas..................................... 23,338 24.5% 14,760 19.6% 5,516 8.6%
Florida................................... 4,013 4.2% 4,176 5.5% 6,142 9.5%
Georgia................................... 7,587 8.0% 4,864 6.5% 1,637 2.5%
North Carolina............................ 6,280 6.6% 7,886 10.5% 1,084 1.7%
Other..................................... 45,678 48.0% 33,247 44.1% 14,892 23.1%
------ ------ ------ ------ ------ -----
Total.............................. 95,234 100.0% 75,321 100.0% 64,501 23.1%
====== ====== ====== ====== ====== =====
COMMERCIAL MORTGAGE
-----------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------- SEPTEMBER 30,
2000 1999 1999
------------------ --------------------- --------------------
PRINCIPAL % PRINCIPAL % PRINCIPAL %
--------- - --------- - --------- -
(DOLLARS IN THOUSANDS)
Michigan................................. -- -- 11,276 17.2% 11,338 21.4%
Indiana.................................. -- -- 2,800 4.3% -- --
Arizona.................................. 2,466 69.5% 18,895 28.9% 17,431 32.9%
Texas.................................... -- -- 1,797 2.7% 1,807 3.4%
Florida.................................. 1,081 30.5% 8,946 13.7% 5,980 11.3%
California............................... -- -- 4,623 7.1% 4,651 8.8%
Other.................................... -- -- 17,593 26.1% 11,950 22.2%
----- ----- ------ ------ ------ -----
Total............................. 3,547 100.0% 65,930 100.0% 53,157 100.0%
===== ===== ====== ====== ====== =====
41
42
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The manufactured home contracts are collateralized by manufactured homes
which range in age from 1963 to 2000, with approximately 60% of the manufactured
homes built since 1998.
The following table sets forth the number and value of loans for various
terms for the manufactured home loan portfolio:
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ --------------------------
2000 1999 1999
---------------------- ---------------------- --------------------------
TERM NUMBER OF PRINCIPAL NUMBER OF PRINCIPAL NUMBER OF PRINCIPAL
(YEARS) LOANS BALANCE LOANS BALANCE LOANS BALANCE
------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
5 or less....................... 3 $ 24 37 $ 270 55 $ 393
6-10............................ 90 1,727 116 1,986 210 2,488
11-12........................... 8 155 8 213 9 148
13-15........................... 144 3,853 156 4,047 274 4,542
16-20........................... 265 7,908 315 9,835 503 12,603
21-25........................... 345 11,720 532 21,796 1,102 42,833
26-30........................... 1449 69,847 743 37,174 37 1,494
----- ------- ----- ------- ----- -------
Total.................... 2,304 $95,234 1,907 $75,321 2,190 $64,501
===== ======= ===== ======= ===== =======
The commercial mortgage loans have amortization terms of between 25 and 30
years. In certain cases they also have a hyper-amortization feature that takes
effect if the loan is not repaid on its anticipated repayment date. At that time
the interest rate increases and any excess cash flows from the project are used
to pay down the principal balance.
Delinquency statistics for the manufactured home loan portfolio are as
follows:
DECEMBER 31 SEPTEMBER 30,
-------------------------------------------------------------------- --------------------------------
2000 1999 1999
-------------------------------- -------------------------------- --------------------------------
NO. OF PRINCIPAL % OF NO. OF PRINCIPAL % OF NO. OF PRINCIPAL % OF
LOANS BALANCE PORTFOLIO LOANS BALANCE PORTFOLIO LOANS BALANCE PORTFOLIO
------ --------- --------- ------ --------- --------- ------ --------- ---------
(DOLLARS IN THOUSANDS)
Days delinquent
31-60................. 24 $ 944 1.0% 95 $2,929 4.1% 60 $1,748 2.7%
61-90................. 19 811 0.9% 51 1,786 2.5% 20 706 1.1%
Greater than 90....... 83 3,352 3.5% 46 1,357 1.9% 40 988 1.5%
No commercial mortgage loans were delinquent as of December 31, 2000,
December 31, 1999 or September 30, 1999.
42
43
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
D. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses and related additions and deductions to the
allowance for the year ended December 31, 2000 the period ended December 31,
1999 and the years ended September 30, 1999 and 1998 were as follows:
THREE MONTHS YEAR ENDED
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -------------
2000 1999 1999 1998
------------ ------------ ---- ----
(IN THOUSANDS)
Balance at beginning of period........................ $ 274 $ 258 $ 185 $ 58
Provision for loan losses............................. 7,671 362 653 147
Net losses............................................ (5,777) (346) (580) (20)
------- ----- ----- ----
Balance at end of year.............................. $ 2,168 $ 274 $ 258 $185
======= ===== ===== ====
E. MORTGAGE SERVICING RIGHTS
Changes in servicing rights are summarized as follows
DECEMBER 31,
----------------- SEPTEMBER 30,
2000 1999 1999
---- ---- -------------
(IN THOUSANDS)
Balance at beginning of period.............................. $ 9,736 $2,120 $ 156
Purchased servicing rights.................................. -- 6,846 1,376
Purchase price adjustments.................................. 424 -- --
Originated servicing rights................................. 1,112 825 735
Amortization................................................ (2,129) (55) (94)
Sales....................................................... -- -- (53)
------- ------ ------
Balance at end of period.................................. $ 9,143 $9,736 $2,120
======= ====== ======
Bloomfield Servicing the Company's loan servicing subsidiary, services
commercial real estate loans that Bloomfield Acceptance originates as well as
commercial real estate loans on behalf of 29 institutional investors. Bloomfield
Servicing also acts as the sub-servicer on the approximately $129.0 million of
commercial mortgage loans the Company has securitized and sold. As of December
31, 2000, December 31, 1999 and September 30, 1999, Bloomfield Servicing's
commercial mortgage loan servicing portfolio totaled approximately $1.2 billion,
$930.0 million and $900.0 million, respectively.
Dynex Financial services the manufactured home loans originated by the
Company and held in its loan portfolio as well as manufactured home loans
originated by the Company and securitized or sold with the servicing rights
retained. The principal balances of manufactured home loans serviced for outside
investors totaled approximately $1.1 billion at December 31, 2000, $1.0 billion
at December 31, 1999 and $83.0 million at September 30, 1999.
43
44
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
F. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
DECEMBER 31,
---------------- SEPTEMBER 30,
2000 1999 1999
---- ---- -------------
(IN THOUSANDS)
Cost:
Furniture and fixtures.................................... $2,191 $2,197 $ 327
Leasehold improvements.................................... 213 46 46
Capitalized Software...................................... 493 322 322
Computer equipment........................................ 3,071 643 556
------ ------ ------
5,968 3,208 1,251
Less accumulated depreciation............................... 3,414 179 151
------ ------ ------
$2,554 $3,029 $1,100
====== ====== ======
Depreciation expense was approximately $987,000 for the year ended December
31, 2000, $288,000 for the three months ended December 31, 1999 and $105,970 in
the year ended September 30, 1999.
G. DEBT
The Company currently has three separate financing facilities with Sun
Communities Operating Limited Partnership: a $4.0 million subordinated term
loan, bearing interest at the rate of 9.75% per annum (the "Term Loan"); a $10.0
million subordinated demand line of credit, bearing interest at a rate of LIBOR
plus a spread (the "$10 Million Line"); and a $50.0 million subordinated demand
line of credit, bearing interest at a rate of LIBOR plus a spread (the "$50
Million Line" and, together with the Term Loan and $10 Million Line, the
"Subordinated Debt Facilities"). The Term Loan matures on September 30, 2004.
Anytime after September 30, 2000, the Term Loan may be paid in full or in part
without premium or penalty subject to approval of the Company's non-employee
directors.
The entire unpaid principal balance of each of the $10 Million Line and the
$50 Million Line, together with all accrued and unpaid interest, will be due and
payable in full within ten days after the date of demand. The Sun operating
partnership in its sole discretion may refuse to make advances under the $50
Million Line. As of December 31, 2000 there was $4.0 million outstanding under
the Term Loan, no borrowings under the $10 Million Line, and $35.8 million
outstanding under the $50 Million Line.
The Company has granted the Sun operating partnership a security interest
in substantially all of its assets to secure the obligations under the
Subordinated Debt Facilities, which is subordinate to the security interest held
by Lehman Commercial Paper Inc. discussed below.
In March 2000, Dynex Financial and Bloomfield Acceptance entered into an
amended and restated repurchase arrangement with Lehman Commercial Paper Inc.
Under this agreement, Dynex Financial and Bloomfield Acceptance may transfer
loans from time to time to Lehman against the transfer of funds from Lehman.
Bingham has guaranteed the obligations of Dynex Financial and Bloomfield
Acceptance under this agreement and has granted Lehman Commercial Paper Inc. a
security interest in substantially all of its assets as security for the
guaranty. As of December 31, 2000, the aggregate amount advanced by Lehman under
the repurchase agreement was approximately $67.3 million. In November 2000 the
repurchase agreement with Lehman expired. A temporary agreement was negotiated
extending the facility through February 28, 2001 and reducing the available
borrowing limit to $95.0 million. Currently, the Company is still financing
loans under the terms of the expired facility until a replacement agreement can
be negotiated and executed.
44
45
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 2000, Bingham and Dynex Financial entered into a revolving credit
facility with Michigan National Bank. Under this facility, Bingham and Dynex
Financial may borrow up to $10.0 million. Interest at a rate of LIBOR plus a
spread is payable on the outstanding balance. The outstanding principal balance
on this credit facility as of December 31, 2000 was approximately $6.8 million.
To secure the loan from Michigan National Bank, Dynex Financial and Bingham have
granted Michigan National Bank a security interest in their rights under three
servicing agreements under which Dynex Financial services manufactured home
loans.
In April 2000, Bloomfield Acceptance and Bloomfield Servicing entered into
a warehousing credit agreement with Residential Funding Corporation. Under the
credit agreement, Bloomfield Acceptance and Bloomfield Servicing may borrow up
to $25.0 million to fund the acquisition and origination of FNMA loans, FHLMC
loans, bridge mortgage loans and similar mortgage loans. Interest at an annual
rate of up to LIBOR plus a spread is payable on the outstanding balance of
advances used to make bridge mortgage loans. Interest at an annual rate of LIBOR
plus a spread is payable on the outstanding balance of advances used to make all
other loans under the agreement. As of December 31, 2000, Bloomfield Acceptance
and Bloomfield Servicing had no outstanding indebtedness under this agreement.
At December 31, 2000 and 1999 and September 30, 1999 debt outstanding was
as follows:
DECEMBER 31,
-------------------- SEPTEMBER 30,
2000 1999 1999
---- ---- -------------
(IN THOUSANDS)
Loans sold under agreements to repurchase................... $ 67,256 $ 80,469 $ 69,026
Revolving credit facility................................... 6,848 -- --
Demand loans................................................ 35,849 40,747 28,477
Term loan, net of discount.................................. 3,664 3,586 3,567
-------- -------- --------
$113,617 $124,802 $101,070
======== ======== ========
H. DEALER AGREEMENT
As of September 30, 1997 the Company entered into a preferred dealer
agreement with Sun Communities. Pursuant to the agreement, stock options were
granted to Sun September 30, 1997 that will vest if, and only if, Sun is a party
to and in compliance with the terms of the agreement on the vesting date and on
December 31 of the previous year. The options will vest in eight equal annual
amounts, each consisting of 41,250 options, on January 31, 2001 through 2008.
The options may be exercised at any time after vesting until expiration ten
years after the date of vesting. Each option vesting January 31, 2001 to 2003
will entitle the holder to purchase one share of common stock for a purchase
price of $10. Each option vesting on January 31, 2004, 2005 and 2006 will
entitle the holder to purchase one share of common stock for $12. Each option
vesting on January 31, 2007 and 2008 will entitle the holder to purchase one
share of common stock for $14.
The Company recognizes service costs related to the options based on the
fair value method as prescribed by Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation". Service costs
are amortized based on the vesting periods of the options. Amortization for the
year ended December 31, 2000, the three months ended December 31, 1999 and the
years ended September 30, 1999 and 1998 was $86,400, $21,600, $86,400 and
$74,700 respectively.
45
46
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
I. STOCK OPTION PLAN
The Company has a stock option plan in which 263,168 shares of common stock
have been reserved for issuance as of December 31, 2000. Under the plan, the
exercise price of the options will not be less than the fair market value of the
common stock on the date of grant. The date on which the options are first
exercisable is determined by the administrator of the Company's stock option
plan, the Compensation Committee of the Board of Directors or the entire Board
of Directors, and options generally have vested over a three-year period from
the date of grant. The term of an option may not exceed ten years from the date
of grant.
The Company has adopted the disclosure requirements of SFAS 123.
Accordingly, the fair value of each option granted in 2000, 1999 and 1998 was
estimated using the Black-Scholes option pricing model based on the assumptions
stated below:
DECEMBER 31, SEPTEMBER 30,
----------------- -----------------
2000 1999 1999 1998
---- ---- ---- ----
Estimated weighted average fair value per share of
options granted...................................... $4.21 $4.40 $4.39 $5.44
Assumptions:
Annualized dividend yield............................ --% --% --% --%
Common stock price volatility........................ 55.84% 55.62% 50.16% 44.14%
Weighted average risk free rate of return............ 6.82% 6.53% 5.31% 5.83%
Weighted average expected option term (in years)..... 6.0 6.0 6.0 6.0
The Company has elected to measure compensation cost using the intrinsic
value method, in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly since all options are granted at a fixed price
not less than the fair market value of the Company's common stock on the date of
grant, no compensation cost has been recognized for its stock option plan. Had
stock option costs of the plan been determined based on the fair value at the
grant dates for awards under those plans consistent with the methodology of SFAS
123, the pro forma effects on the Company's net income and earnings per share
would be as follows:
THREE MONTHS YEAR ENDED
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ---------------
2000 1999 1999 1998
------------ ------------ ---- ----
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Net income (loss) as reported........................ $(16,255) $ (185) $ 776 $ (574)
Stock option compensation cost....................... 185 50 228 94
-------- ------ ----- ------
Pro forma net income (loss)........................ $(16,440) $ (235) $ 548 $ (668)
======== ====== ===== ======
Basic income (loss) per share as reported............ $ (6.19) $(0.07) $0.39 $(0.46)
Stock option compensation cost....................... 0.07 0.02 0.12 0.07
-------- ------ ----- ------
Pro forma earnings (loss) per share................ $ (6.26) $(0.09) $0.27 $(0.53)
======== ====== ===== ======
Diluted earnings (loss) per share as reported........ $ (6.19) $(0.07) $0.36 $(0.46)
Stock option compensation cost....................... 0.07 0.02 0.11 0.07
-------- ------ ----- ------
Pro forma fully diluted earnings (loss) per
share........................................... $ (6.26) $(0.09) $0.25 $(0.53)
======== ====== ===== ======
46
47
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth changes in options outstanding:
DECEMBER 31,
----------------------------------------------
2000 1999
--------------------- ---------------------
WEIGHTED WEIGHTED
AMOUNT AVG. PRICE AMOUNT AVG. PRICE
------ ---------- ------ ----------
Shares under option:
Outstanding at beginning of year..................... 191,068 $10.14 137,818 $11.15
Granted.............................................. 35,000 7.00 53,250 7.54
Forfeited............................................ (44,718) 11.04 -- --
Exercised............................................ -- -- -- --
------- ------ ------- ------
Outstanding at end of year........................... 181,350 $ 9.34 191,068 $10.14
======= ====== ======= ======
Exercisable at end of year........................... 90,359 $10.03 98,309 $10.36
======= ====== ======= ======
SEPTEMBER 30,
----------------------------------------------
1999 1998
--------------------- ---------------------
WEIGHTED WEIGHTED
AMOUNT AVG. PRICE AMOUNT AVG. PRICE
------ ---------- ------ ----------
Shares under option:
Outstanding at beginning of year..................... 109,900 $10.65 -- $ --
Granted.............................................. 29,250 13.19 111,850 10.65
Forfeited............................................ (1,332) 12.25 (1,950) 13.00
Exercised............................................ -- -- -- --
------- ------ ------- ------
Outstanding at end of year........................... 137,818 $11.15 109,900 $10.65
======= ====== ======= ======
Exercisable at end of year............................. 65,917 $10.38 30,000 $10.00
======= ====== ======= ======
The following table sets forth details of options outstanding at December
31, 2000.
DECEMBER 31, 2000
- -------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------- --------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF REMAINING RANGE OF REMAINING
EXERCISE PRICES NUMBER CONTRACTUAL LIFE EXERCISE PRICES NUMBER CONTRACTUAL LIFE
- --------------- ------ ---------------- --------------- ------ ----------------
$ 7.00 35,000 9.35 years $ -- -- --
7.25 40,000 8.97 years 7.25 13,333 8.97 Years
7.75 8,250 8.96 years 7.75 2,749 8.96 Years
9.75 1,500 8.67 years 9.75 500 8.67 Years
10.00 60,500 6.94 years 10.00 58,833 6.89 Years
11.00 3,250 8.61 years 11.00 1,083 8.61 Years
12.50 1,250 7.81 years 12.50 1,250 7.81 Years
13.00 18,750 7.09 years 13.00 8,331 6.99 Years
13.50 7,100 8.48 years 13.50 2,364 8.48 Years
14.50 5,750 8.28 years 14.50 1,916 8.28 Years
------------- ------- ---------- ------------- ------ ----------
$7.00 - 14.50 181,350 8.69 Years $7.25 - 14.50 90,359 7.38 Years
============= ======= ========== ============= ====== ==========
47
48
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
J. FEDERAL INCOME TAXES
Federal income tax expense consisted of the following:
THREE YEAR ENDED
YEAR ENDED MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -------------
2000 1999 1999 1998
------------ ------------ ---- ----
(IN THOUSANDS)
Current tax provision................................ $ -- $ (8) $(473) $ 683
Deferred tax provision (benefit)..................... (8,374) (84) 914 (902)
------- ---- ----- -----
Federal income tax expense (benefit)............... $(8,374) $(92) $ 441 $(219)
======= ==== ===== =====
A reconciliation of the statutory federal income tax rate to the effective
income tax rate follows:
THREE YEAR ENDED
YEAR ENDED MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -------------
2000 1999 1999 1998
------------ ------------ ---- ----
Statutory tax rate................................... (34.00)% (34.00)% 34.00% (34.00)%
Effect of:
Nondeductible expenses............................. -- -- 2.22 --
Other.............................................. -- -- -- 6.39
------ ------ ----- ------
Effective tax rate................................... (34.00)% (34.00)% 36.22% (27.61)%
====== ====== ===== ======
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. The Company has evaluated
its future earnings potential and available tax planning strategies, which it
believes will allow for the recovery of the total net deferred tax asset.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
DECEMBER 31,
----------------- SEPTEMBER 30,
2000 1999 1999
---- ---- -------------
(IN THOUSANDS)
Deferred Tax Assets:
Option amortization....................................... $ 91 $ 62 $ 55
Reserve for loan losses................................... 1,081 285 230
Recourse liability........................................ 3,294 128 --
Net operating loss carryforward........................... 7,210 -- --
Other items, net.......................................... 1,170 591 273
------- ------ ----
Total deferred tax assets.............................. 12,846 1,066 558
Less: valuation allowance................................. -- -- --
Deferred Tax Liabilities:
Net deferral required by SFAS 91.......................... 403 281 169
Deferred closing costs.................................... 59 167 148
Restructuring charges..................................... 844 -- --
Loan sale proceeds receivable............................. 2,245 -- --
Gain on sale of MSR required by SFAS 125.................. 849 546 253
------- ------ ----
Total deferred tax liabilities......................... 4,400 994 570
------- ------ ----
Total net deferred tax assets (liabilities)................. $ 8,446 $ 72 $(12)
======= ====== ====
48
49
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
K. STOCKHOLDERS' EQUITY
The Company consummated an initial public offering of 1,200,000 shares of
common stock on November 19, 1997. The initial offering price was $10.00, which
provided approximate proceeds to the Company of $11.2 million. On December 16,
1997, an additional 70,000 shares were issued which provided approximate
proceeds to the Company of $651,000. Prior to the initial public offering, on
October 27, 1997 the Company sold 25,000 shares to Sun Communities for gross
proceeds of $250,000.
In April, 1999 the company issued 800,330 shares of its common stock in
private equity raises. The stock issuances resulted in proceeds of approximately
$12 million.
During the year ended December 31, 2000, the three months ended December
31, 1999, and the year ended September 30, 1999 the Company issued stock awards
of 44,138, 11,243 and 84,658, respectively, of restricted shares to executive
officers and senior management that vest over three years. In the year ended
December 31, 2000 10,178 of previously issued restricted shares were canceled.
The compensation cost for the restricted shares is being amortized over the
respective vesting periods.
L. LITIGATION
The Company is subject to various claims and legal proceedings arising out
of the normal course of business, none of which in the opinion of management are
expected to have a material effect on the Company's future financial position,
results of operations or cashflows.
M. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS: At December 31, 2000 aggregate minimum rental
commitments under noncancelable leases having terms of more than one year were
$1.1 million payable (2001), $789,000 (2002), $634,000 (2003) and $451,000
(2004). Total rental expense for the year ended December 31, 2000, the three
months ended December 31, 1999 and the years ended September 30, 1999 and 1998
was $1.2 million, $251,000, $420,000 and $83,000 respectively. These leases are
for office facilities and equipment and generally contain either clauses for
cost of living increases and/or options to renew or terminate the lease.
LOAN COMMITMENTS: At December 31, 2000, December 31, 1999 and September 30,
1999 the Company had commitments to originate manufactured home installment
contracts approximating $48.6 million, $63.4 million and $5.1 million,
respectively. Commercial mortgage loan commitments totaled $90.5 million, $92.3
million and $73.1 at December 31, 2000, December 31, 1999 and September 30,
1999, respectively.
N. FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET ACTIVITY
FINANCIAL INSTRUMENTS: The Company hedges a portion of its loan portfolio
as part of its interest rate risk management strategy and as a condition of the
related repurchase agreement, which finances the portfolio. The Company attempts
to hedge the interest rate risk on its portfolio by entering into Treasury rate
locks and forward interest rate swaps. The Company classifies these transactions
as hedges on specific classes of loan receivables. Any gross unrealized gains or
losses on these hedge positions are an adjustment to the basis of the mortgage
loan portfolio and are used in the lower of cost or market valuation to
establish a valuation allowance as shown in Note C.
In October 2000, the Company terminated deferral accounting for interest
rate swaps previously designated as a hedge. Unrealized losses totaling $1.3
million through the date of termination have been accounted for as an adjustment
to the carrying amount of the related loans receivable. Additional unrealized
losses on the interest rate swaps totaling $1.3 million incurred subsequent to
termination of the hedge designation have been recognized in earnings.
49
50
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table identifies the gross unrealized gains and losses of the
hedge positions as of December 31, 2000, December 31, 1999 and September 30,
1999:
DECEMBER 31, SEPTEMBER 30,
-------------------------------- --------------
2000 1999 1999
-------------- -------------- --------------
GROSS GROSS GROSS
UNREALIZED UNREALIZED UNREALIZED
HEDGE TYPE REFERENCE RATE/TREASURY GAINS (LOSSES) GAINS (LOSSES) GAINS (LOSSES)
---------- ----------------------- -------------- -------------- --------------
(IN THOUSANDS)
Interest Rate Swap..... 10 Year Swap $(364) $609 $(146)
U.S. Treasury
Treasury Lock.......... 4.750% -- 11/08 -- -- 126
Treasury Lock.......... U.S. Treasury 5.625% -- 5/08 -- -- 115
Treasury Lock.......... U.S. Treasury 5.500% -- 5/09 -- -- 6
Treasury Lock.......... 10 Year Treasury -- -- 2
LOANS SOLD WITH RECOURSE: As of December 31, 2000, December 31, 1999 and
September 30, 1999, the outstanding principal balance on manufactured home loans
the Company had sold with recourse totaled $161.7 million, $41.6 million and
$27.6 million respectively. The Company is required to repurchase the
outstanding principal balance, accrued interest and refund of any purchase
premium of any contract that goes into default, as defined in the loan
agreement. On approximately $13.5 million of outstanding principal balance of
loans sold with recourse the Company is required to reimburse the purchaser for
all losses in excess of 1.0% of the average outstanding principal balance in the
year a loan is liquidated.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting
Standards No. 107 ("SFAS 107") requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate such value. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques.
The following table shows the carrying amount and estimated fair values of
the Company's financial instruments:
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- ---------------------
2000 1999 1999
--------------------- --------------------- ---------------------
ESTIMATED ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
Assets
Cash and equivalents........... $ 3,521 $ 3,521 $ -- $ -- $ 730 $ 730
Restricted cash................ 1,628 1,628 -- -- -- --
Loans receivable............... 98,633 105,416 140,881 141,876 118,092 119,548
Other.......................... 15,705 15,705 1,400 1,400 1,100 1,100
Liabilities
Accounts payable and accrued
expenses.................... 14,111 14,111 11,434 11,434 1,131 1,131
Recourse liability............. 9,313 9,313 376 376 -- --
Interest rate swap............. 2,640 2,640 -- -- -- --
Advances under repurchase...... 67,256 67,256 80,469 80,469 69,026 69,026
Subordinated debt.............. 3,664 3,664 3,586 3,586 3,567 3,567
Note payable................... 42,697 42,697 40,747 40,747 28,477 28,477
50
51
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amount for cash and cash equivalents and other assets is a
reasonable estimate of their fair value.
Fair values for the Company's loans are estimated using quoted market
prices for loans with similar interest rates, terms and borrowers credit quality
as those being offered by the Company.
The carrying amount of accrued interest approximates its fair value. Due to
their short maturity, accounts payable and accrued expense carrying values
approximate fair value.
The fair value of the Company's recourse liability approximates its
carrying value. The fair value is based on a discounted cash flow analysis with
prepayment assumptions based on historical performance and industry standards.
Fair value of loan commitments valued on the basis of fees currently
charged for commitments for similar loan terms to new borrowers with similar
credit profiles is not considered material.
The fair value of the Company's fixed rate subordinated debt is based on
quoted market prices for debt with similar terms and remaining maturities. The
fair value of the variable rate debt is based on its carrying amount.
O. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
YEAR ENDED DECEMBER 31, 2000:
Interest income......................................... $ 4,118 $ 4,650 $ 3,296 $ 2,529
Interest expense........................................ 3,538 4,232 3,267 3,165
Net loss................................................ (2,897) (2,506) (2,859) (7,993)
Diluted loss per share.................................. (1.12) (0.95) (1.08) (3.03)
YEAR ENDED SEPTEMBER 30, 1999:
Interest income......................................... $ 2,118 $ 2,617 $ 2,521 $ 2,221
Interest expense........................................ 1,699 1,841 1,953 1,363
Net income (loss)....................................... 764 480 304 (772)
Diluted earnings (loss) per share....................... 0.43 0.26 0.13 (0.30)
THREE MONTHS ENDED DECEMBER 31, 1999:
Interest income......................................... $ -- $ -- $ -- $ 4,069
Interest expense........................................ -- -- -- 2,832
Net loss................................................ -- -- -- (185)
Diluted loss per share.................................. -- -- -- (0.07)
THREE MONTHS ENDED DECEMBER 31, 1998:
Interest income......................................... $ -- $ -- $ -- $ 2,118
Interest expense........................................ -- -- -- 1,699
Net income.............................................. -- -- -- 764
Diluted................................................. -- -- -- 0.40
51
52
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
P. SUBSEQUENT EVENTS
The Company's operating plan for 2001 includes the following:
- Expansion of manufactured home loan origination volume;
- Development of profitable securitization channels for the Company's
manufactured home loans;
- Restructured credit facilities to fund and hold manufactured home loans
pending securitization; and
- Access to additional capital through asset sales, merger, joint venture
or sale of debt or equity securities to investors.
In March 2001, the Company completed a securitization of manufactured home
loans with principal balances totaling approximately $165.0 million. These loans
will serve as collateral for bonds issued by Origen Manufactured Housing Trust
2001-A. Manufactured home loans with principal balances totaling approximately
$140.0 million were transferred to the trust at closing and additional loans
totaling approximately $25.0 million will be transferred periodically through
June 26, 2001. The securitization is expected to qualify for sale accounting and
the Company expects to recognize a gain on the transaction. The Company received
proceeds of approximately $161.9 million at closing which were used to reduce
amounts outstanding under the Company's credit facilities.
As of March 27, 2001, the Company is engaged in negotiations with Lehman
Commercial Paper, Inc. and other lenders regarding renewal or replacement for
the Company's expired repurchase agreement with Lehman.
52
53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 30, 1999, Bingham elected not to continue its relationship
with PricewaterhouseCoopers LLP as its independent accountants. Bingham engaged
Plante & Moran L.L.P. as its new independent accountants as of September 30,
1999. See Bingham's Current Report on Form 8-K dated September 30, 1999.
PART III
The information required by Items 10, 11, 12 and 13 will be included in the
Company's proxy statement for its Annual Meeting of Shareholders to be held in
2001, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed herewith as part of this Form 10-K:
(1) A list of the financial statements required to be filed as a part
of this Form 10-K is shown in the "Index to the Financial Statements"
included in Part II, Item 8 of this report.
(2) Schedules other than those listed in the "Index to the Financial
Statements" contained in Part II, Item 8 of this report are omitted because
of the absence of the conditions under which they are required or because
the information required is included in the consolidated financial
statements or notes thereto.
(3) A list of the exhibits required by Item 601 of Regulation S-K to
be filed as a part of this Form 10-K is shown on the "Exhibit Index" filed
herewith.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
53
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 29, 2001
BINGHAM FINANCIAL SERVICES
CORPORATION
By: /s/ RONALD A. KLEIN
------------------------------------
Ronald A. Klein
President and Chief Executive
Officer
By: /s/ W. ANDERSON GEATER, JR.
------------------------------------
W. Anderson Geater, Jr.
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
54
55
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Ronald A. Klein and Gary A. Shiffman, and each of them, his attorneys-in-fact,
each with the power of substitution, for him in any and all capacities, to sign
any amendments to this Report on Form 10-K, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting to said attorneys-in-fact, or his
substitute or substitutes, the power and authority to perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ GARY A. SHIFFMAN Chairman of the Board of Directors, March 29, 2001
- ------------------------------------ Secretary
Gary A. Shiffman
/s/ RONALD A. KLEIN President, Chief Executive Officer March 29, 2001
- ------------------------------------ and Director
Ronald A. Klein
/s/ ROBERT H. ORLEY Director March 29, 2001
- ------------------------------------
Robert H. Orley
/s/ BRIAN M. HERMELIN Director March 29, 2001
- ------------------------------------
Brian M. Hermelin
/s/ ARTHUR A. WEISS Director March 29, 2001
- ------------------------------------
Arthur A. Weiss
/s/ DANIEL E. BOBER Director and Vice President March 29, 2001
- ------------------------------------
Daniel E. Bober
/s/ CREIGHTON J. WEBER Director and Vice President March 29, 2001
- ------------------------------------
Creighton J. Weber
/s/ MARK A. GORDON Director March 29, 2001
- ------------------------------------
Mark A. Gordon
55
56
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2.1 Agreement and Plan of Merger dated as of February 17, 1998
by and among Bingham Financial Services Corporation, BAC
Acquiring Corp., BSC Acquiring Corp., Bloomfield Acceptance
Company, L.L.C., and Bloomfield Acceptance Company, L.L.C.
(Incorporated by reference to Exhibit 2.1 to Bingham's
Current Report on Form 8-K dated March 5, 1998)
2.2 Purchase Agreement dated as of November 27, 1999 by and
among DFI Acquiring Corp., Dynex Capital, Inc., Dynex
Holding, Inc. (incorporated by reference to Exhibit 2.1 to
Bingham's Current Report on Form 8-K filed December 30,
1999)
2.3 Reorganization Agreement dated as of June 30, 1999, by and
Bingham Financial Services Corporation, DMR Financial
Services, Inc., Hartger & Willard Mortgage Associates, Inc.
and Detroit Mortgage and Realty Company (Incorporated by
reference to Exhibit 2.1 to Bingham's Current Report on Form
8-K dated July 14, 1999)
2.4 Amended and Restated Agreement and Plan of Merger dated May
16, 2000 between Bingham and Franklin Bank, N.A.
(Incorporated by reference to Exhibit 2.4 to Bingham's
Annual Report on Form 10-K/A dated September 1, 2000).
3.1 Amended and Restated Articles of Incorporation of Bingham
Financial Services Corporation (Incorporated by reference to
Exhibit 3.1 to Bingham's Registration Statement on Form S-1;
File No. 333-34453)
3.2 Amended and Restated Bylaws of Bingham Financial Services
Corporation (Incorporated by reference to Exhibit 3.3 to
Bingham's registration Statement on Form S-1; File No.
333-34453)
4.1 Shareholders Agreement dated March 5, 1998 (Incorporated by
reference to Exhibit 2.7 to Bingham's Current Report on Form
8-K dated March 13, 1998)
4.2 Amendment to Merger Agreement, Shareholders Agreement and
Employment Agreements, dated February 21, 1999 (Incorporated
by reference to Exhibit 4.2 to Bingham's Annual Report on
Form 10-K dated December 29, 1999)
4.3 Bloomfield Shareholders Agreement dated March 5, 1998
(Incorporated by reference to Exhibit 2.6 to Bingham's
Current Report on Form 8-K dated March 13, 1998)
4.4 Form of Registration Rights Agreement dated April 27, 1999
with respect to an aggregate of 800,330 shares (Incorporated
by reference to Exhibit 4.1 to Bingham's Quarterly Report on
Form 10-Q dated August 14, 2000)
4.5 Bingham Financial Services Corporation Second Amended and
Restated 1997 Stock Option Plan (Incorporated by reference
to Exhibit 4.2 to Bingham's Quarterly Report on Form 10-Q
dated August 14, 2000)
10.1 Participants Support Agreement between Bingham and Sun
Communities, Inc. (assigned to Sun Communities Operating
Limited Partnership as of December 31, 1997) entered into on
September 30, 1997, but effective as of July 1, 1997
(Incorporated by reference to Exhibit 10.1 to Bingham's
Registration Statement on Form S-1; File No. 333-34453)
10.2 Amendment to Participants Support Agreement between Bingham
Financial Services Corporation and Sun Communities Operating
Limited Partnership, dated as of April 1, 1999 (Incorporated
by reference to Exhibit 10.2 to Bingham's Annual Report on
Form 10-K dated December 29, 1999)
10.3 Administration Agreement between Bingham Financial Services
Corporation and Sun Communities, Inc., dated July 1, 1997
(Incorporated by reference to Exhibit 10.3 to Bingham's
Registration Statement on Form S-1; File No. 333-34453)
10.4 Form of Indemnification Agreement between Bingham and its
directors (Incorporated by reference to Exhibit 10.4 to
Bingham's Registration Statement on Form S-1; File No.
333-34453)
10.5 Employment Agreement dated as of March 4, 1998 by and
between Bingham and Daniel E. Bober (Incorporated by
reference to Exhibit 2.4 to Bingham's Current Report on Form
8-K dated March 5, 1998)
56
57
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.6 Employment Agreement dated as of March 4, 1998 by and
between Bingham and Creighton J. Weber (Incorporated by
reference to Exhibit 2.5 to Bingham's Current Report on Form
8-K dated March 5, 1998)
10.7 Subordinated Loan Agreement dated September 30, 1997 between
Bingham and Sun Communities, Inc. (assigned to Sun
Communities Operating Limited Partnership as of December 31,
1997) (Incorporated by reference to Exhibit 10.7 to
Bingham's Registration Statement on Form S-1; File No.
333-34453)
10.8 Term Promissory Note, dated September 30, 1997 between
Bingham and Sun Communities, Inc. (assigned to Sun
Communities Operating Limited Partnership as of December 31,
1997) (Incorporated by reference to Exhibit 10.9 to
Bingham's Registration Statement on Form S-1; File No.
333-34453)
10.9 Loan Agreement between Bingham and Sun Communities Operating
Limited Partnership, dated March 1, 1998 (Incorporated by
reference to Exhibit 10.10 to Bingham's Current Report on
Form 10-K, for the year ended September 30, 1998)
10.10 Loan Agreement between Bingham and Sun Communities Operating
Limited Partnership, dated March 30, 1999 (Incorporated by
reference to Exhibit 10.12 to Bingham's Annual Report on
Form 10-K dated December 29, 1999)
10.11 Demand Promissory Note executed by Bingham in favor of Sun
Communities Operating Limited Partnership, dated March 30,
1999 (Incorporated by reference to Exhibit 10.13 to
Bingham's Annual Report on Form 10-K dated December 29,
1999)
10.12 First Amendment to Loan Agreement dated March 1, 1998,
between Bingham Financial Services Corporation and Sun
Communities Operating Limited Partnership, dated as of June
11, 1999 (Incorporated by reference to Exhibit 10.14 to
Bingham's Annual Report on Form 10-K dated December 29,
1999)
10.13 Amended Demand Promissory Note between Bingham and Sun
Communities Operating Limited Partnership, dated as of June
11, 1999 (Incorporated by reference to Exhibit 10.15 to
Bingham's Annual Report on Form 10-K dated December 29,
1999)
10.14 First Amendment to Subordinated Loan Agreement dated
September 30, 1997 between Bingham Financial Services
Corporation and Sun Communities Operating Limited
Partnership, dated as of June 11, 1999 (Incorporated by
reference to Exhibit 10.16 to Bingham's Annual Report on
Form 10-K dated December 29, 1999)
10.15 Detachable Warrant Agreement, dated September 30, 1997
between Bingham and Sun Communities, Inc. (assigned to Sun
Communities Operating Limited Partnership as of December 31,
1997) (Incorporated by reference to Exhibit 10.12 to
Bingham's Registration Statement on Form S-1; File No.
333-34453)
10.16 Warehousing Credit and Security Agreement dated as of April
1, 2000 among Bloomfield Servicing Company, L.L.C.,
Bloomfield Acceptance Company, L.L.C. and Residential
Funding Corporation (Incorporated by reference to Exhibit
10.1 to Bingham's Quarterly Report on Form 10-Q dated August
14, 2000)
10.17 First Amendment dated as of July 17, 2000 to Warehousing
Credit and Security Agreement dated as of April 1, 2000
among Bloomfield Servicing Company, L.L.C., Bloomfield
Acceptance Company, L.L.C. and Residential Funding
Corporation (Incorporated by reference to Exhibit 10.2 to
Bingham's Quarterly Report on Form 10-Q dated August 14,
2000)
10.18 Security Agreement dated December 13, 1999 between Bingham
and Sun Communities Operating Limited Partnership
(Incorporated by reference to Exhibit 10.3 to Bingham's
Quarterly Report on Form 10-Q dated August 14, 2000)
10.19 Amended and Restated Security Agreement dated as of December
13, 1999 between Sun Communities Operating Limited
Partnership and Bingham (Incorporated by reference to
Exhibit 10.14 to Sun Communities Inc.'s Registration
Statement on Form S-3 dated January 31, 2001)
57
58
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.20 Amendment to Amended and Restated Security Agreement dated
as of October 20, 2000 between Sun Communities Operating
Limited Partnership and Bingham (Incorporated by reference
to Exhibit 10.20 to Sun Communities Inc.'s Registration
Statement on Form S-3 dated January 31, 2001)
10.21 Supplemental Agreement Regarding Assignment of Notes, Loan
Agreements and Security Agreements as Collateral Security
between Sun Communities Operating Limited Partnership and
Bingham effective as of December 13, 1999 and December 17,
1999 (Incorporated by reference to Exhibit 10.16 to Sun
Communities Inc.'s Registration Statement on Form S-3 dated
January 31, 2001)
10.22 Supplemental Agreement Regarding Assignment of Note, Loan
Agreement and Security Agreement as Collateral Security
between Sun Communities Operating Limited Partnership and
Bingham effective as of December 13, 1999 (filed herewith)
10.23 Supplemental Agreement Regarding Assignment of Note, Loan
Agreement and Security Agreement as Collateral Security
between Sun Communities Operating Limited Partnership and
Bingham effective as of December 13, 1999 (filed herewith)
10.24 Supplemental Agreement Regarding Assignment of Note and
Security Agreement as Collateral Security between Sun
Communities Operating Limited Partnership and Bingham
effective as of March 16, 2000 (Incorporated by reference to
Exhibit 10.18 to Sun Communities Inc.'s Registration
Statement on Form S-3 dated January 31, 2001)
10.25 Second Amended Demand Promissory Note dated December 13,
1999 executed by Bingham in favor of Sun Communities
Operating Limited Partnership (Incorporated by reference to
Exhibit 10.4 to Bingham's Quarterly Report on Form 10-Q
dated August 14, 2000)
10.26 Employment Agreement dated January 1, 2000 between Bingham
and Ronald A. Klein (Incorporated by reference to Exhibit
10.5 to Bingham's Quarterly Report on Form 10-Q dated August
14, 2000)
10.27 Second Amended and Restated Master Repurchase Agreement
Dated as of March 15, 2000 among Lehman Commercial Paper
Inc., Bloomfield Acceptance Company, LLC, MHFC, Inc., and
Dynex Financial, Inc. (Incorporated by reference to Exhibit
10.6 to Bingham's Quarterly Report on Form 10-Q dated August
14, 2000)
10.28 Amendment No. 1 dated as of March 16, 2000 to the Second
Amended and Restated Master Repurchase Agreement dated as of
March 15, 2000 among Lehman Commercial Paper Inc.,
Bloomfield Acceptance Company, LLC, MHFC, Inc., and Dynex
Financial, Inc. (Incorporated by reference to Exhibit 10.7
to Bingham's Quarterly Report on Form 10-Q dated August 14,
2000)
10.29 Amendment No. 2 dated as of May 12, 2000 to the Second
Amended and Restated Master Repurchase Agreement dated as of
March 15, 2000 among Lehman Commercial Paper, Inc.,
Bloomfield Acceptance Company, LLC, MHFC, Inc., and Dynex
Financial, Inc. (filed herewith)
10.30 Amendment No. 3 dated as of November , 2000 to the Second
Amended and Restated Master Repurchase Agreement dated as of
March 15, 2000 among Lehman Commercial Paper Inc.,
Bloomfield Acceptance Company, LLC, MHFC, Inc., and Dynex
Financial, Inc. (filed herewith)
10.31 Amendment No. 4 dated as of December , 2000 to the Second
Amended and Restated Master Repurchase Agreement dated as of
March 15, 2000 among Lehman Commercial Paper Inc.,
Bloomfield Acceptance Company, LLC, MHFC, Inc., and Dynex
Financial, Inc. (filed herewith)
10.32 Credit Agreement dated March 31, 2000 among Bingham, Dynex
Financial, Inc., and Michigan National Bank (Incorporated by
reference to Exhibit 10.8 to Bingham's Quarterly Report on
Form 10-Q dated August 14, 2000)
10.33 Secured Promissory Note dated March 31, 2000 executed by
Bingham and Dynex Financial, Inc. in favor of Michigan
National Bank (Incorporated by reference to Exhibit 10.9 to
Bingham's Quarterly Report on Form 10-Q dated August 14,
2000)
58
59
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.34 Security Agreement dated March 31, 2000 between Michigan
National Bank and Dynex Financial, Inc. (Incorporated by
reference to Exhibit 10.10 to Bingham's Quarterly Report on
Form 10-Q dated August 14, 2000)
10.35 Security Agreement dated March 31, 2000 between Michigan
National Bank and Bingham (Incorporated by reference to
Exhibit 10.11 to Bingham's Quarterly Report on Form 10-Q
dated August 14, 2000)
10.36 Stock Purchase Agreement dated as of March 17, 2000 between
Bingham and Gwenuc, LLC (Incorporated by reference to
Exhibit 2.2 to Bingham's Report on Form 8-K filed March 23,
2000)
10.37 Certificate of Merger for BAC Acquiring Corp. and Bloomfield
Acceptance Company, L.L.C., dated March 5, 1998.
(Incorporated by reference to Exhibit 2.2 to Bingham's
Current Report on Form 8-K dated March 13, 1998)
10.38 Certificate of Merger for BSC Acquiring Corp. and Bloomfield
Servicing Company, L.L.C., dated March 5, 1998.
(Incorporated by reference to Exhibit 2.3 to Bingham's
Current Report on Form 8-K dated March 13, 1998)
10.39 Membership Pledge Agreement dated December 13, 1999 between
Sun Communities Operating Limited Partnership and Bingham
(Incorporated by reference to Exhibit 10.13 to Sun
Communities Inc.'s Registration Statement on Form S-3 dated
January 31, 2001)
10.40 Stock Pledge Agreement dated December 13, 1999 between Sun
Communities Operating Limited Partnership and Bingham
(Incorporated by reference to Exhibit 10.15 to Sun
Communities Inc.'s Registration Statement on Form S-3 dated
January 31, 2001)
10.41 Stock Pledge Agreement dated October 20, 2000 between Sun
Communities Operating Limited Partnership and Bingham
(Incorporated by reference to Exhibit 10.19 to Sun
Communities Inc.'s Registration Statement on Form S-3 dated
January 31, 2001)
10.42 First Amendment to Loan Agreement dated March 1, 1998,
between Bingham Financial Services Corporation and Sun
Communities Operating Limited Partnership, dated as of
December 13, 1999 (Incorporated by reference to Exhibit
10.11 to Sun Communities Inc.'s Registration Statement on
Form S-3 dated January 31, 2001)
10.43 Form of Participants Option of Sun Communities, Inc.
(assigned to Sun Communities Operating Limited Partnership
as of December 31, 1997)(Incorporated by reference to
Exhibit 10.2 to Bingham's Registration Statement on Form
S-1: File No. 333-34453)
21 List of Subsidiaries (filed herewith)
24 Power of Attorney (contained on the signature page to this
Annual Report on Form 10-K)
59