-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JCBw/+7uJQZPsynfvV9SFmjB/QeuGOEnAgF87Kgq4e6g5QR4o8WaZeBpgdrNCgIk fZqpHs2KQrADRXDaxA4NWQ== 0000912057-96-026605.txt : 19961118 0000912057-96-026605.hdr.sgml : 19961118 ACCESSION NUMBER: 0000912057-96-026605 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BUSINESS FINANCIAL SERVICES INC /DE/ CENTRAL INDEX KEY: 0000772349 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 870418807 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-14268 FILM NUMBER: 96666801 BUSINESS ADDRESS: STREET 1: 111 PRESIDENTIAL BLVD STREET 2: STE 215 CITY: BALA CYNWYD STATE: PA ZIP: 19004 BUSINESS PHONE: 6106682440 MAIL ADDRESS: STREET 1: 111 PRESIDENTIAL BLVD STE 215 CITY: BALA CYNWYD STATE: PA ZIP: 19004 10QSB 1 INITIAL FILING U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996. [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____ COMMISSION FILE NUMBER: 0-22474 AMERICAN BUSINESS FINANCIAL SERVICES, INC (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) DELAWARE 87-0418807 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 111 PRESIDENTIAL BOULEVARD, BALA CYNWYD, PA 19004 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (610) 668-2440 (ISSUER'S TELEPHONE NUMBER) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of November 1, 1996, there were 2,353,166 shares of the registrant's Common Stock issued and outstanding. AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES FORM 10-QSB - SEPTEMBER 30, 1996 INDEX Part I Financial Information Page No. Item 1. Financial Statements Consolidated Balance Sheet - September 30, 1996 1 Consolidated Statements of Operations - Three Months Ended September 30, 1996 and 1995 2 Consolidated Statement of Stockholders' Equity - Three Months Ended September 30, 1996 3 Consolidated Statements of Cash Flows - Three Months Ended September 30, 1996 and 1995 4 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Part II Other Information Item 6. Exhibits and Reports on Form 8-K PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS September 30, 1996 ------------- (unaudited) Cash and cash equivalents $ 8,812,590 Loans and leases receivable - net Available for sale 10,894,302 Other 579,134 Other receivables 20,762,050 Prepaid expenses 2,476,037 Property and equipment - net of accumulated depreciation and amortization 1,577,699 Other assets 6,873,364 ------------- Total assets $51,975,176 ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Debt $37,876,268 Accounts payable and accrued expenses 4,286,597 Deferred income taxes 2,128,539 Other liabilities 2,171,913 ------------- Total liabilities 46,463,317 ------------- STOCKHOLDERS' EQUITY Preferred stock, no par value Authorized 1,000,000 shares Issued and outstanding, none Common stock, par value $.001 Authorized 9,000,000 shares Issued and outstanding 2,353,166 shares 2,353 Additional paid-in capital 1,931,699 Retained earnings 4,177,839 ------------ 6,111,891 Less note receivable 600,032 ------------ Total stockholder's equity 5,511,859 ------------ Total liabilities and stockholders' equity $51,975,176 ------------ ------------ See notes to consolidated statements. -1- AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended September 30, ----------------------- 1996 1995 --------- ------- (unaudited) (unaudited) REVENUES Gain on sale of loans $4,373,235 $ 55,362 Interest and fees 1,135,228 888,674 Other income 75,647 466 ---------- ------------ 5,584,110 944,502 EXPENSES Interest 1,041,659 451,790 Provision for credit losses 300,000 44,824 Payroll and related costs 198,611 130,593 Sales and marketing 1,369,253 492,219 General and administrative 896,678 261,030 ---------- ------------ 3,806,201 1,380,456 INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (RECOVERABLE) 1,777,909 (435,954) PROVISION FOR INCOME TAXES (RECOVERABLE) 622,268 (152,584) ---------- ------------ NET INCOME (LOSS) $1,155,641 $ (283,370) ---------- ------------ NET INCOME (LOSS) PER SHARE $ .47 $ (.13) ---------- ------------ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,448,031 2,128,154 See Notes to consolidated financial statements. -2- AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
Common Stock ------------------ Additional Total Number of Paid-In Retained Stockholders' Shares Amount Capital Earnings Equity --------- ------- ---------- -------- ------------- BALANCE, July 1, 1996 2,353,166 $2,353 $1,931,699 $3,057,495 $4,991,547 Cash dividends ($.015 per share) (35,297) (35,297) Net income 1,155,641 1,155,641 ---------- ------- ---------- ----------- ------------ BALANCE, September 30, 1996 2,353,166 $2,353 $1,931,699 $4,177,839 $6,111,891 ---------- ------- ---------- ----------- ------------
See notes to accompanying financial statements. -3- AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH
Three Months Ended September 30, ---------------------------- 1996 1995 -------------- ------------ (unaudited) (unaudited) CASH FLOW FROM OPERATIONS Net income (loss) $ 1,155,641 $ (283,370) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Amortization of loan origination cost 86,321 75,058 Amortization of deferred servicing rights 51,643 Provision for credit losses 300,000 44,824 Accounts written off (50,443) Depreciation and amortization of property and equipment 106,980 68,472 Amortization of financing and organization costs 127,933 109,840 Increase (Decrease) in deferred income taxes 622,268 (152,584) Gain on sale of loans (4,373,235) (55,362) Increase in accrued interest and fees on loans receivable (44,809) (72,097) (Increase) Decrease in other receivables (1,083,286) 365,267 Increase in prepaid expenses (1,134,877) (216,585) (Increase) decrease in other assets 299,466 (28,447) Increase in accounts payable and accrued expenses 1,154,427 262,450 Increase in other liabilities 295,107 279,968 ------------ ----------- Net cash provided by (used in) operating activities (2,486,864) 397,434 ------------ ----------- CASH FLOW FROM INVESTING ACTIVITIES Loan and leases originated (22,971,918) (7,876,031) Loan and lease payments received 856,130 355,338 Proceeds of loans sold 26,676,311 958,413 Purchase of property and equipment (231,783) (477,338) Decrease in securitization gain receivable -- 14,839 Principal receipts on investment 16,245 5,245 ------------ ----------- Net cash provided by (used in) investing activities 4,344,985 (7,019,534) ------------ ----------- CASH FLOW FROM FINANCING ACTIVITIES Financing costs incurred (244,368) (92,225) Net principal payments on revolving line of credit (2,348,465) -- Dividends paid (35,297) -- Principal payments on notes payable - other (104) (1,296) Proceeds from issuance of subordinated debentures 5,945,884 3,724,674 Principal payments on subordinated debentures (1,708,450) (637,976) ------------ ----------- Net cash provided by financing activities 1,609,200 2,993,177 ------------ -----------
-4- (continued) AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH
Three Months Ended September 30, ---------------------------- 1996 1995 -------------- ------------ (unaudited) (unaudited) NET INCREASE (DECREASE) IN CASH 3,467,321 (3,628,923) CASH AND CASH EQUIVALENTS - BEGINNING 5,345,269 4,734,368 ------------ ----------- CASH AND CASH EQUIVALENTS - ENDING $ 8,812,590 $ 1,105,445 ------------ ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for Interest $ 888,622 $ 211,580 Income taxes -- 75,000 Noncash transactions recorded in connection with the sale of and foreclosure on loans receivable Increase in other receivables $ 5,583,603 $ 59,405 Increase in deferred servicing rights 574,210 -- Increase in fixed assets 51,425 --
During the three months ended September 30, 1995, stock options for 225,012 shares of common stock were exercised. The shares with a price of $600,032 were issued in exchange for a note receivable for the same amount. See notes to consolidated financial statements. -5- AMERICAN BUSINESS FINANCIAL SERVICES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 1. BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying consolidated financial statements are unaudited and include the accounts of American Business Financial Services, Inc. (ABFS) and its wholly owned subsidiaries, collectively the "Company". All significant inter-company transactions and balances have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring accruals) have been made which are necessary to present fairly the financial position of the Company as of September 30, 1996, and the results of its operations for the three months ended September 30, 1996 and 1995. Results of operations for the three months ended September 30, 1996 are not necessarily indicative of the results to be experienced for fiscal 1997. The statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principals have been omitted pursuant to such rules and regulations. The accompanying notes should be read in conjunction with the Company's June 30, 1996 annual financial statements. 1996 amounts have been reclassified to conform to current account classifications. 2. DEBT Debt is summarized as follows: Subordinated debentures (a) $36,532,442 Subordinated debentures (b) 1,325,421 Note payable (c) 18,355 ----------- $37,876,268 ----------- (a) This represents aggregate sales made pursuant to total public offerings of debentures. These debentures mature during the period of October 1996 through September 2005 and are subordinate to all of the Company's Senior Indebtedness. (b) This represents aggregate sales made pursuant to a prior public offering of debentures. These debentures mature in November 1996 through October 1998 and are subordinate to all of the Company's Senior Indebtedness. Payment of principal and interest is guaranteed by ABC but such guarantee is subordinate to ABC's Senior Indebtedness. (c) This represents an equipment collateralized note payable in monthly installments of $655 including interest at 11.8%; final payment due in March 1999. -6- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report, and the financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-KSB for the year ended June 30, 1996. BALANCE SHEET INFORMATION Total assets increased $5,081,013, or 11%, to $51,975,176 at September 30, 1996 from $46,894,163 at June 30, 1996. The primary reason for the increase was increases in cash and other receivables. Cash increased $3,467,321, or 65%, from $5,345,269 at June 30, 1996 to $8,812,590 at September 30, 1996 as a result of the net cash received from a securitization and additional sales of subordinated debentures. Other receivables increased $6,671,508, or 47%, from $14,090,542 at June 30, 1996 due to the Company's retention of the residual interest in a trust in connection with its loan securitization. Total liabilities increased $3,960,669, or 9%, from $42,502,648 at June 30, 1996 to $46,463,317 at September 30, 1996 primarily due to an increase in debt. The increase in debt was due to net sales of subordinated debentures of $4,237,332 during the three months ended September 30, 1996 and a net decrease in institutional debt of $2,348,465. At September 30, 1996, the Company had approximately $37,850,000 of subordinated debentures outstanding. The Company's ratio of total debt to equity at September 30, 1996 was 6.8:1 as compared to 8.2:1 at June 30, 1996. Stockholders' equity increased $1,120,344, or 25%, due to an increase in retained earnings net of dividends paid. RESULTS OF OPERATIONS Revenues increased $4,639,608 or 491% to $5,584,110 in the first quarter of fiscal 1997 from $944,502 for the first quarter of fiscal 1996. As described in more detail below, the increase in revenues was primarily the result of gains on sales of loans through securitizations. Gain on sale of loans increased $4,357,087 to $4,412,449 for the quarter ended September 30, 1996 from $55,362 for the comparable period of 1995. This increase was the result of a sale of loans through a securitization in September of 1996. The Company recognized a gain of $4,412,449 (representing the fair value of residual certificates of $5,563,603 less $1,151,154 of costs associated with the transaction) on the Company's participation in $26.9 million of loans sold through a $40.0 million securitization. The balance of $13.1 million was in the form of a pre-funded account which the Company will complete in the second quarter of fiscal year 1997. The Company did not participate in a securitization during the corresponding quarter of the prior fiscal year. Interest and fee income consists of interest income, fee income and amortization of origination costs. Interest and fee income increased $246,554 or 28% to $1,135,228 in the quarter ended September 30, 1996 from $888,674 in the quarter ended September 1995 due to an increase in interest income as a result of a higher amount of loans retained in portfolio prior to the securitization. Interest income consists of interest income the Company earns on the loans and leases it holds in its portfolio. Interest income from loans and leases held in portfolio increased $468,689 to $941,700 for the first quarter of fiscal 1997 or a 99% increase over the $473,011 reported for the first quarter of fiscal 1996. -7- The increase was attributable to increased originations of consumer and business loans and leases, as well as management's decision to retain home equity loans in portfolio in contemplation of future securitizations. During the three months ended September 30, 1996, the Company originated approximately $12.7 million of consumer loans, $7.4 million of business loans and $1.9 million of leases. During the comparable period of fiscal 1996, the Company originated $4.8 million of consumer loans, $7.0 million of business loans and $1.3 million of leases. The majority of the consumer loans originated during the comparable period were sold to third parties (with servicing released). Beginning in October 1995, as part of the Company's securitization strategy, the Company placed consumer loans into its held for sale portfolio until sold as part of a securitization. As a result of this strategy, the Company has the ability to hold a greater amount of loans in its portfolio thereby generating an increase in interest income and a decrease in fee income, as described below. Fee income, includes primarily premium and points earned when loans are closed, funded and immediately sold to unrelated third party purchasers. Fee income decreased $195,091 from $474,939 for the three months ended September 30, 1995 to $279,848 for the three months ended September 30, 1996. The reduction in fee income was due to the Company's current strategy of building a portfolio of loans and securitizing them. As a result of this strategy, the Company is not selling as many loans upon origination, thereby reducing fee income. The third component of interest and fee income is amortization of origination costs. During the three months ended September 30, 1996 amortization of origination costs was $86,320 compared to $74,507 recognized during the comparable period last year. The increase was partly attributable to an increase in the amortization of lease originations of $29,254 caused by growth in the lease portfolio. Amortization of loan origination costs, not considering the effect of leases, actually decreased by $17,441. The amount of origination cost recognized is in part determined by the length of time a loan is held in portfolio. In the current fiscal quarter, the Company securitized its loan portfolio on August 30th resulting in the average loan being held in portfolio for one month. No loans were securitized in the comparable period resulting in an average holding period of 1.5 months. Total expenses increased $2,425,745 or 176% to $3,806,201 for the three months ended September 30, 1996 from $1,380,456 for the three months ended September 30, 1995. As described in more detail below, this increase was primarily a result of increased interest and sales expense attributable to the Company's continued sale of subordinated debentures. Also contributing to the increase in total expenses was increases in provision for credit losses, payroll, sales and marketing and general and administrative expenses related to increased loan and lease originations. Interest expense increased $589,869 or 77% to $1,041,659 for the three months ended September 30, 1996 from $451,790 for the three months ended September 30, 1995. The increase was primarily attributable to an increase in the amount of the Company's subordinated debt outstanding. Average subordinated debt outstanding was $35.8 million during the first quarter of fiscal 1997 as compared to $19.9 million during the first quarter of fiscal 1996. Average interest rates paid on the subordinated debt increased from 8.81% to 8.99%. Interest expense on lines of credit utilized by the Company during the three months ended September 30, 1996 was $138,879. The lines were not in use during the comparable period of fiscal 1996. The Company maintains an allowance for credit losses based upon management's estimate of the expected collectability of loans and leases outstanding. The allowance is determined based upon management's estimate of potential losses in the portfolio in light of economic conditions, the credit history of the borrowers, and the nature and characteristics of the underlying collateral as well as the Company's historical loss experience. Although the Company's historical loss experience has been minimal, the increase in the allowance reflects the increase in originations. Although the Company maintains its allowance for credit losses at the level it considers adequate to provide for potential losses, there can be no assurances that such losses will not exceed the estimated amounts or that additional provisions will not be required. The allowance is increased through an increase in the provision for credit losses. The provision for credit losses increased by $255,176 to $300,000 from $44,824 in the prior period. The increase in the provision for credit losses was due to the Company's growing loan and lease portfolios. The Company had an allowance for credit losses of $956,982 at September 30, 1996. The ratio of the allowance for credit losses to total net loan and lease receivables, owned and serviced, was 1.0% at September 30, 1996 as compared to .81% at September 30, 1995. -8- Payroll and related costs increased $68,018, or 52%, to $198,611 for the three months ended September 30, 1996 from $130,593 for the three months ended September 30, 1995. The increase was due to an increase in the number of administrative employees as a result of the Company's growth in loan and lease originations and increase in loans serviced for others. Management anticipates that such expense will continue to increase in the future as the Company's expansion and increasing originations continue. Sales and marketing expenses increased $877,034, or 178%, to $1,369,253 for the quarter ended September 30, 1996 from $492,219 in the comparable quarter of fiscal 1996. The increase is attributable to increases in advertising costs as a result of increased newspaper, direct mail and radio advertising related to the Company's sales of debentures and loan products. In addition, the Company initiated a television advertising program for the sale of its home equity product. Subject to market conditions, the Company plans to expand its service area along the Atlantic Coast. As a result, it is therefore anticipated that sales and marketing expenses will continue to increase in the future. General and administrative expenses increased $635,648, or 244%, to $896,678 for the quarter ended September 30, 1996 from $261,030 for the quarter ended September 30, 1995. The increase was primarily attributable to increases in rent, telephone, office expense, professional fees and other expenses incurred as a result of previously discussed increases in loan and lease originations and loan servicing experienced during the first quarter of fiscal 1997. Net income increased $1,439,011 to $1,155,641 for the three months ended September 30, 1996 from a net loss of $283,370 for the three months ended September 30, 1995. As a result of the increase, earnings per share increased to $.47 on weighted average common shares outstanding of 2,448,301 compared to a loss per share of $.13 on weighted average common shares outstanding of 2,128,154. LIQUIDITY AND CAPITAL RESOURCES The Company continues to fund its loans principally through (i) institutional debt financing, (ii) the securitization and sales of loans which it purchases or originates, (iii) the sale of the Company's registered subordinated debentures, and (iv) retained earnings. The Company's cash requirements include the funding of loan originations, payment of interest expense, funding over-collaterization requirements, operating expenses and capital expenditures. During the three months ended September 30, 1996 the Company sold approximately $5.9 million in principal amount of subordinated debentures pursuant to a registered offering with varying maturities ranging from three months to ten years. The proceeds of such debenture sales have been used to fund general operating and lending activities. The Company intends to meet its obligations to repay such debentures as they mature with income generated through its lending activities and funds generated through repayment of outstanding loans and leases. The repayment of such obligations should not affect the Company's operations. During the first quarter of fiscal 1997, the Company completed the initial portion of a loan securitization involving $26.9 of business and home equity loans. The securitization resulted in proceeds of approximately $26.7 million. The Company intends to utilize the proceeds of the securitization to fund the origination of new loans and leases. The Company maintains a $3.5 million revolving line of credit for the funding of business loans and two revolving lines of credit totaling $32.5 million for the funding of consumer loans. None of the lines were in use at September 30,1996. -9- PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit: NONE (b) Form 8-K: NONE -10- SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN BUSINESS FINANCIAL SERVICES, INC. DATE: 11/14/96 BY: /S/ DAVID M. LEVIN ------------------ David M. Levin Senior Vice President and Chief Financial Officer -11- AMERICAN BUSINESS FINANCIAL SERVICES, INC. INDEX TO EXHIBITS S-B Exhibit NUMBER NAME 27 Financial Data Schedule EX-27 2 EXH 27
5 This schedule contains summary financial information extracted from the consolidated financial statements of American Business Financial Services, Inc. and Subsidiaries as of September 30, 1996 and the three months then ended and is qualified in its entirety by reference to such financial statements. 1 3-MOS JUN-30-1997 JUL-01-1996 SEP-30-1996 8,812,590 0 12,430,418 956,982 0 23,233,217 2,503,539 925,840 51,975,176 26,135,227 0 0 0 2,353 6,109,538 51,975,176 0 5,584,110 0 3,806,201 0 300,000 1,041,659 1,777,709 622,268 1,155,641 0 0 0 1,155,641 47 47
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