ITEM 1. BUSINESS
GENERAL
Bingham Financial Services Corporation (the "Company") is a specialized financial services company, providing financing for new and previously owned manufactured homes and commercial lending and mortgage servicing for income-producing properties.
The Company's executive office is located at 260 East Brown Street, Suite 200, Birmingham, Michigan 48009 and its telephone number is (248) 644-5470. The Company, which is a Michigan corporation, employed 90 people as of September 30, 1999.
HISTORY OF THE COMPANY
The Company was incorporated in August 1996 by Sun Communities, Inc. ("Sun"), a fully integrated publicly held real estate investment trust ("REIT"), and began transacting business in January of 1997. When the Company completed its initial public offering in November of 1997, the Company's business was focused primarily on providing financing for new and previously owned manufactured homes by making conventional loans under installment loan contracts collateralized by borrowers' manufactured homes ("Contracts"), primarily to residents in manufactured home communities owned and managed by Sun ("Sun Communities"). In addition to providing financing to residents in Sun Communities, the Company has expanded its manufactured home lending business to originate loans through manufactured home dealers and loan originators and has expanded its business into the commercial lending and mortgage servicing industry. Sun does not currently own any shares of the Company's common stock.
In March 1998, the Company, through two wholly owned subsidiaries, acquired (the "Bloomfield Transaction") Bloomfield Acceptance Company, L.L.C. ("Bloomfield") and its mortgage servicing affiliate Bloomfield Servicing Company, L.L.C. ("Bloomfield Servicing"), expanding the Company's business into commercial lending and servicing. As consideration for the Bloomfield Transaction, the Company issued 272,727 shares of Bingham common stock to the members of Bloomfield and Bloomfield Servicing and an additional 9,091 shares of Bingham common stock to certain members to be held in escrow for a period of three years from the closing of the Bloomfield Transaction in accordance with the terms of an escrow agreement. In addition, on March 31, 2000, the Company will be required to issue up to that number of shares of Bingham common stock equal in value to $500,000 as additional consideration for Bloomfield and Bloomfield Servicing successfully meeting certain operating and financial requirements.
STRUCTURE OF THE COMPANY
Sun assisted in forming the Company by loaning the Company amounts required to fund the Company's Contracts pursuant to a demand note which was paid in full with the proceeds from the Company's initial public offering. In connection with the Subordinated Debt Facility (defined
below), the Company issued common stock purchase warrants to Sun to purchase up to 400,000 shares of common stock at the initial public offering price of $10 per share. Sun also entered into an arrangement with the Company, whereby Sun offers the Company as the only preferred financing source to home purchasers and home owners in Sun Communities. This arrangement was modified in April 1999 to provide that for Sun's services, Sun shall receive a fee of 1% of the loans originated in Sun Communities rather than an annual fee based on average loan balances. For the year ended September 30, 1999, Sun received $217,000. When the Company and Sun entered into this arrangement, the Company granted Sun 330,000 options to purchase common stock of the Company which will vest in eight equal annual amounts beginning in January 2001. The Company paid Sun a fee of $75,000 for the year ended September 30, 1999 as reimbursement for general and administrative expenses.
In 1997, Sun through its operating subsidiary, Sun Communities Operating Limited Partnership (collectively, "Sun") provided a subordinated debt facility consisting of a $4 million term loan and a $6 million revolving credit loan (the "Subordinated Debt Facility"). In June 1999, the Company eliminated the $6 million five-year revolving credit facility that was part of the Subordinated Debt Facility and raised the existing $12 million demand line of credit to $18 million. In December 1999, that line of credit was increased to $50 million. Sun continues to provide financing to the Company through a $4 million term loan, a $10 million demand line of credit and the $50 million demand line of credit (the balance of which on December 15, 1999 was approximately $38 million).
The operations of the Company are carried on through certain subsidiaries (the "Subsidiaries"), including MHFC, Inc., a Michigan corporation ("MHFC"), I.J.K. Insurance Agency, Inc., MHFC of New Mexico, Inc., Hartger & Willard Mortgage Associates, Inc., a Michigan corporation, ("Hartger & Willard"), Bloomfield and Bloomfield Servicing. Substantially all of the Company's assets are held by or through MHFC and Bloomfield, of which the Company is the sole shareholder and sole member, respectively.
MAJOR ACQUISITIONS
On June 30, 1999, Bingham acquired all of the issued and outstanding stock of Hartger & Willard from DMR Financial Services, Inc. ("DMRFS"), an affiliate of Detroit Mortgage and Realty Company ("DMR"). The Company issued 66,667 shares of its common stock to DMRFS as consideration for the transaction. In addition, the Company loaned $1.5 million to DMRFS under a promissory note dated July 31, 1999. The loan was guaranteed by DMR and secured by the pledge of the Company's common stock that DMRFS received in the acquisition. The Company has a right to cause DMRFS to surrender the pledge shares in full payment of the principal amount of the loan and has demanded their surrender. Hartger & Willard provides mortgage banking services and arranges permanent mortgage financing on a variety of commercial and industrial properties.
OTHER EVENTS
OTS Application
In March of 1999, the Company filed an application with the United States Office of Thrift Supervision (the "OTS") to convert to a unitary thrift holding company and for the formation of a federally chartered savings bank subsidiary. At this time, the Company's application is still under review by the OTS.
Private Equity Raise
In April, 1999, the Company sold 800,330 shares at a price per share of $15 for a total of approximately $12 million. Purchasers in the private placement included certain directors and stockholders of the Company and their families as well as several new investors. The Company raised the capital to fund existing operations and to provide increased capital for the Company's planned operations.
FINANCING AND OTHER ACTIVITIES
MANUFACTURED HOUSING
The Company originates conventional loans that generally range in size from $4,500 to $90,000 and have a term of 5-25 years. The Company initially focused its marketing efforts principally through manufactured home community owners and operators, specifically targeting Sun Communities, where the Company's services are offered as the preferred source of financing. While the Company continues to market its services in Sun Communities, the Company is now originating approximately 75% of its loans through manufactured home dealers and loan originators.
Dealers and Originators
Each loan submitted to the Company by a dealer or originator is subject to Company-established criteria relating to loan terms, advance amounts, down payment requirements and other pertinent program parameters. These loans are originated in various states across the country. The Company performs annual reviews of dealers and originators it does business with to ensure that the criteria they use in originating loans conform to the Company's standards.
Dealers are provided a rate and term schedule that establishes a customer buy rate for each particular loan being submitted. Monthly loan volume target incentives have been established for the loan originators to maximize loan generation for the Company.
Monthly reports are generated to track dealer/originator performance. Performance factors that are tracked include loan approval rates, booking rates, dealer delinquency, dealer chargeoff activity and volume of loans booked. Company-established dealer performance goals are then
monitored and relationships with non-performing dealers are terminated.
Underwriting
The Company is responsible for processing credit applications for potential borrowers and adheres to a set of uniform underwriting guidelines and industry standards to maintain an acceptable level of credit risk with respect to its growing portfolio of loans. The Company has a continually-refined scoring model that uses a statistically based automated credit scoring system and quantifies responses using variables obtained from the applicant's credit application and credit report. This scoring model is based on empirical historical data which helps the Company determine the probability of loan failure and assess what changes in loan terms would make the loan an acceptable risk. The most significant criteria in the scoring model are the applicant's payment history and income. While the scoring model is based on objective criteria, the underwriter has the discretion to award a limited number of points to an applicant for certain credit and value factors.
Loan Collateral
The Company retains a security interest in any manufactured home it finances. To perfect its security interest in a manufactured home located in a manufactured home community, the Company delivers the application for a new certificate of title to the applicable state agency for processing. Once either the new certificate of title or a stamped application form is received by the Company, its security interest is deemed "perfected" under applicable state law. Procedures for perfecting security interests under "land/home" loans (loans on manufactured homes not located in manufactured home communities) vary by state.
Servicing
Beginning in April 1999, the Contracts have been serviced by Bloomfield Servicing. Bloomfield Servicing collects principal and interest payments from borrowers and remits them to investors as required under the relevant servicing contract. Bloomfield Servicing also processes collections on delinquent accounts.
Financing
The Company's ability to finance Contracts depends on its availability of funds. In June 1999, Sun increased its $12 million line of credit to Bingham to $18 million while at the same time, eliminating the six year revolving line of credit from the Subordinated Debt Facility. As consideration for raising the line of credit, the loan agreement and note were amended to provide that the note shall bear interest at a per annum rate equal to LIBOR plus 235 basis points, rather than 140 basis points. The line of credit was increased to $50 million in December 1999. The loan is now secured and with full recourse. In addition, the Company continues to draw from funds available under the Subordinated Debt Facility and its $10 million line of credit with Sun which is also now secured. The Company has entered into a repurchase arrangement with an unrelated party and has also sold a significant number of Contracts to unrelated financial institutions without retaining
servicing, in some cases with full recourse to the Company in the event of a default by the borrower.
COMMERCIAL MORTGAGE BANKING BUSINESS
GENERAL
Through Bloomfield, Bloomfield Servicing and Hartger & Willard, the Company participates and is active in all aspects of commercial real estate mortgage banking, including originating, underwriting, placing, securitizing, and servicing commercial real estate loans. Bloomfield 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 institutional investors.
A portion of Bloomfield's activities are focused on the manufactured housing industry and the Company believes that Bloomfield is one of the largest originators of loans on manufactured home communities in the country. For the year ended September 30, 1999, Bloomfield had originated approximately $72 million of loans on manufactured home communities.
LENDING
Bloomfield sources lending opportunities on a nationwide basis from direct borrower inquiry as well as from mortgage bankers and brokers. Loan applications are processed at the Company's offices in Birmingham, Michigan where due diligence is performed, including an analysis of property operating history, appraisal report, environmental report, borrower creditworthiness, credit history and experience. Bloomfield performs on-site property inspection and local market analysis.
Bloomfield funds primarily through a repurchase agreement with a Wall Street investment bank. It is expected that Bloomfield will fund the bulk of its future direct lending activities through similar arrangements. A portion of Bloomfield's direct lending activities will remain on the Company's balance sheet.
As of the end of the fiscal year, Bloomfield maintained a portfolio of $53 million of loans.
TRADITIONAL MORTGAGE BANKING
Bloomfield places commercial real estate mortgage loans with 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 the Company's commercial mortgage banking business by adding two new offices, loan officers and new investors, including the Federal Home Loan Mortgage Corporation.
SERVICING
Bloomfield Servicing services loans that Bloomfield originates and began servicing loans for MHFC and Hartger & Willard in April 1999 and July 1999, respectively. Hartger & Willard has consolidated with Bloomfield to effectively operate as one unit. 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 increase.
In addition to servicing loans for Bloomfield, MHFC and Hartger & Willard, Bloomfield Servicing services commercial real estate loans on behalf of twenty-seven institutional investors. The majority of these loans are in Michigan.
As of September 30, 1999, with the addition of MHFC and Hartger & Willard, Bloomfield Servicing's servicing portfolio totaled approximately $900 million. The entire commercial loan portfolio was current.
DELINQUENCY AND REPOSSESSION
COMMERCIAL MORTGAGE LOANS
Bloomfield Servicing is responsible for all commercial mortgage loans from the time of funding until the loan is paid in full. No commercial mortgage serviced by Bloomfield Servicing was delinquent as of September 30, 1999. 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 every attempt is made to obtain payment or to modify and workout the loan terms to a payment plan that is satisfactory to the lender and borrower and would bring the loan current. If the borrower and lender do not agree to a workout arrangement during the cure period, local counsel is retained 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.
Manufactured Home Loans
Bloomfield Servicing is responsible for the servicing of Contracts from the time of funding until the loan is paid in full. This servicing includes processing payments and issuing delinquent letters of 15 days and 21 days, and a 32 day default letter. The Company is responsible for collecting loans that are over 30 days delinquent and it hires a local attorney after the expiration of the 32 day default letter. Next a 30 day demand letter is issued, at which time full payment must be made on all arrearages including late fees and attorney fees. The Company generally repossesses the manufactured home after payments have become 60 to 90 days delinquent if the
Company is not able to work out a satisfactory arrangement with the borrower. For those loans originated in Sun Communities, Sun and an affiliate of Sun may assist with foreclosure and the sale of the manufactured home after repossession.
The Company maintains a reserve for estimated credit losses on Contracts owned by the Company or sold to third parties with full recourse. The Company provides for credit losses in amounts necessary to maintain the reserves at levels the Company believes are sufficient to provide for future losses based on the Company's historical loss experience, current economic conditions and portfolio performance measures. For fiscal 1999 and 1998, as a result of expenses incurred due to defaults and repossessions, $580,000 and $39,000, respectively, was charged to the reserve for losses on credit sales. The Company's reserve for losses on credit sales at September 30, 1999 was $258,000 as compared to $185,000 at September 30, 1998.
In fiscal 1999 and 1998, the Company repossessed 66 and 15 manufactured homes, respectively. The Company's inventory of repossessed homes was 50 homes at September 30, 1999 as compared to 8 homes at September 30, 1998. The estimated net realizable value of the repossessed homes in inventory at September 30, 1999 was approximately $1.3 million and at September 30, 1998, was approximately $194,000.
The net losses resulting from charge offs of Company originated loans as a percentage of the average principal amount of such loans outstanding for fiscal 1999 and 1998 was .52% and .23%, respectively.
At September 30, 1999 and September 30, 1998, delinquent installment sales contracts and loans expressed as a percentage of the total number, and of the total amount, of installment sales contracts and loans which the Company services, or has sold with full recourse and are serviced by others, were as follows:
INSURANCE
I.J.K. Insurance Agency, Inc., a subsidiary of the Company, is a licensed agent placing property and casualty, credit life and warranty insurance, primarily for the Company's manufactured home loans.
COMPETITION
The manufactured housing finance industry is very fragmented and highly competitive. There are numerous non-traditional consumer finance sources serving this market. Several of these financing sources are larger than the Company 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 the Company and may be able to offer more attractive terms to potential customers, have not consistently served this market.
The Company believes that its relationship with Sun, its focus on community owners and operators, its prompt and consistent review of credit applications and its emphasis on providing a high level of service enable it to compete effectively for the purchase price financing and refinancing of manufactured homes. However, to the extent that traditional and non-traditional lenders significantly expand their activity in this market, the Company may be adversely affected. There is no assurance that the Company will be able to effectively compete against its existing competitors or any future competitors.
The Company's 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 January.
The Company's commercial lending business is highly competitive and Bloomfield and Hartger & Willard operate on a nationwide basis against a host of local, regional and national lenders. Many of their competitors are larger and have greater financial resources than the Company. Traditionally, the Company's 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." The Company believes that the industry is in a state of transition and rapid consolidation and while the Company believes that it is well-positioned to compete effectively in this environment, there can be no assurances that it will do so.
REGULATION AND SUPERVISION
The Company is subject to regulation and licensing under various federal and state statutes and regulations. The Company's manufactured home finance business currently is conducted in the states of Alabama, Arizona, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Missouri, New Jersey, North Carolina, Ohio, Oregon, South Carolina, Tennessee, Texas and Virginia, and the
Company currently intends to operate in the states of California, Idaho, Nevada, North Dakota, New Mexico, Utah and Washington. Most states where the Company operates: (i) limit the interest rate and other charges that may be imposed under, or prescribe certain other terms of, the Contracts; (ii) regulate the sale and type of insurance products that the Company may offer and the insurers for which it will act as agent; and (iii) define the Company's rights to repossess and sell collateral. The Company is licensed to conduct its finance operations in the states of Alabama, Colorado, Delaware, Florida, Indiana, Kansas, Michigan, Missouri, North Carolina, Ohio, Texas and Virginia. No license is required to conduct the Company's manufactured home finance operations in Arizona, Georgia, Illinois, Oregon and South Carolina.
The Company is subject to numerous federal laws, including the Truth in Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act and the rules and regulations promulgated thereunder, and certain rules of the Federal Trade Commission. These laws require the Company to provide certain disclosures 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 Contract. The Equal Credit Opportunity Act prohibits creditors from discriminating against loan applicants (including retail installment contract obligors) on the basis of race, color, sex, age or marital status. Under the Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection. The Fair Credit Reporting Act requires the Company to provide certain information to consumers whose credit applications are not approved on the basis of a report obtained from a consumer reporting agency. The rules of the Federal Trade Commission limit the types of property a creditor may accept as collateral to secure a consumer loan and its holder in due course rules provide for the preservation of the consumer's claims and defenses when a consumer obligation is assigned to a subject holder. The Credit Practices Rule of the Federal Trade Commission imposes additional restrictions on loan provisions and credit practices.
The sale of insurance products by the Company is subject to various state insurance laws and regulations which govern allowable charges and other practices.
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 the Company.
ITEM 2.
ITEM 2. PROPERTIES
FACILITY
The Company's corporate headquarters is approximately 14,800 square feet, which terminates on October 31, 2001, and is located in Birmingham, Michigan. The lease on this space currently provides for monthly rent of $35,000 per month, including base rent and a pro rata share of operating expenses and real estate taxes. The Company has an option to renew the lease for an
additional 3 years. The Company also leases space in Grand Rapids, Michigan for a portion of its commercial mortgage servicing and origination operations. The lease covers approximately 4,300 square feet with a monthly rent of $5,300. The Company 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 August, 2000.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal, governmental, administrative or other proceedings to which the Company is a party or of which any of its property is the subject.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 4, 1999, the Company held its Annual Meeting of Shareholders. The only matter voted upon at the meeting was the election of three directors to serve until the 2002 Annual Meeting of Shareholders or until their respective successors shall be elected and shall qualify. The results of the election appear below:
PART II
ITEM 5.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been listed on the Nasdaq SmallCap Market ("Nasdaq") since May 11, 1998 under the symbol "BFSC" and was previously traded on the NASD OTC Bulletin Board. On December 15, 1999, the closing sales price of the Common Stock was $7.25 and the Common Stock was held by approximately fifty (50) holders of record. The following table sets forth, for the periods indicated, the range of the high and low sales prices.
The Company has never paid cash dividends on its Common Stock. The Company currently intends to retain any earnings for use in its operations and does not anticipate paying cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
On October 27, 1997, the Company issued 25,000 shares to an affiliate for a purchase price of $10.00 per share. On March 5, 1998, the Company issued an aggregate of 281,818 shares to certain individuals in exchange for their membership interests in Bloomfield and Bloomfield Servicing. On September 25, 1998, the Company issued, as compensation, an aggregate of 35,336 shares of Common Stock to a certain employee, which shares are restricted by the terms of a certain Restricted Stock Award Agreement
On April 27, 1999, the Company issued an aggregate of 800,330 shares of common stock to certain officers, directors, stockholders and new investors for a purchase price of $15 per share. On January 4, 1999, the Company issued, as compensation, an aggregate of 10,713 shares of Common Stock to certain of its employees, which shares are restricted by the terms of certain Restricted Stock Award Agreements. On April 1, 1999, the Company issued, as compensation, an aggregate of 652 shares of Common Stock to certain of its employees, which shares are restricted by the terms of certain Restricted Stock Award Agreements. On April 14, 1999, the Company issued, as compensation, an aggregate of 10,000 shares of Common Stock to an officer of the Company, which shares are restricted by the terms of a certain Restricted Stock Award Agreement. On June 30, 1999, the Company issued, as compensation, an aggregate of 7,312 shares of Common Stock to a certain employee, which shares are restricted by the terms of a certain Restricted Stock Award Agreement. On July 1, 1999, the Company issued, as compensation, an aggregate of 3,092 shares of common stock to certain of its employees, which shares are restricted by the terms of certain Restricted Stock Award Agreements. On July 2, 1999, the Company issued 66,667 shares of common stock to DMRFS in consideration for the acquisition of all of the outstanding shares of capital stock of Hartger & Willard. On August 9, 1999, the Company issued, as compensation, an aggregate of 8,421 shares of Common Stock to a certain employee, which shares are restricted by the terms of a certain Restricted Stock Award Agreement. On September 3, 1999, the Company issued, as compensation, an aggregate of 9,132 shares of Common Stock to a certain employee, which shares are restricted by the terms of a certain Restricted Stock Award Agreement.
All of the above shares of common stock were issued in private placements in reliance on Section 4(2) of the Securities Act of 1933, as amended, including Regulation D promulgated thereunder. No underwriters were used in connection with any of such issuances.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
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. The Company was formed by Sun in response to the growing need to provide timely and competitive financing to residents in manufactured home communities. The Company has expanded its manufactured home lending activities through the use of "dealer networks" to communities not owned and operated by Sun to the extent that now 75% of the Company's manufactured home lending is done outside the Sun owned and operated 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. The Company through one of its subsidiaries also provides warranty, credit life and disability insurance on the contracts it finances.
Through acquisitions the Company's business has expanded to include commercial lending and mortgage servicing for income producing properties. The Company expects to extend its business to include other types of installment loans, expand its mortgage servicing operations and engage in other related businesses through the initiation of new businesses or through the acquisition of existing ones.
RESULTS OF OPERATIONS
1999 COMPARED TO 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 in 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 is primarily related to the significant increase in interest income as a result of a much larger average outstanding portfolio balance 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 1999, or approximately 188% over interest income of $3.3 million in 1998. The large increase is primarily due to an increase in the average outstanding loan receivable balance of $111.7 million in 1999 versus $51.5 million in 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 1999 versus 8.60% in 1998.
Interest expense for the year ended September 30, 1999 was $6.9 million as compared to $1.9 million, an increase of 263% for the comparable period ended September 30, 1998. The increase in interest expense is 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 $100.7
million, or 118.22% in 1999 versus $46.1 million 1998. Offsetting some of the increase in average outstanding debt was a decrease in the cost of borrowings to 6.81% in 1999 compared to 7.52% in 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:
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 1999 compared to $1.2 million in fees on placed commercial mortgage loans of $140 million in 1998. Origination of commercial mortgage loans and related placement fees for 1998 cover the period from March 1, 1998, the date of the acquisition of Bloomfield, 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 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 $.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 1999 compared to $147,000 in 1998. The large increase is 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 is 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 for the comparable period in 1998.
General and administrative and other operating expenses totaled approximately $7.6 million in 1999. This was an increase of $5.1 million or 204% over general and administrative expenses in 1998 of $2.5 million. The largest part of the increase is 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's 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 & Willard in the fourth quarter of 1999. The increase in personnel resulted in an increase in occupancy and office expenses to $817,000 for 1999 or 233% increase over the comparable period in 1998 of $245,000.
1998 COMPARED TO 1997. The Company had 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. This is compared to a loss of $110,000 on gross revenues of $280,000 and expenses of $390,000 for the period January 2, 1997 (date of inception) through September 30, 1997. Net loss for the Company increased $464,000 versus the $110,000 loss for 1997.
The large increase in total gross income was due to a greater number of loans originated in the manufactured home loan portfolio and through the acquisition of a commercial mortgage loan originator in March, 1998. Interest income on manufactured home loans increased to $2.2 million from $280,000 for the year ended September 30, 1998 versus the period ended September 30, 1997. Interest income on the commercial mortgage loan portfolio for the period March 1, 1998 through September 30, 1998 was $1.1 million.
Interest expense for the year ended September 30, 1998 was $1.9 million versus $195,000 for the period ended September 30, 1997. The Company maintained a significantly higher level of borrowings to fund its increased manufactured home loan originations and commercial mortgage portfolio.
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:
Mortgage origination and refinance fees totaled $1.2 million for fiscal 1998 on the placed commercial mortgage loans. The sale of mortgage servicing rights in connection with the commercial mortgage loans originated and serviced resulted in gross revenues of approximately $600,000. No comparable is reported for fiscal 1997 as this is the first year of commercial mortgage origination for the Company.
Gain on sale of loans represents the gross income from the sale of approximately $11.2 million of manufactured home loans on a servicing released basis. This is the first year in which the Company has sold a portion of its manufactured home loan portfolio.
During the latter part of the fourth quarter of 1998, the Company incurred losses due to unprecedented market conditions related to commercial mortgage backed securities and related instruments. The Company recorded $2.4 million of losses related to mark-to-market valuations of commercial mortgage loans held for sale and the related hedge positions.
Provision for credit losses increased to $147,000 or 153% in 1998 from $58,000 in 1997 due to the large increase in the manufactured home loan portfolio. Provision for loan 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.
General and administrative and other operating expenses increased to $2.5 million in fiscal 1998 as compared to $137,000 for the period ended September 30, 1997. The large increase was the result of underwriting and originating significantly higher manufactured home loan volumes in fiscal 1998, operations for the full year rather than the shorter period from inception to September 30, 1997, and through the acquisition of Bloomfield and Bloomfield Servicing with the related underwriting, originating and servicing of commercial mortgage loans. The largest increase in general and administrative expenses related to the increase in the number of
employees from 4 to 25, including the increase through acquisition.
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 possible future 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 September 30, 1999 the Company issued 800,330 shares of its common stock in private equity raises. The stock issuance resulted in proceeds of approximately $12 million
In connection with its initial public offering the Company entered into the Subordinated Debt Facility with Sun, which is subordinated to all senior debt of the Company. The Subordinated Debt Facility consists of a $4 million term loan with an annual interest rate of 9.75%. As of September 30, 1999, the Company also had an $18 million demand line of credit and a $10 million demand line of credit with Sun, both of which provide for an annual interest rate equal to the one month "LIBOR" rate plus 235 basis points. At September 30, 1999 and 1998 the Company owed Sun $32.0 million and $21.3 million respectively under the Subordinated Debt Facility and the revolving line of credit facilities.
In accordance with the subordinated loan agreement the Company issued detachable warrants to Sun covering 400,000 shares of common stock at a price of $10.00 per warrant share. The detachable warrants have a term of seven years and may be exercised at any time after the fourth anniversary of the issuance.
In March 1998 the Company's commercial mortgage originating subsidiary entered into a one year master repurchase agreement with a lender to finance fixed rate commercial loans secured by real estate. In September of 1998 that agreement was amended to include financing of manufactured home, floor plan and bridge loans. At September 30,1999 the maximum financing limits on the facility were $50.0 million for commercial mortgage and bridge loans and $50.0 million for manufactured home and floor plan loans . The annual interest rate on the facility is a variable rate of interest equal to "LIBOR" plus a spread, dependent on the advance rate and the asset class. As of September 30, 1999 and 1998 approximately $69.0 million and $56.9 million of borrowings respectively were outstanding under the facility.
During the years ended September 30, 1999 and 1998, the Company completed the sale of approximately $20.4 million and $11.6 million in outstanding principal balance amount of loans from its manufactured home loan portfolio. These sales resulted in approximate proceeds to the company of $21.6 million and $12.5 million respectively. In 1999 the Company also sold through securitization and whole loan sales approximately $91.6 million of outstanding principal balance of its commercial mortgage loan portfolio. The securitization and sales resulted in proceeds to the Company of $91.8 million. There were no sales of commercial mortgage loans in 1998.
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.
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.
Management believes the negative effect of a rise in interest rates is reduced by the anticipated short duration of the Company's loan receivables. Management intends that the loan receivables will be securitized or sold as part of a whole loan sale prior to the end of fiscal 2000. Proceeds from the securitization or whole loan sales would be used to pay down the corresponding debt. If the Company were unable to securitize or sell the loans it would be necessary to renegotiate the master repurchase agreement described in Note G to the Consolidated Financial Statements, to extend the maturity date of the advances under repurchase. The instruments held by the Company are held for purposes other than trading.
The Company also manages interest rate risk through the use of forward sales of U.S. Treasury securities, Treasury rate locks and forward interest rate swaps to hedge a portion of the fixed rate loans in the commercial loan portfolio. The Company uses these instruments in an attempt to reduce risk by essentially creating offsetting market exposures.
In a forward sale the Company has agreed to sell a Treasury security at a future date with a predetermined price. If interest rates on Treasury securities drop, the price to the Company to purchase the security in order to meet its settlement obligation will have risen, and thus the Company will have suffered an unrealized loss on the hedge transaction. Conversely, if interest rates rise, the price to the Company to purchase Treasury securities will have fallen and there will be an unrealized gain. The unrealized gain or loss on the hedge transaction should be offset by the decrease or increase in value of the underlying hedged loans since they are fixed rate loans that have an annual interest rate equal to a spread over U.S. Treasuries.
To effect a Treasury rate lock the Company has entered into an agreement with a counter-party whereby a "locked in" Treasury rate is established, usually the yield to maturity rate on a U.S. Treasury security. If the current yield to maturity is greater than the locked in yield to maturity, a situation that would indicate rising interest rates, the rate lock will have increased in value and the Company will have an unrealized gain. The unrealized gain will help off-set the decrease in value of the fixed rate loans caused by rising interest rates. In a declining interest rate environment the current yield to maturity on the treasury security would be less than the locked in rate creating an unrealized loss on the hedge position. The declining interest rate environment should increase the value of the loans thereby off-setting the loss on the hedge.
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 the Company 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 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 and derivative instruments that are sensitive to changes in interest rates, categorized by expected maturity, and the instruments' fair values at September 30, 1999.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Report on Form 10-K, including statements relating to the Company's strategic objectives and future performance, which are not historical fact, may be deemed to be forward-looking statements under the federal securities laws. There are many important factors that could cause the Company's actual results to differ materially from those indicated. Such factors include, but are not limited to general economic conditions; interest rate risk; demand for the Company's services; the impact of certain covenants in loan agreements of the Company; the degree to which the Company is leveraged; the continued availability of the Company's credit facilities; the risk of margin calls on the Company's credit facilities and hedge positions; the performance of the Company's subsidiaries; the Company's year 2000 issues; and other risks identified in the Company's Securities and Exchange Commission filings. In
addition, past financial and operational performance of the Company is not necessarily indicative of future financial and operational performance.
YEAR 2000 READINESS
Some computers, software, and other equipment include a programming code in which calendar year data is abbreviated to only two digits. As a result of this design decision, some of these systems could fail to operate or fail to produce correct results if "00" is interpreted to mean 1900, rather than 2000. In 1998 the Company initiated a corporate wide program designed to ensure that all critical computer programs function properly in the year 2000. The Company is also analyzing and working with vendors and other external businesses to identify and avoid any year 2000 problems related to the software or services they provide.
Phase I of the Company's year 2000 project is complete. It involved an assessment of the internal and external critical systems and hardware that could be affected by the year 2000 problem and the current compliant status of the system or hardware.
In Phase II of the project the Company's management information systems staff developed solutions or implemented vendor-provided solutions to remedy all year 2000 non-compliant issues including non-information technology systems. All internal critical systems that required a year 2000 update provided by a vendor have been corrected. To date there have been no systems that required complete replacement. All non-compliant hardware has been replaced. Any new systems or hardware to be acquired are verified to be year 2000 compliant. Phase II also includes testing of updated systems and hardware for compliance. This portion of the project is ongoing. Some testing needs to be completed on the Company's servicing and origination systems. At this time the Company has received very specific statements of compliance on both systems.
The Company continues to obtain statements of compliance from its external vendors and business relationships to verify that they are year 2000 compliant. This part of Phase II was also expected to be completed by the second quarter of 1999. While the Company has received statements of compliance from the majority of its outside vendors, it has not received all statements requested. The Company will continue to obtain the necessary statements of compliance from vendors and outside business relationships that it has defined as critical.
In the event the Company does not complete any additional phases of Year 2000 readiness, under "worst case scenario" the Company would be required to process certain transactions manually, which may effect customer service. In addition, disruptions in the economy generally resulting from Year 2000 issues could materially affect the Company. The Company could be subject to litigation for equipment shutdown or failure to properly date customer records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time.
Year 2000 compliance costs to date have totaled approximately $65,000. The majority of the cost is estimated MIS personnel expense required for identifying, testing and, where necessary, updating critical systems. The cost also includes the replacement of some non-compliant hardware. The Company currently estimates the total costs of the year 2000 project will not be material to its financial position or results of operations.
The impact of year 2000 issues depends not only on the corrective actions the Company takes, but also on the way these issues are handled by businesses, governmental agencies and other third parties that provide data, services and utilities to the Company. While the Company is in
the process of testing and correcting identified year 2000 problems, these procedures are limited to matters over which it is reasonably able to exercise control. The Company's ability to achieve year 2000 readiness and the level of incremental costs associated with it could be adversely impacted by, among other things, the availability and cost of programming and testing resources, vendors' ability to modify proprietary software and unanticipated problems identified in the ongoing compliance review.
RECENT ACCOUNTING PRONOUNCEMENTS
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 has 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. As of September 30, 1999 those costs totaled approximately $682,000. Any remaining unamortized balance at will be expensed.
In June 1998 Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. SFAS 133 requires all derivative instruments to be recorded on the balance sheet at estimated fair value. Changes in the fair value of derivative instruments are to be recorded each period either in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, on the type of hedge transaction. SFAS 133 is effective for the year 2001. 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.
ITEM 8.
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 YEARS AND PERIOD ENDED SEPTEMBER 30, 1999, 1998 AND 1997
BINGHAM FINANCIAL SERVICES CORPORATION
Independent Auditor's Report
To the Board of Directors Bingham Financial Services Corporation
We have audited the accompanying consolidated balance sheet of Bingham Financial Services Corporation as of September 30, 1999 and the related consolidated statements of changes in stockholders' equity, income and cash flows for the year ended September 30, 1999. 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 audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 audit provides 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 September 30, 1999 and the consolidated results of their operations and their cash flows for the year ended September 30, 1999, in conformity with generally accepted accounting principles.
Plante & Moran, LLP
Southfield, Michigan December 22, 1999
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Bingham Financial Services Corporation
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income and changes in stockholders' equity and of cash flows, as included in 1999 Form 10K present fairly, in all material respects, the financial position of Bingham Financial Services Corporation and its subsidiaries at September 30, 1998 and the results of their operations and their cash flows for the year ended September 30, 1998 and for the period from January 2, 1997 (date of inception) through September 30, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards 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 audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Detroit, Michigan December 18, 1998
BINGHAM FINANCIAL SERVICES CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT FOR SHARES)
The accompanying notes are an integral part of these financial statements.
BINGHAM FINANCIAL SERVICES CORPORATION CONSOLIDATED INCOME STATEMENTS FOR THE YEARS AND PERIOD ENDED SEPTEMBER 30, 1999, 1998 AND 1997 (IN THOUSANDS, EXCEPT FOR SHARES)
The accompanying notes are an integral part of these financial statements.
BINGHAM FINANCIAL SERVICES CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS AND PERIOD ENDED SEPTEMBER 30, 1999, 1998 AND 1997 (IN THOUSANDS, EXCEPT FOR SHARES)
The accompanying notes are an integral part of these financial statements.
BINGHAM FINANCIAL SERVICES CORPORATION CONSOLIDATED STATEMENT OF CASHFLOWS FOR THE YEARS AND PERIOD ENDED SEPTEMBER 30, 1999, 1998 AND 1997 (IN THOUSANDS)
The accompanying notes are an integral part of these financial statements.
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: The Company was incorporated for the purpose of providing financing to residents living in manufactured housing communities for the purchase of new and used manufactured homes. The Company originates conventional loans that generally range in size from $4,500 to $90,000 and have a term of 5-25 years. The Company has focused its marketing efforts principally through manufactured home community owners and operators. This effort has traditionally been targeted at Sun Communities, where the Company's services are offered as the preferred source of financing. However, the Company has expanded its manufactured home lending activities through the use of "dealer networks" to communities not owned and operated by Sun to the extent that now 75% of manufactured home lending is done outside the Sun owned and operated communities. The Company continues to take the steps necessary to capture a greater share of the loans generated by home purchasers and owners in Sun Communities as well as dealer generated loans.
The Company also participates and is active in all aspects of commercial real estate mortgage banking, including originating, underwriting, placing, securitizing, and servicing commercial real estate loans through Bloomfield and Bloomfield Servicing. Bloomfield 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 institutional 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.
For purposes of income statement and cashflow comparison, the Company does not have a period covering the twelve months ended September 30, 1997. Information presented covers the period from January 2, 1997 (date of inception) through September 30, 1997. The Company's initial public offering of common stock did not take place until the quarter ended December 31, 1997.
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. 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 serviced loans held by others that is held in trust for subsequent payment to the owners of those loans.
LOANS RECEIVABLE: Loans receivable consist of commercial real estate loans and manufactured home loans. The commercial loans primarily consist of fixed rate loans collateralized by mortgages on commercial property. Commercial loans originated are either sold immediately to permanent investors or held for sale. Manufactured home loans are conventional fixed rate loans under contracts collateralized by the borrowers' manufactured homes. Manufactured home loans are also held for sale.
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------------
Loans receivable are carried at the lower of cost or market value determined on an aggregate basis. Loans receivable include accrued interest and are net of deferred hedging gains or losses and an allowance for expected losses.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses forward sales of U.S. Treasury securities, Treasury rate locks and forward interest rate swaps to hedge a portion its commercial mortgage loan portfolio. These instruments are used as a means to hedge interest rate risk connected to anticipated sales or securitizations of the commercial mortgage loans. The Company's accounting for derivative financial instruments that are used to manage risk is in accordance with the concepts established in SFAS No. 80, "Accounting for Futures Contracts".
Deferral (hedge) accounting is applied if the derivative reduces the risk of the underlying hedged item and is designated at inception as a hedge with respect to the hedged item. Additionally, the derivative must result in payoffs that are expected to be inversely correlated to the hedged item. Derivatives are measured for effectiveness both at inception and on an ongoing basis. If a derivative instrument ceases to meet the criteria for deferral accounting, any subsequent gains and losses are currently recognized in income.
ALLOWANCE FOR LOAN LOSSES: The allowance for possible losses on loans is maintained at a level believed adequate by management to absorb potential losses from impaired loans, loans sold with recourse and the remainder of the loan portfolio. The allowance for loan losses is based upon periodic analysis of the portfolio, economic conditions and trends, historical credit loss experience, borrowers' ability to repay and collateral values.
SERVICING RIGHTS: The Company accounts for servicing rights in accordance with SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125"). SFAS 125 requires that a separate asset or liability be recorded representing the right or obligation to service loans for others. A servicing asset or liability is determined by allocating the loans' previous carrying amount between the servicing asset and the loans that were sold, based on their relative fair values at the date of sale. The fair value of the servicing asset or liability is based on an analysis of discounted cash flows that incorporates estimates of market servicing costs, projected ancillary servicing revenue, projected prepayment rates and market profit margins.
Servicing rights are periodically assessed for impairment based on the fair value of those rights calculated on a discounted basis. This assessment is performed on a disaggregated basis, stratified by mortgage type and term. Identified impairments are recognized through a valuation allowance.
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 75 days past due as the collection of these loans is considered doubtful.
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------------
LOAN FEES: Loan origination fees and certain direct loan origination costs are deferred and recognized over the expected lives of the related loans as an adjustment of the yields using a level-yield method.
REPOSESSED HOMES: Manufactured homes acquired through foreclosure or similar proceedings are recorded at the lower of the related loan balance plus any operating expenses of such homes or the estimated fair value of the home at acquisition date.
OTHER COMPREHENSIVE INCOME: The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of January 1, 1998. Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, however, such as unrealized gains and losses on available-for-sale securities, are reported as a direct adjustment to the equity section of the balance sheet. Such items, along with net income, are considered components of comprehensive income under the new standard.
Accumulated other comprehensive income at September 30, 1999 is comprised solely of unrealized losses on available-for-sale securities, net of tax benefit of $158,000.
OTHER ASSETS: Other assets is comprised of margin deposits with brokers, organization and licensing costs, prepaid expenses, investment securities deferred financing costs, goodwill and other miscellaneous receivables. Organization and licensing costs are amortized on a straight-line basis over a five-year life. Deferred financing costs are capitalized and amortized over the life of the corresponding line of credit.
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. Under this method, deferred income taxes result from temporary differences between the tax bases of assets and liabilities and the bases reported in consolidated financial statements. The deferred taxes are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
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 available to common shareholders by the weighted average common shares outstanding. In the computation of fully diluted earnings per share, the treasury stock method of determining weighted average shares is required, which assumes the exercise of existing stock options and the repurchase of shares with the proceeds. At September 30, 1998 there were approximately 260,000 potential shares of common stock from stock options and warrants outstanding. Had these stock options and warrants been exercised in 1998 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 per share calculation for 1998.
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:
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------------
SECURITIES: All securities owned as of September 30, 1999 are classified as securities available for sale. Using the specific identification method, such securities 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. The adjusted cost of the securities would be used to compute realized gains or losses if the securities are sold.
RECENT ACCOUNTING PRONOUNCEMENTS: 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 has deferred organizational and start up 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. As of September 30, 1999 those costs totaled approximately $682,000. Any remaining unamortized balance at October 1, 1999 will be expensed.
In June 1998 Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. SFAS 133 requires all derivative instruments to be recorded on the balance sheet at estimated fair value. Changes in the fair value of derivative instruments are to be recorded each period either in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, on the type of hedge transaction. SFAS 133 is effective for the year 2000. 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.
B. ACQUISITIONS
In March 1998 the Company acquired 100% of the outstanding stock of Bloomfield Acceptance Company, L.L.C. ("Bloomfield") and Bloomfield Servicing Company, L.L.C. ("Bloomfield Servicing") for 281,818 shares of the Company's common stock valued at approximately $2.1 million. Bloomfield is engaged in the business of the origination of mortgages and real estate
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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lending. Loans originated by Bloomfield primarily consist of fixed rate loans secured by mortgages on commercial property. Bloomfield Servicing was formed to service the loans originated by Bloomfield and other investors.
In addition to the shares of common stock issued to the former owners of Bloomfield and Bloomfield Servicing, additional consideration of up to $500,000, in the form of the Company's common stock, will be paid to the owners subject to 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 has the right to cause DMRFS to surrender the pledged shares in full payment of the principal amount of the loan and has demanded their surrender. 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):
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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:
C. LOANS RECEIVABLE
The carrying amounts and fair values of loans receivable consisted of the following:
The carrying amount of loans receivable includes a valuation allowance as a result of the inclusion of the loss on the hedge positions. The entire loss was recovered in 1999. The following table shows the valuation allowance and any related additions or deductions:
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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The following table sets forth the average loan balance, weighted average loan yield and weighted average initial term of the loan portfolio:
The following table sets forth the concentration by state of the loan portfolio:
The manufactured home contracts are collateralized by manufactured homes which range in age from 1963 to 1999, with approximately 60% of the manufactured homes built since 1997.
The following table sets forth the number and value of loans for various terms for the manufactured home loan portfolio:
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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The commercial mortgage loans have amortization terms of between 25 and 30 years. In most 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:
No commercial mortgage loans were delinquent as of September 30, 1999 or 1998.
D. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses and related additions and deductions to the allowance for the years ended September 30, 1999, 1998 and 1997 were as follows:
E. SERVICING RIGHTS
Changes in servicing rights are summarized as follows:
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Bloomfield Servicing ("BSC") 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 twenty seven institutional investors. BSC also acts as the sub-servicer on the approximately $80 million of commercial mortgage loans the Company securitized and sold in June 1999. As of September 30, 1999 and 1998, BSC's commercial mortgage loan servicing portfolio totaled approximately $900 million and $374 million respectively.
BSC also 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 sold with the servicing rights retained. The manufactured home loan servicing portfolio totaled $83 million at September 30, 1999. There were no manufactured home loans serviced by BSC as of September 30, 1998.
F. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
Depreciation expense was $116,000 and $33,700 in 1999 and 1998 respectively.
G. DEBT
In connection with its initial public offering The Company entered into a subordinated loan agreement with Sun. The subordinated loan agreement currently provides for a subordinated debt facility which indebtedness shall be subordinated to all senior debt of the Company. The facility consists of a $4 million term loan with an annual interest rate of 9.75%. As of September 30, 1999 the Company also had a $10 million demand line of credit and an $18 million demand line of credit with Sun, both of which provide for an annual interest rate equal to the one month "Libor" rate plus a spread. At September 30, 1999 the Company had used $32.0 million of the subordinated debt and demand line of credit facilities. In accordance with the subordinated loan agreement the Company issued detachable warrants to Sun covering 400,000 shares of common stock at a price of $10.00 per
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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warrant share. The detachable warrants have a term of seven years and may be exercised at any time after the fourth anniversary of the issuance. In March 1998 the Company's commercial mortgage originating subsidiary entered into a one year master repurchase agreement with a lender to finance fixed rate commercial loans secured by real estate. In September of 1998 that agreement was amended to include financing of manufactured home, floor plan and bridge loans. At September 30,1999 the maximum financing limits on the facility were $50 million for commercial mortgage and bridge loans and $50 million for manufactured home and floor plan loans. The annual interest rate on the facility is a variable rate of interest equal to "LIBOR" plus a spread, dependent on the advance rate and the asset class. The loans are sold at 85- 92% of the then current face value, depending on the asset class and certain concentration constraints. The repurchase transactions are for 30 days and may be rolled over for up to nine months.
At September 30, 1999 and 1998 debt outstanding was as follows:
H. SUN COMMUNITIES AGREEMENT
As of September 30, 1997 the Company entered into an agreement with Sun Communities. Pursuant to the agreement, options were granted to Sun September 30, 1997 and 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". Fair value is determined using quoted market prices. Service costs are amortized based on the vesting periods of the options. Amortization for the years ended September 30, 1999 and 1998 was $86,400 and $74,700 respectively.
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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I. STOCK OPTION PLAN
The Company has stock option plans in which 248,915 shares of common stock have been reserved for issuance as of September 30, 1999. Under the plans, 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 Statements of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." Accordingly, the fair value of each option granted in 1999 and 1998 was estimated using the Black-Scholes option pricing model based on the assumptions stated below:
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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:
The following table sets forth changes in options outstanding:
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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The following table sets forth details of options outstanding at September 30, 1999 and 1998:
There were no options outstanding in 1997.
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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J. FEDERAL INCOME TAXES
Federal income tax expense consisted of the following:
A reconciliation of the statutory federal income tax rate to the effective income tax rate follows:
There was no federal income tax provision in 1997.
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 believes its deferred tax liabilities and available tax planning strategies will allow for the recovery of total net deferred tax asset. Significant components of the Company's deferred tax assets and liabilities are as follows:
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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 September 30, 1999 the Company issued stock awards of 84,658 restricted shares to executive officers and senior management. Compensation costs related to the awards are being amortized over their respective vesting periods, generally between 3 to 5 years.
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 September 30, 1999 aggregate minimum rental commitments under noncancelable leases having terms of more than one year were $937,000 payable $403,000 (2000), $414,000 (2001), $88,000 (2002) and $31,000 (2004). Total rental expense for the year ended September 30, 1999 and 1998 was $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 September 30, 1999 and 1998 the Company had commitments to originate manufactured home installment contracts approximating $5.1 million and $4.8 million respectively. Commercial mortgage loan commitments totaled $73.1 and $14.7 million at September 30, 1999 and 1998 respectively.
N. FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET ACTIVITY
FINANCIAL INSTRUMENTS: The Company hedges its commercial mortgage 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 hedges the interest rate risk on its portfolio by doing forward sales of U.S. Treasury Securities, Treasury locks and forward interest rate swaps.
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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The Company classifies these transactions as hedges on specific loan receivables. Any gross unrealized gains or losses on these hedge positions are determined based on quoted market prices and are an adjustment to the basis of the mortgage loan portfolio. They are also used in the lower of cost or market valuation to establish a valuation allowance as shown in Note C.
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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The following table identifies the gross unrealized gains and losses of the hedge positions based on quoted market prices as of September 30, 1999 and 1998:
LOANS SOLD WITH RECOURSE: As of September 30, 1999 and 1998 outstanding principal on manufactured home loans the Company had sold with recourse totaled $27.6 and $11.3 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, for the life of the loan.
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 that 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:
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 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 date is based on its carrying amount since effective rates reflect current market rates.
BINGHAM FINANCIAL SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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O. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
P. SUBSEQUENT EVENTS
In December 1999, the Company completed the acquisition of Dynex Financial, Inc. (DFI) from Dynex Holding, Inc. (DHI), a subsidiary of Dynex Capital, Inc (DCI). The Company acquired all of the issued and outstanding stock of DFI and all of the rights to DCI's manufactured home lending business for approximately $4.0 million in cash funded by bank borrowings. DFI specializes in lending to buyers of manufactured homes and has regional and district offices in nine states. In addition DFI provides servicing for manufactured home and land/home loans.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On September 30, 1999, the Company elected not to continue its relationship with PricewaterhouseCoopers LLP as its independent accountants. The Company has engaged Plante & Moran L.L.P. as its new independent accountants as of September 30, 1999. This disclosure has been previously reported as the Company filed a report on Form 8-K dated September 30, 1999 disclosing this change.
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 2000, and is incorporated herein by reference.
PART IV
ITEM 14.
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
(1) The Company filed a report on Form 8-K announcing it had filed an application with the OTS to convert the Company to a unitary thrift holding company and for the formation of a federally chartered savings bank subsidiary. The date of the report was February 21, 1999.
(2) The Company filed a report on Form 8-K detailing the acquisition of Hartger & Willard pursuant to a Reorganization Agreement dated as of June 30, 1999. The
date of the Report was June 30, 1999. The required financial statements of the businesses acquired and the required pro forma financial information were filed with an amendment to the Form 8-K on September 15, 1999.
(3) The Company filed a report on Form 8-K disclosing a change in its independent accountants. The date of the report was September 30, 1999.
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: December 28, 1999
BINGHAM FINANCIAL SERVICES CORPORATION
By: /s/ Ronald A. Klein ----------------------------------------------- Ronald A. Klein, President and Chief Executive Officer
By: /s/ Jeffrey P. Jorissen ----------------------------------------------- Jeffrey P. Jorissen, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------ -----------
2.1 Agreement and Plan of Merger dated as of February 17, 1998 by and among Bingham Financial Services Corporation, a Michigan corporation, BAC Acquiring Corp., a Michigan corporation, BSC Acquiring Corp., a Michigan corporation, Bloomfield Acceptance Company, L.L.C., a Michigan limited liability company, and Bloomfield Servicing Company, L.L.C., a Michigan limited liability company. Omitted from such exhibit, as filed, are the remaining exhibits referenced in such agreement. The Company will furnish supplementally a copy of any such exhibits to the Commission upon request. (Incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998)
2.2 Certificate of Merger for BAC Acquiring Corp. and Bloomfield Acceptance Company, L.L.C., dated March 5, 1998. (Incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998)
2.3 Certificate of Merger for BSC Acquiring Corp. and Bloomfield Servicing Company, L.L.C., dated March 5, 1998. (Incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998)
2.4 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 the Company's Current Report on Form 8-K dated June 30, 1999)
3.1 Amended and Restated Articles of Incorporation of Bingham Financial Services Corporation (Incorporated by reference to the Company'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 the Company's registration Statement on Form S-1; File No. 333-34453)
4.1 Shareholders Agreement dated March 4, 1998 (Incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998)
4.2 Amendment to Merger Agreement, Shareholders Agreement And Employment Agreements, dated February 21, 1999 (filed herewith)
EXHIBIT NUMBER DESCRIPTION - ------- -----------
4.3 Bloomfield Shareholders Agreement dated March 5, 1998 (Incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998)
10.1 Participants Support Agreement, by and between Bingham Financial Services Corporation 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 the Company'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 (filed herewith)
10.3 Administration Agreement, by and between Bingham Financial Services Corporation and Sun Communities, Inc., dated July 1, 1997 (Incorporated by reference to the Company's Registration Statement on Form S-1; File No. 333-34453)
10.4 Form of Indemnification Agreement (Incorporated by reference to the Company'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 Financial Services Corporation and Daniel E. Bober (Incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998)
10.6 Employment Agreement dated as of March 4, 1998 by and between Bingham Financial Services Corporation and Creighton J. Weber (Incorporated by reference to the Company's Current Report on Form 8-K dated March 5, 1998)
10.7 Subordinated Loan Agreement dated September 30, 1997 between Bingham Financial Services Corporation and Sun Communities, Inc. (assigned to Sun Communities Operating Limited Partnership as of December 31, 1997) (Incorporated by reference to the Company's Registration Statement on Form S-1; File No. 333-34453)
10.8 Form of Line of Credit Promissory Note, dated September 30, 1997 between Bingham Services Financial Corporation and Sun Communities, Inc. (assigned to Sun Communities Operating Limited Partnership as of December 31, 1997) (Incorporated by reference to the Company's Registration Statement on Form S-1; File No. 333-34453)
EXHIBIT NUMBER DESCRIPTION - ------- -----------
10.9 Form of Term Promissory Note, dated September 30, 1997 between Bingham Financial Services Corporation and Sun Communities, Inc. (assigned to Sun Communities Operating Limited Partnership as of December 31, 1997) (Incorporated by reference to the Company's Registration Statement on Form S-1; File No. 333-34453)
10.10 Loan Agreement between Bingham Financial Services Corporation and Sun Communities Operating Limited Partnership, dated March 1, 1998 (Incorporated by reference to the Company's Current Report on Form 10-K, for the year ended September 30, 1998)
10.11 Demand Promissory Note between Bingham Financial Services Corporation and Sun Communities Operating Limited Partnership, dated March 1, 1998 (Incorporated by reference to the Company's Current Report on Form 10-K, for the year ended September 30, 1998)
10.12 Loan Agreement between Bingham Financial Services Corporation and Sun Communities Operating Limited Partnership, dated March 30, 1999 (filed herewith)
10.13 Demand Promissory Note between Bingham Financial Services Corporation and Sun Communities Operating Limited Partnership, dated March 30, 1999 (filed herewith)
10.14 Amendment to Loan Agreement dated March 30, 1999, between Bingham Financial Services Corporation and Sun Communities Operating Limited Partnership, dated as of June 11, 1999 (filed herewith)
10.15 Amended Demand Promissory Note between Bingham Financial Services Corporation and Sun Communities Operating Limited Partnership of March 30, 1999, dated as of June 11, 1999 (filed herewith)
10.16 Amendment to Subordinated Loan Agreement between Bingham Financial Services Corporation and Sun Communities Operating Limited Partnership, dated as of June 11, 1999 (filed herewith)
EXHIBIT NUMBER DESCRIPTION - ------- -----------
10.17 Amended and Restated Master Repurchase Agreement dated October 5, 1998, by and among Bloomfield Acceptance Company, L.L.C., MHFC, Inc. and Lehman Commercial Paper Inc. Omitted from such exhibit, as filed, are the remaining exhibits referenced in such agreement. The Company will furnish supplementally a copy of any such exhibits to the Commission upon request (Incorporated by reference to the Company's Current Report on Form 10-K, for the year ended September 30, 1998)
10.18 Bingham Financial Services Corporation 1997 Stock Option Plan (Incorporated by reference to the Company's Registration Statement on Form S-1; File No. 333-34453)
10.19 Detachable Warrant Agreement, dated September 30, 1997 between Bingham Financial Services Corporation and Sun Communities, Inc. (assigned to Sun Communities Operating Limited Partnership as of December 31, 1997) (incorporated by reference to the Company's Registration Statement on Form S-1; File No. 333-34453)
10.20 Form of Detachable Warrant of Bingham Financial Services Corporation dated September 30, 1997 (Incorporated by reference to the Company's Registration Statement on Form S-1; File No. 333-34453)
21 List of Subsidiaries (filed herewith)
27 Financial Data Schedule (filed herewith)