SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2002.
OR
[_] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition Period From _______ to _______
COMMISSION FILE NUMBER 0-23381
BINGHAM FINANCIAL SERVICES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Michigan 38-3313951
(State of Incorporation) (I.R.S. Employer Identification No.)
260 East Brown Street
Suite 200
Birmingham, Michigan 48009
(Address of Principal Executive Offices, Including Zip Code)
(248) 644-8838
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock, no par value, outstanding as of
July 31, 2002: 2,476,321
BINGHAM FINANCIAL SERVICES CORPORATION
INDEX
PAGES
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet as of June 30, 2002 (unaudited) and December 31, 2001 4
Consolidated Statement of Operations (unaudited) for the Three Months and Six
Months Ended June 30, 2002 and 2001 5
Consolidated Statement of Cash Flows (unaudited) for the Six Months
Ended June 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 12-20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21-22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. (a) Exhibits Required by Item 601 of Regulation S-K 23
Item 6. (b) Reports on Form 8K 24
Signatures 25
2
As the context requires, references made in this quarterly report to "we", "us",
"our", the "Company" and similar references refer to Bingham Financial Services
Corporation and its subsidiaries, including Origen Financial, L.L.C., and its
subsidiaries.
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
3
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
JUNE 30, 2002 AND DECEMBER 31, 2001
June 30, December 31,
2002 2001
--------- ------------
(Unaudited)
ASSETS (In thousands, except shares)
Cash and equivalents $ 371 $ 440
Restricted cash 611 1,739
Loans receivable, net 63,261 126,591
Servicing rights 7,392 6,855
Servicing advances 8,781 9,940
Furniture, fixtures and equipment, net 1,927 1,801
Deferred federal income taxes 6,995 7,000
Loan sale proceeds receivable 4,968 5,723
Residual interest in loans sold 8,318 -
Other assets 7,181 7,003
--------- ---------
Total assets $ 109,805 $ 167,092
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable and accrued expenses $ 8,074 $ 5,709
Recourse liability 4,776 7,860
Advances under repurchase agreements 43,936 105,564
Notes payable 27,649 17,435
--------- ---------
Total liabilities 84,435 136,568
--------- ---------
Non-controlling members' interest in subsidiary 35,717 39,766
--------- ---------
Stockholders' deficit:
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; 2,476,321 and 2,542,988
shares issued and outstanding at June 30, 2002
and December 31, 2001, respectively 26,478 26,478
Paid-in capital 79 322
Accumulated deficit (36,904) (36,042)
--------- ---------
Total stockholders' deficit (10,347) (9,242)
--------- ---------
Total liabilities and stockholders' deficit $ 109,805 $ 167,092
========= =========
The accompanying notes are an integral part of the financial statements.
4
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ---------------------------
2002 2001 2002 2001
------------- -------------- ------------- -------------
REVENUES (In thousands, except per share data)
Interest income on loans $ 818 $ 980 $ 3,953 $ 4,493
Loan servicing fees 2,153 2,872 4,118 5,531
Mortgage origination fees - 219 - 772
Gain on sale and securitization of loans 7 664 2,684 4,586
Gain on sale of assets - 1,408 - 1,403
Other income 412 363 445 684
------------- -------------- ------------- -------------
Total revenues 3,390 6,506 11,200 17,469
------------- -------------- ------------- -------------
COSTS AND EXPENSES
Interest expense 865 1,224 2,274 4,138
Provision for credit losses and recourse liability 1,067 639 2,175 1,429
General and administrative 5,053 5,251 9,755 10,276
Loss on interest rate swap - - - 510
Other operating expenses 544 526 956 940
------------- -------------- ------------- -------------
Total costs and expenses 7,529 7,640 15,160 17,293
------------- -------------- ------------- -------------
Income (loss) before income tax expense and
allocation of subsidiary net loss in
non-controlling members' interests (4,139) (1,134) (3,960) 176
Allocation of subsidiary net loss in
non-controlling members' interests 3,267 - 3,103 -
------------- -------------- ------------- -------------
Income (loss) before income tax expense (benefit) (872) (1,134) (857) 176
Federal income tax expense (benefit) - (379) 5 66
------------- -------------- ------------- -------------
Net income (loss) $ (872) $ (755) $ (862) $ 110
============= ============== ============= =============
Weighted average common shares outstanding,
Basic 2,476,321 2,558,906 2,487,002 2,552,399
============= ============== ============= =============
Diluted 2,476,321 2,558,906 2,487,002 2,552,399
============= ============== ============= =============
Earnings (loss) per share,
Basic $ (0.35) $ (0.29) $ (0.35) $ 0.04
============= ============== ============= =============
Diluted $ (0.35) $ (0.29) $ (0.35) $ 0.04
============= ============== ============= =============
The accompanying notes are an integral part of the financial statements.
5
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
Six Months Ended June 30,
---------------------------
2002 2001
--------- ---------
(In thousands)
Cash flows from operating activities:
Net cash provided by operating activities $ 51,887 $ 18,575
--------- ---------
Cash flows from investing activities:
Proceeds from sale of assets - 8,571
Capital expenditures (542) (259)
--------- ---------
Net cash provided by (used in) investing activities (542) 8,312
--------- ---------
Cash flows from financing activities:
Advances under repurchase agreements 57,582 96,829
Repayment of advances under repurchase agreements (119,210) (120,740)
Advances on note payable 135,231 167,398
Repayment of note payable (125,017) (173,594)
--------- ---------
Net cash used in financing activities (51,414) (30,107)
--------- ---------
Net change in cash and cash equivalents (69) (3,220)
Cash and cash equivalents, beginning of period 440 3,521
--------- ---------
Cash and cash equivalents, end of period $ 371 $ 301
========= =========
The accompanying notes are an integral part of the financial statements.
6
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The unaudited consolidated financial statements reflect all adjustments,
consisting only of normal recurring items, which are necessary to present
fairly the Company's financial condition and results of operations on a
basis consistent with that of the Company's prior audited consolidated
financial statements. Pursuant to rules and regulations of the Securities
and Exchange Commission applicable to quarterly reports on Form 10-Q,
certain information and disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States ("GAAP") have been condensed or omitted. These
unaudited consolidated financial statements should be read in conjunction
with the audited Consolidated Financial Statements and notes thereto
included in the Company's Annual Report on Form 10-K, as amended, for the
fiscal year ended December 31, 2001. Results for interim periods are not
necessarily indicative of the results that may be expected for a full year.
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.
In July 2001, the Company entered into an investment agreement with three
investors - SUI TRS, Inc., Shiffman Family LLC and Woodward Holding, LLC -
under which the Company agreed to recapitalize its operating subsidiaries.
Under the investment agreement and a merger agreement entered into on
December 18, 2001, SUI TRS, Shiffman Family LLC and Woodward Holding made
capital contributions totaling $40 million in Origen Financial, LLC ("Origen
LLC"), a newly formed limited liability company. The Company merged Origen
Financial, Inc. ("Origen Inc.") and its other wholly-owned operating
subsidiaries into Origen LLC and its subsidiaries. The mergers were
completed April 25, 2002.
The Company retained an initial 20% ownership interest in Origen LLC and the
three investors received an initial 80% aggregate interest in Origen LLC.
These interests are subject to dilution resulting from (a) grants of up to
11.5% of the membership interests to key employees of the recapitalized
subsidiaries, and (b) potential future issuance of additional membership
interests in the recapitalized subsidiaries in connection with the raising
of additional capital.
The above transactions have been accounted for as a recapitalization of the
Company's operating subsidiaries and, accordingly, there is no adjustment to
the historical cost basis carrying amounts of the assets and liabilities
transferred to Origen LLC by the Company. Although the Company retains only
a 20% interest (33.33% voting interest) in Origen LLC, the recapitalization
has not resulted in a change in control of Origen LLC for accounting
purposes and the financial position and results of operations of Origen LLC
continue to be presented on a consolidated basis in the accompanying
financial statements. An allocation of income or losses attributable to the
non-controlling members under the provisions of the Origen LLC operating
agreement is accounted for in a manner similar to the minority interest.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current period's presentation.
2. EARNINGS PER SHARE:
Basic earnings (loss) per share is computed by dividing net income (loss)
available to common shareholders by the number of weighted average common
shares outstanding. At June 30, 2002 and 2001 there were approximately 0 and
908,100 potential shares of common stock from stock options and warrants
outstanding, respectively.
7
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a reconciliation of the numerator (income
(loss) available to common shareholders) and denominator (weighted average
common shares outstanding) for the basic and diluted income (loss) per share
calculation:
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------------- ---------------------------------------------
2002 2001 2002 2001
-------------------- ------------------ --------------------- --------------------
Earnings Earnings Earnings
Shares per share Shares Shares per share Shares per share
-------------------- ------------------ ---------------------- ---------------------
(Shares in thousands)
Basic earnings per share before 2,476 $(.35) 2,558 $(.29) 2,487 $(.35) 2,552 $.04
Net dilutive effect of:
Options - - - - - - - -
Warrants - - - - - - - -
------------------- ------------------ --------------------- ---------------------
Diluted earnings per share 2,476 $(.35) 2,558 $(.29) 2,487 $(.35) 2,552 $.04
=================== ================== ===================== ====================
3. OTHER COMPREHENSIVE INCOME:
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," establishes standards for reporting comprehensive
income. Other comprehensive income refers to revenues, expenses, gains and
losses that under GAAP have previously been reported as separate components
of equity in the Company's consolidated financial statements.
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- --------------------------
2002 2001 2002 2001
------------ ------------- ----------- -----------
(In thousands)
Net income (loss) $ (872) $ (755) $ (862) $ 110
Other comprehensive income net of tax:
Unrealized gain on securities net of tax of $27 - - - 53
Less reclassification adjustment for realized
gains included in net income, net of tax of $86 - - - (168)
------------ ------------- ----------- -----------
Comprehensive loss $ (872) $ (755) $ (862) $ (5)
============ ============= =========== ===========
4. ALLOWANCE FOR CREDIT LOSSES:
The allowance for possible credit losses is maintained at a level believed
to be adequate by management to absorb potential losses in the Company's
loan portfolio. The Company's loan portfolio is comprised of homogenous
manufactured home loans with average loan balances of less than $50,000. The
allowance for credit losses is determined at a portfolio level and computed
by applying loss rate factors to the loan portfolio on a stratified basis
using current portfolio performance and delinquency levels (0-30 days, 31-60
days, 61-90 days and more than 90 days delinquent). The Company's loss rate
factors are based on the Company's historical loan loss experience and are
adjusted for economic conditions and other trends affecting borrowers'
ability to repay and estimated collateral value. The allowance for credit
losses represents an unallocated allowance. There are no elements of the
allowance allocated to specific individual loans or to impaired loans.
8
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the allowance for credit losses are summarized as follows:
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(In thousands)
Balance at beginning of period $ 1,442 $ 1,394 $ 1,764 $ 2,168
Provision for loan losses 667 (271) 1,775 519
Transfers from recourse liability 1,400 1,427 2,600 2,426
Gross charge-offs (4,172) (3,091) (9,055) (7,193)
Recoveries 2,320 1,577 4,573 3,116
------------ ------------ ------------ ------------
Balance at end of period $ 1,657 $ 1,036 $ 1,657 $ 1,036
============ ============ ============ ============
The Company periodically sells portions of its manufactured home loan
portfolio with recourse whereby it is required to repurchase loans that meet
certain delinquency or default criteria. The Company maintains a separate
liability to absorb potential losses on these loans. As of June 30, 2002,
the outstanding principal balance on manufactured home loans the Company had
sold with recourse totaled $113.8 million. During the three and six months
ended June 30, 2002, there were approximately $2.3 million and $3.5 million
in charges against the recourse liability, respectively. The balance of that
liability was approximately $4.8 million at June 30, 2002.
5. DEBT:
Origen LLC currently has a line of credit extended by Sun Communities
Operating Limited Partnership. On June 18, 2002 the agreement was amended,
increasing the borrowing limit from $21.25 million to $23.125 million. On
August 12, 2002 the agreement was further amended, increasing the borrowing
limit from $23.125 million to $35.0 million. The line of credit will
terminate on December 31, 2002 and the outstanding balance bears interest at
a rate of LIBOR plus 700 basis points, with a minimum interest rate of 11%
and a maximum interest rate of 15%. The line of credit is secured by a
security interest in substantially all of Origen LLC's assets. Sun
Communities Operating Limited Partnership and Woodward Holding, a member of
Origen LLC, have entered into a participation agreement under which Sun
Communities Operating Limited Partnership will loan up to approximately 57%
of the borrowing limit (or $20.0 million) and Woodward Holding will loan up
to approximately 43% of the borrowing limit (or $15.0 million) under the
line of credit. Sun Communities Operating Limited Partnership and Woodward
Holding jointly administer the line of credit. Bingham has guaranteed the
obligations of Origen LLC under the line of credit and has granted the
lenders a security interest in substantially all of its assets as security
for the guaranty. At June 30, 2002, the outstanding balance on the line of
credit was approximately $23.1 million and at August 1, 2002, the
outstanding balance on the line of credit was $28.4 million.
Bingham and Origen LLC were borrowers under a revolving credit facility with
Standard Federal Bank (as successor to Michigan National Bank). Under this
facility, Bingham and Origen LLC could borrow up to $10.0 million. Interest
at a rate of 30-day LIBOR plus a spread was payable on the outstanding
balance. The facility was terminated on June 30, 2002. The outstanding
principal balance on the facility was $4.5 million at June 30, 2002 and was
paid in full as of July 10, 2002.
As of July 25, 2002 Origen LLC entered into a revolving credit facility with
Bank One, NA to replace the terminated facility with Standard Federal Bank.
Under this facility Origen LLC can borrow up to $8.0 million for the purpose
of funding required principal, interest, taxes and insurance advances on
manufactured home loans that are serviced for outside investors. Borrowings
under the facility are repaid upon the collection by Origen LLC of monthly
payments made by borrowers under such manufactured home loans. A negotiated
interest rate is payable on the outstanding balance. To secure the loan from
Bank One, Origen LLC has granted Bank One a security interest in
substantially all its assets. Bingham has guaranteed the obligations of
Origen LLC under the line of credit and has granted the lenders a security
interest in substantially all of its assets as security for the guaranty.
The facility has a termination date of May 31, 2003.
9
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2001, Credit Suisse First Boston Mortgage Capital and Origen
LLC, through its special purpose subsidiary Origen Special Holdings, LLC
entered into a master repurchase agreement. Under the agreement, Origen LLC
contributes manufactured home loans it originates or purchases to Origen
Special Holdings, Origen Special Holdings then transfers the manufactured
home loans to Credit Suisse First Boston against the transfer of funds from
Credit Suisse First Boston and Origen Special Holdings transfers the funds
to Origen LLC for operations. Bingham guaranteed the obligations of Origen
Special Holdings under this agreement. The maximum financing limit on the
facility is $150.0 million. The annual interest rate on the facility is a
variable rate equal to LIBOR plus a spread. The loans are financed on the
facility at varying advance rates on the lesser of the then current face
value or market value of the loans. The advance rates depend on the
characteristics of the loans financed. The facility was set to terminate on
May 28, 2002, but was extended and will now terminate on May 27, 2003. At
June 30, 2002, the aggregate amount advanced by Credit Suisse First Boston
under the facility was $43.9 million.
At June 30, 2002 and December 31, 2001 total debt outstanding was as
follows:
June 30, December 31,
2002 2001
------------ ------------
(In thousands)
Loans sold under agreements to repurchase $ 43,936 $ 105,564
Revolving credit facility 4,532 6,250
Term loan 23,117 11,185
------------ ------------
$ 71,585 $ 122,999
============ ============
6. RESIDUAL INTEREST IN LOANS SOLD AND SECURITIZED:
The Company through Origen LLC securitizes manufactured home loans. Under
the current legal structure of the securitization program, the Company sells
manufactured home loans it originates and purchases to a trust for cash. The
trust sells asset-backed bonds secured by the loans to investors. The
Company records certain assets and income based upon the difference between
all principal and interest received from the loans sold and the following
factors: (i) all principal and interest required to be passed through to the
asset-backed bond investors, (ii) all excess contractual servicing fees,
(iii) other recurring fees and (iv) an estimate of losses on loans. The
Company continues to service the securitized loans.
The Company retains the right to service the loans it securitizes. Fees for
servicing the loans are based on a contractual percentage per annum of the
unpaid principal balance of the associated loans. The Company recognizes a
servicing asset in addition to its gain on sale of loans. The servicing
asset is calculated as the present value of the expected future net
servicing income in excess of adequate compensation for a substitute
servicer, based on common industry assumptions and the company's historical
experience. These factors include default and prepayment speeds.
The Company follows the provisions of SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities in the
valuation of its residual interests. The key economic assumptions used in
measuring the retained interests resulting from the securitization completed
in the quarter ended March 31, 2002 were as follows:
Prepayment speed 175.00% MHP
Weighted average life (months) 311
Discount rate 15.00%
Expected credit losses 8.25%
The Company will assess the carrying value of the residual receivables for
impairment on a monthly basis. There can be no assurance that the Company's
estimates used to determine the residual receivable and the servicing asset
valuations will remain appropriate for the life of the securitization. If
actual loan prepayments or defaults exceed the Company's estimates, the
carrying value of the Company's residual receivable and/or servicing asset
may decrease through a charge against earnings in the period management
recognizes the disparity.
10
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. RECENT ACCOUNTING PRONOUNCEMENTS:
During July 2001, Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142") was issued. The
statement provides the accounting and reporting standards for goodwill. SFAS
142 will not impact the Company's financial position or results of
operations because the Company had no goodwill on its balance sheet at June
30, 2002.
11
BINGHAM FINANCIAL SERVICES CORPORATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information on material
factors affecting our results of operations and significant balance sheet
changes. This discussion should be read in conjunction with the consolidated
financial statements and notes included herein and our Annual Report on Form
10-K, as amended for the fiscal year ended December 31, 2001. Results of
operations for the three-month period presented are not necessarily
indicative of results which may be expected for the entire year.
FORWARD-LOOKING STATEMENTS
This quarterly 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 of our Annual Report on Form 10-K, as amended for the year ended
December 31, 2001. You should carefully consider those risks, in addition to
the other information in this quarterly 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.
CRITICAL ACCOUNTING POLICIES
We have identified critical accounting policies that, as a result of the
judgments, uncertainties, uniqueness and complexities of the underlying
accounting standards and operations involved, could result in material
changes to our financial condition or results of operations under different
conditions or using different assumptions.
We believe our most critical accounting policies are related to the
following areas: allowance for credit losses, liability for loans sold with
recourse, deferred taxes and accounting for securitizations. Details
regarding our use of these policies and the related estimates are described
fully in our 2001 Annual Report filed with the Securities and Exchange
Commission on Form 10-K, as amended. During the second quarter of 2002,
there have been no material changes to our critical accounting policies that
impacted our financial condition or results of operations.
RESULTS OF OPERATIONS
Results for the quarter ended June 30, 2002 include the following:
- Manufactured home loan originations for the quarter ended June 30, 2002
were $48.8 million versus $63.8 million in the quarter ended June 30,
2001, a decrease of 23.5%. Manufactured home shipments continued to be
weak with shipments for the quarter ended June 30, 2002 down 9.6%
compared to shipments for the quarter ended June 30, 2001.
- Additions to the allowance for credit losses and provision for recourse
liability were approximately $1.1 million for the quarter ended June
30, 2002, compared to $639,000 in the quarter ended June 30, 2001, an
increase of 66.9%. The continued glut of repossessions continues to
negatively impact recovery rates.
We reported a pre-tax loss prior to the allocation of income to
non-controlling members' interests of $4.1 million for the quarter ended
June 30, 2002, compared to pre-tax loss of $1.1 million for the quarter
ended June 30, 2001. For the six months ended June 30, 2002 we reported a
pre-tax loss prior to the allocation of income to non-controlling members'
interests of $3.9 million, compared to a pre-tax gain of $176,000 for the
six months ended June 30, 2001. The pre-tax loss for the current quarter
includes an approximate $1.1 million provision for credit losses and
recourse liability.
12
BINGHAM FINANCIAL SERVICES CORPORATION
Interest income on manufactured home loans was $769,000 for the quarter
ended June 30, 2002 compared to $810,000 for the quarter ended June 30,
2001, a decrease of 5.1%. The decrease is primarily the result of a decrease
in the average yield on the manufactured home portfolio, which was 9.10% for
the quarter ended June 30, 2002 compared to 9.55% for the quarter ended June
30, 2001. The decrease in the average yield on the portfolio was slightly
offset by an increase in the average outstanding receivable balance, which
was $35.7 million for the quarter ended June 30, 2002 compared to $33.9
million for the quarter ended June 30, 2001, an increase of 5.3%. Interest
income on other loan receivables totaled approximately $49,000 for the
quarter ended June 30, 2002 compared to approximately $170,000 for the
quarter ended June 30, 2001, a decrease of approximately 71.2%. The decrease
was primarily the result of the sale of our commercial mortgage loan
portfolio in June 2001.
For the six months ended June 30, 2002 interest income on manufactured home
loans was $3.9 million compared to $4.1 million for the six months ended
June 30, 2001, a decrease of 4.9%. The decrease is primarily the result of a
decrease in the average yield on the manufactured home portfolio, which was
10.60% for the six months ended June 30, 2002 compared to 11.64% for the six
months ended June 30, 2001. Interest income on other loan receivables
totaled approximately $97,000 for the six months ended June 30, 2002
compared to approximately $411,000 for the six months ended June 30, 2001, a
decrease of 76.4%. Again, the significant decrease is primarily the result
of the sale of the commercial loan portfolio in June 2001.
Interest expense for the quarter ended June 30, 2002 was $865,000 compared
to $1.2 million for the quarter ended June 30, 2001, a decrease of 27.9%.
The decrease is primarily a result of the decrease in the average
outstanding balance of debt used to finance the loan receivables and fund
operations. Average outstanding debt was $43.6 million for the quarter ended
June 30, 2002 compared to $59.6 million for the quarter ended June 30, 2001,
a decrease of 26.8%. The average borrowing rate decreased approximately 30
basis points to 7.9% for the quarter ended June 30, 2002 compared to 8.2%
for the quarter ended June 30, 2001. The decrease in the average borrowing
rate is primarily related to a decrease in the average LIBOR rate of
approximately 268 basis points for the three months ended June 30, 2002 as
compared to the three months ended June 30, 2001. Our current financing
sources are primarily variable rate facilities that use the 30 day LIBOR
rate as an index. The decrease in the LIBOR based borrowing facilities was
partially offset by the increase in the rate on our line of credit from Sun
Communities Operating Limited Partnership which increased to 11.0% for the
quarter ended June 30, 2002 compared to 6.9% for the three months ended June
30, 2001.
The following tables set forth the extent to which our 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 June 30, 2002 and 2001
----------------------------------------------------------------------------------------------------------
Average Balance Average Rate Interest Increase Variance due to:
----------------------------------------------------------------------------------------------------------
2002 2001 2002 2001 2002 2001 (Decrease) Volume Rate
----------------------------------------------------------------------------------------------------------
Interest-earning assets: (Dollars in thousands)
Manufactured home loans $ 35,680 $ 33,918 9.10% 9.55% $ 769 $ 810 $ (41) $ 42 $ (83)
Other interest earning
assets 3,081 7,155 6.36% 9.50% 49 170 (121) (97) (24)
----------------------------------------------------------------------------------------------------------
$ 38,761 $ 41,073 8.77% 9.54% $ 818 $ 980 $ (162) $ (55) $ (107)
----------------------------------------------------------------------------------------------------------
Interest-bearing
Liabilities
Term loan $ - $ 4,000 - 11.68% $ - $ 117 $ (117) $ (117) $ -
Line of credit 21,392 35,431 10.18% 6.85% 544 607 (63) (240) 177
Loans sold under
repurchase 22,177 20,195 5.79% 9.91% 321 500 (179) 49 (228)
----------------------------------------------------------------------------------------------------------
$ 43,569 $ 59,626 7.94% 8.21% $ 865 $ 1,224 $ (359) $ (308) $ (51)
----------------------------------------------------------------------------------------------------------
Interest rate spread 0.83% 1.33%
Excess average earning
assets $ (4,808) $ (18,553) 8.77% 9.54%
=============================================
Net interest margin (0.05%) (1.28%) $ (47) $ (244) $ 197 $ 253 $ (56)
================================================================================
13
BINGHAM FINANCIAL SERVICES CORPORATION
Six months ended June 30, 2002 and 2001
----------------------------------------------------------------------------------------------------------
Average Balance Average Rate Interest Increase Variance due to:
------------------------------------------------------------------------ ------------------------
2002 2001 2002 2001 2002 2001 (Decrease) Volume Rate
----------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Interest-earning assets:
Manufactured home loans $ 73,566 $ 70,149 10.60% 11.64% $ 3,856 $ 4,082 $ (226) $ 99 $ (325)
Other interest earning
assets 3,251 7,535 5.97% 10.91% 97 411 (314) (116) (198)
----------------------------------------------------------------------------------------------------------
$ 76,817 $ 77,684 10.40% 10.76% $ 3,953 $ 4,493 $ (540) $ (17) $ (523)
----------------------------------------------------------------------------------------------------------
Interest-bearing
Liabilities
Term loan $ - $ 4,000 - 11.68% $ - $ 234 $ (234) $ (234) $ -
Line of credit 20,760 46,605 10.26% 7.48% 1,065 1,744 (679) (483) (196)
Loans sold under
repurchase 58,264 44,623 4.15% 9.43% 1,209 2,160 (951) 322 (1,273)
----------------------------------------------------------------------------------------------------------
$ 79,024 $ 95,228 5.76% 8.69% $ 2,274 $ 4,138 $(1,864) $ (395) $(1,469)
----------------------------------------------------------------------------------------------------------
Interest rate spread 4.64% 2.07%
Excess average earning
assets $ (2,207) $(17,544) 10.40% 10.76%
=============================================
Net interest margin 4.48% 0.91% $ 1,679 $ 355 $ 1,324 $ 378 $ 946
==============================================================================
Loan servicing fees, which are reported net of amortization of servicing
assets, were $2.2 million for the three months ended June 30, 2002, compared
to $2.8 million for the three months ended June 30, 2001, a decrease of
27.6%. The average principal balance of loans serviced for others was
approximately $1.2 billion for the quarter ended June 30, 2002 compared to
$2.2 billion for the quarter ended June 30, 2001. The large decrease is the
result of the sale of the commercial loan portfolio serviced for others,
which was sold along with certain of the other assets of our commercial
origination and servicing subsidiaries in June 2001. The weighted average
service fee rate on the manufactured home portfolio for the quarter ended
June 30, 2002 was .72% compared to .82% for the quarter ended June 30, 2001
a decrease of 12.2%. For the six months ended June 30, 2002 net loan
servicing fees were $4.1 million compared to $5.5 million for the six months
ended June 30, 2001.
Under the current legal structure of our securitization program we sell
manufactured home loans we originate and purchase to a trust for cash. The
trust sells asset-backed bonds secured by the loans to investors. We record
certain assets and income based upon the difference between all principal
and interest received from the loans sold and the following factors: (i) all
principal and interest required to be passed through to the asset-backed
bond investors, (ii) all excess contractual servicing fees, (iii) other
recurring fees and (iv) an estimate of losses on loans. At the time of the
securitization we estimate these amounts based upon a declining principal
balance of the underlying loans, adjusted by an estimated prepayment and
loss rate, and capitalize these amounts using a discount rate that market
participants would use for similar financial instruments. These capitalized
assets are recorded as residual receivables. We believe the assumptions we
have used are appropriate and reasonable.
We retain the right to service the loans we securitize. Fees for servicing
the loans are based on a contractual percentage per annum of the unpaid
principal balance of the associated loans. We recognize a servicing asset in
addition to our gain on sale of loans. The servicing asset is calculated as
the present value of the expected future net servicing income in excess of
adequate compensation for a substitute servicer, based on common industry
assumptions and our historical experience. These factors include default and
prepayment speeds.
14
BINGHAM FINANCIAL SERVICES CORPORATION
The key economic assumptions used in measuring the initial retained interests
resulting from the securitization completed in the quarter ended March 31, 2002
were as follows:
Prepayment speed 175.00% MHP
Weighted average life (months) 311
Discount rate 15.00%
Expected credit losses 8.25%
We periodically sell manufactured home loans on a whole-loan basis. At the
time of such loan sales, we recognize recourse liabilities pursuant to our
future obligations, if any, to the applicable loan purchasers under the
provisions of the respective sale agreements. Under our existing recourse
obligations, we are required to repurchase any loan contract that goes into
default, as defined in the respective loan agreement, for the life of each
loan sold, at an amount equal to the outstanding principal balance and
accrued interest, and refund any purchase premiums. The loan purchasers have
no recourse to our other assets for failure of debtors to pay when due.
The loan pools subject to recourse provisions are comprised of homogenous
manufactured home loans with an average loan balance of less than $50,000.
The estimated recourse liability is calculated based on historical default
rates and loss experience for pools of similar loans we originate and
service. These loss rates are applied to each pool of loans subject to
recourse provisions and the resulting estimated recourse liability
represents the present value of the expected obligations under those
recourse provisions. The loss rates are adjusted for economic conditions and
other trends affecting borrowers' ability to repay and estimated collateral
value. The recourse liability is calculated at a portfolio level and there
are no elements of the estimated recourse liability allocated to specific
loans. At June 30, 2002 we had principal balance of loans sold with recourse
of $113.8 million and had recorded liability of $4.8 million compared to
$135.9 million of principal balance of loans sold with recourse and recorded
liability of $7.9 million at June 30, 2001.
In January 2001, we repurchased loans with principal balances of
approximately $15.0 million that had previously been sold with recourse and
subsequently securitized those loans as part of our March 2001
securitization. As a result of the elimination of our recourse obligations
associated with the repurchased loans, the related previously recognized
recourse obligation of approximately $450,000 was derecognized at the time
of the repurchase.
Changes in the recorded recourse liability are summarized as follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
----------- ---------- --------- ---------
(In thousands)
Balance at beginning of period $ 6,660 $ 7,864 $ 7,860 $ 9,313
Provision for recourse liability 400 910 400 910
Charges against recourse liability (884) - (884) -
Adjustment related to repurchase of loans
to put in securitization - - - (450)
Transfer to allowance for credit losses (1,400) (1,427) (2,600) (2,426)
----------- ---------- --------- ---------
Balance at end of period $ 4,776 $ 7,347 $ 4,776 $ 7,347
=========== ========== ========= =========
Our loan portfolio is comprised of homogenous manufactured home loans with an
average loan balance of less than $50,000. The allowance for credit losses is
determined at a portfolio level and computed by applying loss rate factors to
the loan portfolio on a stratified basis using current portfolio performance and
delinquency levels (0-30 days, 31-60 days, 61-90 days and more than 90 days
delinquent). Our loss rate factors are based on historical loan loss experience
and are adjusted for economic conditions and other trends affecting borrowers'
ability to repay and estimated collateral value. The allowance for loan losses
represents an unallocated allowance; there are no elements of the allowance
allocated to specific individual loans or to impaired loans.
15
BINGHAM FINANCIAL SERVICES CORPORATION
For the quarter ended June 30, 2002 the provision for credit losses was
approximately $667,000 compared to a reversal of $421,000 for the quarter ended
June 30, 2001. The increase is primarily attributable to the increase in the
principal balance of loans more than 60 days delinquent, which were $3.3 million
at June 30, 2002 compared to $1.9 million at June 30, 2001.
The allowance for credit losses as a percentage of gross manufactured home loans
outstanding was 2.69% at June 30, 2002 compared to 1.67% at June 30, 2001, an
increase of approximately 102 basis points. The increase is primarily the result
of the March 2002 securitization and sale of the majority of our performing
loans resulting in the remaining portfolio being made up of a disproportionate
amount of non performing loans.
Changes in the allowance for credit losses are summarized as follows:
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ---------------------------
2002 2001 2002 2001
------------- ------------- ----------- -------------
(In thousands)
Balance at beginning of period $ 1,442 $ 1,394 $ 1,764 $ 2,168
Provision for loan losses 667 (271) 1,775 519
Transfers from recourse liability 1,400 1,427 2,600 2,426
Gross charge-offs (4,172) (3,091) (9,055) (7,193)
Recoveries 2,320 1,577 4,573 3,116
-------------- ------------- ------------ -------------
Balance at end of period $ 1,657 $ 1,036 $ 1,657 $ 1,036
============== ============= ============ =============
General and administrative expenses totaled approximately $5.1 million for the
quarter ended June 30, 2002 compared to $5.3 million for the quarter ended June
30, 2001, a decrease of 3.8%. Personnel costs, the largest component of general
and administrative expenses, decreased to $3.7 million for the quarter ended
June 30, 2002 versus $3.9 million for the quarter ended June 30, 2001, a 5.1%
decrease. The decrease is principally due to a decrease in staff resulting from
the sale of our commercial mortgage operations in June 2001 and a decrease in
incentive commissions resulting from fewer manufactured home loan originations.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the measurement of our 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. We expect to meet our liquidity
requirements through a combination of working capital provided by operating
activities, draws on our lines of credit, advances under our master repurchase
agreement, whole loan sales and periodic securitizations of our loan portfolio.
We may also issue additional equity in Bingham or its subsidiaries when and if
we believe existing shareholders are likely to benefit from such offerings.
As of June 30, 2002 total borrowings were $71.6 million compared to $123.0
million at December 31, 2001, a decrease of 41.8%. The decreased borrowings were
primarily the result of the securitization of approximately $135.0 million of
manufactured home loans completed on March 27, 2002. Proceeds from the
securitization totaled approximately $128.0 million which were used to pay down
our existing lines of credit. The origination of new manufactured home loans
also impacts total borrowings. Loan originations for the six months ended June
30, 2002 were $73.9 million compared to $135.6 million for the six months ended
June 30, 2001, a decrease of 45.5%
Our primary sources of liquidity include cash generated from operations,
borrowing availability under our three credit facilities and our securitization
program through which loans are sold into the asset backed securities market.
16
BINGHAM FINANCIAL SERVICES CORPORATION
Origen LLC currently has a line of credit extended by Sun Communities Operating
Limited Partnership. On June 18, 2002 the agreement was amended, increasing the
borrowing limit from $21.25 million to $23.125 million. On August 12, 2002 the
agreement was further amended, increasing the borrowing limit from $23.125
million to $35.0 million. The line of credit will terminate on December 31, 2002
and the outstanding balance bears interest at a rate of LIBOR plus 700 basis
points, with a minimum interest rate of 11% and a maximum interest rate of 15%.
The line of credit is secured by a security interest in substantially all of
Origen LLC's assets. Sun Communities Operating Limited Partnership and Woodward
Holding, a member of Origen LLC, have entered into a participation agreement
under which Sun Communities Operating Limited Partnership will loan up to
approximately 57% of the borrowing limit (or $20.0 million) and Woodward Holding
will loan up to approximately 43% of the borrowing limit (or $15.0 million)
under the line of credit. Sun Communities Operating Limited Partnership and
Woodward Holding jointly administer the line of credit. Bingham has guaranteed
the obligations of Origen LLC under the line of credit and has granted the
lenders a security interest in substantially all of its assets as security for
the guaranty. At June 30, 2002, the outstanding balance on the line of credit
was approximately $23.1 million and at August 1, 2002, the outstanding balance
on the line of credit was $28.4 million.
Woodward Holding is a member of Origen LLC and Sun Communities Operating
Limited Partnership is a beneficial owner of SUI TRS, Inc., another member
of Origen LLC. In addition, Gary A. Shiffman, Bingham's Chairman of the
Board, and Arthur A. Weiss, a Director of Bingham, are affiliates of Sun
Communities Operating Limited Partnership. Please see Bingham's Annual
Report on Form 10-K, as amended, for a discussion of the effect of their
related party transactions on our liquidity and capital resources.
Bingham and Origen LLC were borrowers under a revolving credit facility with
Standard Federal Bank (as successor to Michigan National Bank). Under this
facility, Bingham and Origen LLC could borrow up to $10.0 million. Interest
at a rate of 30-day LIBOR plus a spread was payable on the outstanding
balance. The facility was terminated on June 30, 2002. The outstanding
principal balance on the facility was $4.5 million at June 30, 2002. The
balance was paid in full as of July 10, 2002.
As of July 25, 2002 Origen LLC entered into a revolving credit facility with
Bank One, NA to replace the terminated facility with Standard Federal Bank.
Under this facility Origen LLC can borrow up to $8.0 million for the purpose
of funding required principal, interest, taxes and insurance advances on
manufactured home loans that are serviced for outside investors. Borrowings
under the facility are repaid upon the collection by Origen LLC of monthly
payments made by borrowers under such manufactured home loans. A negotiated
interest rate is payable on the outstanding balance. To secure the loan from
Bank One, Origen LLC has granted Bank One a security interest in
substantially all of its assets. Bingham has guaranteed the obligations of
Origen LLC under the line of credit and has granted the lenders a security
interest in substantially all of its assets as security for the guaranty.
The facility has a termination date of May 31, 2003. At August 1, 2002, the
outstanding balance on the Bank One line of credit was $4.0 million.
Credit Suisse First Boston and Origen LLC's special purpose subsidiary
Origen Special Holdings, LLC, are parties to a master repurchase agreement.
Under this agreement, Origen LLC contributes manufactured home loans it
originates or purchases to Origen Special Holdings. Origen Special Holdings
then transfers the manufactured home loans to Credit Suisse First Boston
against the transfer of funds from Credit Suisse First Boston and Origen
Special Holdings transfers the funds to Origen LLC for operations. Bingham
guarantees the obligations of Origen Special Holdings under this agreement.
The maximum financing limit on the facility is $150.0 million.
The annual interest rate on the facility is a variable rate equal to LIBOR
plus a spread. The loans are financed on the facility at varying advance
rates on the lesser of the then current face value or market value of the
loans. The advance rates depend on the characteristics of the loans
financed. In May 2002, the termination date of the facility was extended to
May 27, 2003. At June 30, 2002, the aggregate amount advanced by Credit
Suisse First Boston under the facility was $43.9 million and at August 1,
2002 the aggregate amount advanced under the facility was $63.7 million.
17
BINGHAM FINANCIAL SERVICES CORPORATION
In addition to these borrowings, we have fixed contractual obligations under
various lease agreements. Our contractual obligations were comprised of the
following as of June 30, 2002:
Less than
Total 1 year 1-3 years 4-5 years
-------------- -------------- ------------ ------------
(In thousands)
Repurchase obligations (1) $ 43,936 $ 43,936 $ - $ -
Lines of credit (2) 27,649 27,649 - -
Operating leases 1,642 881 739 22
-------------- -------------- ------------ ------------
Total contractual obligations $ 73,227 $ 72,466 $ 739 $ 22
============== ============== ============ ============
Guarantees (3) $ 67,053 $ 67,053
(1) These repurchase obligations are owed by Origen LLC to Credit Suisse First
Boston.
(2) Origen LLC is the borrower under the Sun Communities Operating Limited
Partnership line of credit and Origen LLC and Bingham are co-borrowers
under the Standard Federal Bank line of credit.
(3) Bingham is the guarantor of the obligations of Origen LLC under the Credit
Suisse First Boston repurchase agreement and under the Sun Communities
Operating Limited Partnership line of credit.
Our future liquidity and capital requirements depend on numerous factors, many
of which are outside of our control. Based on our business model and the nature
of the capital markets, we expect we will need to raise additional capital
before the end of 2002, even if we maintain our borrowing relationships with
Credit Suisse First Boston and Sun Communities Operating Limited Partnership and
Bank One. As a result, during that time we will need to obtain funding from
sources such as operating activities, loan sales or securitizations, sales of
debt or member interests by Origen LLC or additional debt financing
arrangements. Our ability to obtain funding from operations may be adversely
impacted by, among other things, market and economic conditions in the
manufactured home financing markets generally, including decreased sales of
manufactured homes. Our ability to obtain funding from loan sales and
securitizations may be adversely impacted by, among other things, the price and
credit quality of our loans, conditions in the securities markets generally (and
specifically in the asset-backed securities), compliance of our loans with the
eligibility requirements for a particular securitization and any material
negative rating agency action pertaining to certificates issued in our
securitizations. Our ability to obtain funding from sales of securities or debt
financing arrangements may be adversely impacted by, among other things, market
and economic conditions in the manufactured home financing markets generally and
our financial condition and prospects.
We will also need additional funds to meet our long-term capital needs. In order
to meet these capital needs, in addition to the sources of capital referenced
above, we believe we must raise additional capital or merge or enter into a
joint venture or otherwise enter into a strategic business relationship that
would provide access to low-cost funds. We may not be able to enter into such a
relationship on favorable terms, or at all, if our business is adversely
affected by any of the factors described in the preceding paragraph. While we
continue to pursue these options with respect to meeting our long-term capital
needs, there can be no assurance that these efforts will be successful. If these
efforts are not successful, our ability to continue operations would be
jeopardized.
LOANS RECEIVABLE
Net loans receivable were $63.3 million at June 30, 2002 compared to $126.6
million at December 31, 2001, a decrease of $63.3 million or 50.0%. For the
three and six months ended June 30, 2002 manufactured home loan originations
were $48.8 million and $73.9 million, respectively. New loan originations were
offset by the securitization and sale of approximately $135.0 million of
principal balance of manufactured home loans in March 2002.
18
BINGHAM FINANCIAL SERVICES CORPORATION
The carrying amounts of loans receivable consisted of the following:
June 30, December 31,
2002 2001
------- --------
(In thousands)
Manufactured home loans $64,592 $128,208
Floor plan loans 794 1,094
Accrued interest receivable 491 903
Deferred fees (959) (1,850)
Allowance for credit losses (1,657) (1,764)
------- --------
$63,261 $126,591
======= ========
The following table sets forth the average loan balance, weighted average
loan yield and weighted average initial term of the manufactured home loan
portfolio:
June 30, December 31,
2002 2001
-------- --------
(Dollars in thousands)
Gross principal balance MH loans receivable $ 64,592 $128,208
Number of loans receivable 1,459 3,117
Average loan balance $ 45 $ 41
Weighted average loan yield 10.44% 10.85%
Weighted average initial term 24 years 26 years
Delinquency statistics for the manufactured home loan portfolio are as follows:
June 30, 2002
------------------------------------------------------------
Days delinquent
------------------------------
Gross Greater
Principal than Total
Balance 31-60 61-90 90 Delinquent
------- ----- ----- ------- ----------
(Dollars in thousands)
Manufactured home loans available for sale $ 64,592 1.3% 0.5% 4.6% 6.4%
Manufactured home loans sold with recourse 113,806 3.6% 0.8% 0.9% 5.3%
-------- --- --- --- ---
Total $178,398 2.8% 0.7% 2.2% 5.7%
======== === === === ===
December 31, 2001
------------------------------------------------------------
Days delinquent
------------------------------
Gross Greater
Principal than Total
Balance 31-60 61-90 90 Delinquent
--------- ----- ----- ------- ----------
(Dollars in thousands)
Manufactured home loans available for sale $128,208 2.6% 0.6% 2.0% 5.2%
Manufactured home loans sold with recourse 125,588 3.2% 0.8% 1.4% 5.4%
-------- --- --- --- ---
Total $253,796 2.9% 0.7% 1.7% 5.3%
======== === === === ===
19
BINGHAM FINANCIAL SERVICES CORPORATION
Non-performing loans as a percentage of the total portfolio of manufactured home
loans available for sale increased to 4.6% at June 30, 2002 compared to 2.0% at
December 31, 2001. The increase is primarily the result of the sale of the
majority of our performing loans in the $135.0 million manufactured home loan
securitization completed in March 2002. The gross principal balance of
non-performing loans was approximately $3.0 million at June 30, 2002 compared to
$2.6 million at December 31, 2001 an increase of 15.4%. We define non-performing
loans as those loans that are 90 or more days delinquent in contractual
principal payments.
20
BINGHAM FINANCIAL SERVICES CORPORATION
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
prices and interest rates. Our market risk arises from interest rate risk
inherent in our financial instruments. We are not currently subject to
foreign currency exchange rate risk or commodity price risk.
The following table shows the contractual maturity dates of our 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
--------- --------- --------- --------- ---------
(Dollars in thousands)
Assets
Cash and equivalents $ 371 $ -- $ -- $ -- $ 371
Restricted cash 611 -- -- -- 611
Loans receivable, net 1,407 388 2,715 58,751 63,261
Servicing rights 304 703 4,805 1,580 7,392
Servicing advances 5,648 3,133 -- -- 8,781
Furniture, fixtures and equipment, net 173 482 1,272 -- 1,927
Deferred federal income taxes -- -- 1,622 5,373 6,995
Loan sale proceeds receivable 229 637 2,943 1,159 4,968
Residual interest in loans sold -- -- 5,151 3,167 8,318
Other assets 5,069 1,861 -- 251 7,181
--------- --------- --------- --------- ---------
Total assets $ 13,812 $ 7,204 $ 18,508 $ 70,281 $ 109,805
========= ========= ========= ====== =========
Liabilities and Stockholders' Deficit
Liabilities:
Accounts payable and accrued expenses $ 7,394 $ 430 $ 250 $ -- $ 8,074
Recourse liability 719 700 1,571 1,786 4,776
Advances under repurchase agreements -- 43,936 -- -- 43,936
Notes Payable 4,532 23,117 -- -- 27,649
--------- --------- --------- --------- ---------
Total Liabilities 12,645 68,183 1,821 1,786 84,435
--------- --------- --------- --------- ---------
Non-controlling members' interest -- -- -- 35,717 35,717
--------- --------- --------- --------- ---------
Stockholders' defecit:
Common stock -- -- -- 26,478 26,478
Paid-in-capital -- -- -- 79 79
Accumulated deficit -- -- -- (36,904) (36,904)
--------- --------- --------- --------- ---------
Total liabilities and stockholders' deficit $ 12,645 $ 68,183 $ 1,821 27,156 $ 109,805
========= ========= ========= ====== =========
Reprice difference $ 1,167 $ (60,979) $ 16,687 $ 43,125
Cumulative gap $ 1,167 $ (59,812) $ (43,125) --
Percent of total assets 1.06% (54.47%) (39.27%) --
21
BINGHAM FINANCIAL SERVICES CORPORATION
Our operations may be directly affected by fluctuations in interest rates. While
we monitor interest rates and have in the past employed strategies designed to
hedge some of the risks associated with changes in interest rates, such as the
use of forward interest rate swaps and Treasury rate locks, no assurance can be
given that our results of operations and financial condition will not be
adversely affected during periods of fluctuations in interest rates. We
currently have no open hedge positions on our loans held for sale. Our present
strategy is to securitize or sell all new production within three to nine months
of origination. Because the interest rates on our lines of credit used to fund
and acquire loans are variable and the rates charged on loans we originate are
fixed, increases in the interest rates after the loans are originated but before
they are sold may reduce the gain on loan sales.
The following table shows our financial instruments that are sensitive to
changes in interest rates, categorized by expected maturity, and the
instruments' fair values at June 30, 2002.
Contractual Maturity
-------------------------------------------------------------------------------------
Total
2003 2002 2004 2005 2006 Thereafter Fair Value
------- ------- ------- ------- ------- ------- -------
(Dollars in thousands)
Interest sensitive assets:
Loans receivable $ 1,662 $ 422 $ 471 $ 527 $ 588 $59,591 $63,261
Average interest rate 10.44% 10.44% 10.44% 10.44% 10.44% 10.44% 10.44%
Interest bearing deposits 944 -- -- -- -- -- 944
Average interest rates 3.15% -- -- -- -- -- 3.15%
Loan sale proceeds receivable 605 960 759 603 480 1,561 4,968
Average interest rate 10.61% 10.61% 10.61% 10.61% 10.61% 10.61% 10.61%
Residual interests -- 1,304 1,412 983 799 3,419 7,917
Average interest rate -- 15.00% 15.00% 15.00% 15.00% 15.00% 15.00%
------- ------- ------- ------- ------- ------- -------
Total interest sensitive assets $ 3,211 $ 2,686 $ 2,642 $ 2,113 $ 1,867 $64,571 $77,090
======= ======= ======= ======= ======= ======= =======
Interest sensitive liabilities:
Borrowings:
Advances under repurchase agreements $58,264 $ -- $ -- $ -- $ -- $ -- $58,264
Average interest rate 4.15% -- -- -- -- -- 4.15%
Recourse liability 1,794 1,411 685 422 264 200 4,776
Average interest rate 11.13% 11.13% 11.13% 11.13% 11.13% 11.13% 11.13%
Notes payable 27,649 -- -- -- -- -- 27,649
Average interest rate 9.83% -- -- -- -- -- 9.83%
------- ------- ------- ------- ------- ------- -------
Total interest sensitive liabilities $87,707 $ 1,411 $ 685 $ 422 $ 264 $ 200 $90,689
======= ======= ======= ======= ======= ======= =======
22
BINGHAM FINANCIAL SERVICES CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on June 20,
2002. At the meeting, the Company's shareholders were asked to
elect two directors to serve on the board of directors until the
2005 annual meeting or until their respective successors are
elected and to ratify the appointment of the Company's independent
auditors, Plante & Moran, LLP.
Ronald A. Klein and Arthur A. Weiss were elected to the board of
directors. Each of Messrs. Klein and Weiss received 1,831,506 votes
for election to the board and 15,130 votes against election. The
terms of office of the following directors continued after the
meeting: Mark A. Gordon, Brian M. Hermelin, Robert H. Orley and
Gary A. Shiffman. Mr. Gordon subsequently resigned as a director
effective as of July 1, 2002.
The appointment of Plante & Moran, LLP as the Company's independent
auditors was ratified by the Company's shareholders. Votes for the
ratification were 1,838,686, votes against were 7,100, and votes
withheld were 850.
ITEM 6.(A) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
Exhibit No. Description
----------- -----------
10.1 Second Amendment to Amended and Restated
Subordinated Loan Agreement, dated as of June
18, 2002, between Sun Communities Operating
Limited Partnership and Origin Financial
L.L.C.
10.2 Fourth Amended and Restated Promissory Note,
dated as of June 18, 2002, made by Origen
Financial L.L.C. in favor of Sun Communities
Operating Limited Partnership
10.3 First Amendment to Amended and Restated
Participation Agreement, dated as of June 18,
2002, between Sun Communities Operating
Limited Partnership and Woodward Holdings, LLC
10.4 Credit Agreement dated as of July 25, 2002,
between Origen Financial L.L.C., and Bank One,
NA
10.5 Continuing guaranty dated as of July 25,
2002, executed by Bingham Financial Services
Corporation in favor of Bank One, NA
10.6 Continuing Security Agreement dated as of
July 25, 2002, executed by Origen Financial
L.L.C. in favor of Bank One, NA
23
BINGHAM FINANCIAL SERVICES CORPORATION
ITEM 6.(B) REPORTS ON FORM 8-K
(1) Bingham filed a report on Form 8-K dated April 25, 2002
disclosing that it caused its wholly-owned subsidiary Origen
Financial, Inc., a Virginia corporation ("Origen Inc."), to be
merged with and into Origen Financial L.L.C. ("Origen LLC"). Origen
Inc.'s operating subsidiaries were also merged into limited
liability company subsidiaries of Origen. The report was filed on
May 9, 2002.
(2) Bingham filed a report on Form 8-K dated May 22, 2002
disclosing that the Company's stock was delisted from the Nasdaq
SmallCap Market, effective with the opening of business on May 22,
2002, and that the Company expects that its stock will now trade on
the Over the Counter Bulletin Board under the symbol BFSC.OB. The
report was filed on May 31, 2002.
24
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 2002
BINGHAM FINANCIAL SERVICES CORPORATION
By: /s/ W. Anderson Geater, Jr.
-----------------------
W. Anderson Geater, Jr.
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
CERTIFICATION
The undersigned officers hereby certify that: (a) this Form 10-Q fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended; and (b) the information contained in this Form 10-Q fairly
presents, in all material respects, the financial condition and results of
operations of the issuer.
/s/ Ronald A. Klein Dated: August 14, 2002
- ------------------------------------------------
Ronald A. Klein, Chief Executive Officer
/s/ W. Anderson Geater, Jr. Dated: August 14, 2002
- ------------------------------------------------
W. Anderson Geater, Jr., Chief Financial Officer
25
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 Second Amendment to Amended and Restated
Subordinated Loan Agreement, dated as of June
18, 2002, between Sun Communities Operating
Limited Partnership and Origin Financial
L.L.C.
10.2 Fourth Amended and Restated Promissory Note,
dated as of June 18, 2002, made by Origen
Financial L.L.C. in favor of Sun Communities
Operating Limited Partnership
10.3 First Amendment to Amended and Restated
Participation Agreement, dated as of June 18,
2002, between Sun Communities Operating
Limited Partnership and Woodward Holdings, LLC
10.4 Credit Agreement dated as of July 25, 2002,
between Origen Financial L.L.C., and Bank One,
NA
10.5 Continuing Guaranty dated as of July 25, 2002,
executed by Bingham Financial Services
Corporation, in favor of Bank One, NA
10.6 Continuing Security Agreement dated as of
July 25, 2002, executed by Origen Financial
L.L.C. in favor of Bank One, NA
26