1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 2001.
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ______________
COMMISSION FILE NUMBER: 000-31747
BANNER CENTRAL FINANCE COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4821101
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
5480 EAST FERGUSON DRIVE
COMMERCE, CALIFORNIA 90022
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (323) 720-8600
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
Number of shares outstanding of the Registrant's Common Stock, as of May 14,
2001: 7,166,000
Traditional Small Business Disclosure Format. Yes [X] No [ ]
1
2
BANNER CENTRAL FINANCE COMPANY
FORM 10-QSB
INDEX
Page No.
-------------------------------------------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 2001 and December 31, 2000................ 3
Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 2001 and March 31, 2000............................................................ 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2001 and 2000...................................................................... 5
Notes to Condensed Consolidated Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................................................15
Signatures.......................................................................................................16
2
3
PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BANNER CENTRAL FINANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
ASSETS
Cash $ 266,000 $ 77,000
Finance receivables, net 19,409,000 23,709,000
Prepaid expenses and other current assets 80,000 10,000
Note receivable from affiliate 5,325,000 2,493,000
Inventory 3,180,000 3,559,000
Deferred income taxes 360,000 330,000
Property and equipment, net 3,788,000 116,000
Intangible and other assets, net 655,000 661,000
----------- -----------
TOTAL ASSETS $33,063,000 $30,955,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other current liabilities $ 929,000 $ 1,414,000
Income taxes payable 66,000 --
----------- -----------
TOTAL LIABILITIES 995,000 1,414,000
Minority interest in subsidiary 484,000 --
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Stockholders' equity 31,584,000 29,541,000
----------- -----------
Total stockholders' equity 31,584,000 29,541,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $33,063,000 $30,955,000
=========== ===========
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
3
4
BANNER CENTRAL FINANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
---------- ----------
REVENUES
Interest income $1,361,000 $1,862,000
Net sales 946,000 --
Other income 658,000 559,000
---------- ----------
Total revenues 2,965,000 2,421,000
---------- ----------
COSTS AND EXPENSES
Operating expenses 1,320,000 1,333,000
Provision for credit losses 874,000 418,000
Cost of sales 579,000 --
Depreciation and amortization 21,000 19,000
---------- ----------
Total costs and expenses 2,794,000 1,770,000
---------- ----------
Income before provision for income
Taxes 171,000 651,000
Provision for income taxes 66,000 261,000
---------- ----------
Net income $ 105,000 $ 390,000
---------- ----------
Earnings per common share (unaudited):
Basic $ 0.01 $ 0.05
Diluted $ 0.01 $ 0.05
Shares used in calculating earnings per common share:
Basic 7,166,000 7,166,000
Diluted 7,166,000 7,166,000
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
4
5
BANNER CENTRAL FINANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2001 2000
----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 105,000 $ 390,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 21,000 19,000
Provision for credit losses 874,000 418,000
Deferred income taxes -- 32,000
Changes in assets and liabilities:
Prepaid expenses and other current assets (62,000) 60,000
Inventory 379,000 324,000
Accrued expenses and other current liabilities (500,000) 326,000
Income taxes payable 66,000 --
----------- -----------
Net cash provided by operating activities 883,000 1,569,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Installment contracts and other contract receivables
collected, net of recoveries 3,426,000 1,048,000
Increase in note receivable from affiliate (4,113,000) --
Capital expenditures (7,000) --
----------- -----------
Net cash (used in) provided by investing activities (694,000) 1,048,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable -- (1,800,000)
Capital distribution to related party -- (723,000)
----------- -----------
Net cash used in financing activities -- (2,523,000)
----------- -----------
NET INCREASE IN CASH 189,000 94,000
CASH, BEGINNING OF PERIOD 77,000 72,000
----------- -----------
CASH, END OF PERIOD $ 266,000 $ 166,000
=========== ===========
CASH PAID DURING THE YEAR FOR:
INTEREST $ -- $ --
INCOME TAXES -- --
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
5
6
BANNER CENTRAL FINANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Basis of Presentation --- The condensed consolidated financial statements
of Banner Central Finance Company ("Banner Central Finance" or the "Company")
are unaudited, other than the consolidated balance sheet at December 31, 2000.
In the opinion of the Company's management, all adjustments of a normal
recurring nature necessary for a fair statement of interim periods presented
have been included. The results for interim periods are not necessarily
indicative of results to be expected for the entire year. These interim
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements for the year ended December 31, 2000, and
the notes thereto in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2000.
Banner Central Finance was formed in September 2000 and was a wholly-owned
subsidiary of Central Financial Acceptance Corporation ("Central Financial"). On
September 6, 2000 the Board of Directors of Central Financial approved a Plan of
Complete Dissolution, Liquidation and Distribution (the "Plan") under which
Central Financial's subsidiaries were reorganized into two public companies,
Banner Central Finance Company and Hispanic Express, Inc. ("Hispanic Express").
On February 28, 2001, the Plan was completed and Central Financial was dissolved
and liquidated and Central Financial distributed to its stockholders 100% of the
outstanding Common Stock of Banner Central Finance and Hispanic Express.
Pursuant to the Plan, Central Financial contributed to Banner Central Finance
its investment in subsidiaries, which are engaged in selling and financing of
automobile insurance, its consumer products receivable portfolio and its
mortgage business and contributed to Hispanic Express its investment
subsidiaries that are engaged in the small loan, travel finance and travel
services businesses.
In addition, pursuant to the Plan, Banner Central Finance and Hispanic
Express entered into certain agreements for the purpose of defining their
ongoing relationship (See Note 4), including provisions for the allocation of
certain costs and expenses. Management of Banner Central Finance believes that
such agreements provide for reasonable allocation of costs and expenses between
the parties.
The formation of Banner Central Finance has been accounted for at
historical cost, in a manner similar to a pooling of interests. The accompanying
condensed consolidated financial statements reflect the combined operations of
Banner Central Finance and its subsidiaries, as if they had been consolidated at
the beginning of the periods presented.
On February 28, 2001, Central Financial contributed 80% of the outstanding
common stock of BCE Properties II, Inc. to the Company. For financial reporting
purposes the contribution was recorded on a historical cost basis and resulted
in an increase in stockholders' equity of approximately $1,900,000. On February
28, 2001, Central Financial purchased and contributed to the Company the
business, assets and certain obligations of a retail store previously operated
by Banner Central Electric, Inc. ("Central"), an affiliated company, which it
acquired for $392,000.
Nature of Operations --- The Company (i) purchases and services consumer
finance receivables generated by the Company's customers for purchases of high
quality brand name consumer products, appliances and furniture sold by the
Company's retail store and retail stores owned by Central; (ii) provides
automobile insurance products and insurance premium financing to its customers;
and (iii) originates second trust mortgages. The Company's finance receivables
business is dependent upon the business activity of the Company's retail store
and the retail stores owned by Central, which are located in Southern
California. Central has granted the Company the exclusive right to purchase the
receivables it originates when it sells its inventory at its retail stores. The
Company generally experiences the highest demand for its financial products and
services between October and December.
6
7
2. EARNINGS PER SHARE
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed by
dividing income available to common shareholders by the weighted-average number
of shares of common stock outstanding during the period increased to include the
number of additional common shares that would have been outstanding if dilutive
potential common shares had been issued. The dilutive effect of outstanding
options is reflected in diluted earnings per share by application of the
treasury stock method. Options to purchase 491,000 shares of common stock that
were outstanding at March 31, 2001, were not included in the computation of
diluted earnings per share for the three months ended March 31, 2001 because the
options' exercise price was greater than the average market price of the
Company's common stock during this period and, therefore, the effect would be
antidilutive. Basic earnings and diluted earnings per share for the three months
ended March 31, 2000 is based on the number of shares of common stock issued by
the Company pursuant to the Plan and are assumed to be outstanding as of January
1, 2000.
The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---------- ----------
NUMERATOR:
Net income $ 105,000 $ 390,000
---------- ----------
DENOMINATOR:
Denominator for basic earnings per 7,166,000 7,166,000
Share - weighted average shares
Outstanding Effect of dilutive securities:
Dilutive options -- --
---------- ----------
Dilutive potential common shares -- --
---------- ----------
Denominator for diluted earnings per share 7,166,000 7,166,000
========== ==========
Basic earnings per share $ 0.01 $ 0.05
========== ==========
Diluted earnings per share $ 0.01 $ 0.05
========== ==========
3. CERTAIN CONSOLIDATED FINANCIAL STATEMENT DETAILS
FINANCE RECEIVABLES
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
Gross finance receivables:
Consumer product portfolio $17,326,000 $21,254,000
Mortgage portfolio 4,936,000 5,585,000
Other portfolios 347,000 508,000
----------- -----------
22,609,000 27,347,000
----------- -----------
Less:
Deferred interest and insurance 1,963,000 2,407,000
Deferred loan origination fees 464,000 548,000
Allowance for credit losses 773,000 683,000
----------- -----------
3,200,000 3,638,000
----------- -----------
Finance receivables, net $19,409,000 $23,709,000
=========== ===========
7
8
Customers are required to make monthly payments on the Company's receivable
contracts. The aggregate gross balance of accounts with payments 31 days or more
past due are:
MARCH 31. DECEMBER 31,
2001 2000
--------- ------------
Consumer Product Portfolio:
Past due 31 days plus $212,000 $257,000
======== ========
Mortgage Portfolio:
Past due 31 days plus $229,000 $394,000
======== ========
Other Portfolios:
Past due 31 days plus $ 2,000 $ 6,000
======== ========
The allowance for credit losses includes the following:
THREE MONTHS ENDED MARCH 31,
-----------------------------
2001 2000
----------- -----------
Allowance for credit losses, beginning
of the year $ 683,000 $ 1,590,000
Provision for credit losses 874,000 418,000
Charge-offs, net of recoveries (784,000) (418,000)
----------- -----------
Allowance for credit losses, end of period $ 773,000 $ 1,590,000
=========== ===========
PROPERTY AND EQUIPMENT
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
Land $1,203,000 $ --
Buildings and improvements 2,486,000 8,000
Furniture, equipment and software 174,000 168,000
---------- ----------
3,863,000 176,000
Less: Accumulated depreciation 75,000 60,000
---------- ----------
$3,788,000 $ 116,000
========== ==========
INTANGIBLE AND OTHER ASSETS
MARCH 31, DECEMBER 31,
2001 2000
--------- ----------
Goodwill $780,000 $780,000
Less: Accumulated amortization 125,000 119,000
-------- --------
$655,000 $661,000
======== ========
8
9
OTHER INCOME
THREE MONTHS ENDED MARCH 31,
--------------------------------
2001 2000
-------- ---------
Late and extension charges $223,000 $257,000
Insurance products and other 435,000 302,000
-------- --------
$658,000 $559,000
======== ========
4. RELATED PARTY TRANSACTIONS
In connection with its formation, the Company, Central Financial, Hispanic
Express and Central entered into certain agreements; including, the Financing
Agreement, Operating Agreement and the Tax Sharing Agreement, for defining their
ongoing relationships.
The Financing Agreement grants the Company the exclusive right to provide
financing to Central customers for a term of ten years from the date of the Plan
and provides that any contracts purchased pursuant to this agreement will be at
face value. As part of the Financing Agreement, the Company has agreed to
provide Central with up to $6.0 million of inventory or inventory financing as
long as the Financing Agreement remains in effect and Central has agreed to
provide the Company, at no charge, an amount of floor space at Central's stores
as the Company from time to time requests. In connection with the Financing
Agreement, Central purchased $1.9 million and $4.5 million of inventory from the
Company during the three months ended March 31, 2001 and 2000, respectively. The
Company can terminate the Financing Agreement at any time upon one year's prior
written notice to Central.
The Operating Agreement provides, among other things, that Hispanic Express
or its affiliates are obligated to provide to the Company, and the Company is
obligated to utilize, certain services, including receivables servicing,
collections, payments, applications, accounting, management information systems
and employee benefits. The Operating Agreement also provides that Hispanic
Express will guarantee up to $4,000,000 of bank or similar financing of the
Company, pursuant to certain conditions. To the extent that such services
directly relate to the finance portion of the consumer products business
contributed by Central Financial to the Company, or to the extent that other
costs are incurred by Hispanic Express or its affiliates that directly relate to
the Company, the Company is obligated to pay Hispanic Express or its affiliates
the actual cost of providing such services or incurring such costs. The
Operating Agreement continues until terminated by either the Company or Hispanic
Express upon one year's prior written notice. Termination may be made on a
service-by-service basis or in total. Allocated expenses totaled $525,000, and
$912,000 for the three months ended March 31, 2001 and 2000, respectively.
The Company, Central Financial and Hispanic Express entered into a Tax
Sharing Agreement which provides, among other things, for the payment of
federal, state and other income tax remittances or refunds for periods during
which the Company was included in the same consolidated group for federal income
tax purposes, the allocation of responsibility for the filing of such tax
returns and various related matters. For periods in which the Company was
included in Central Financial's consolidated federal income tax returns, the
Company will be required to pay its allocable portion of the consolidated
federal, state and other income tax liabilities of the group and will be
entitled to receive refunds determined as if the Company had filed separate
income tax returns. With respect to Central Financial's liability for payment of
taxes for all periods during which the Company was so included in Central
Financial's consolidated federal income tax returns, the Company will indemnify
Central Financial for all federal, state and other income tax liabilities of the
Company for such periods. February 28, 2001 was the last day on which the
Company was required to be included in Central Financial's consolidated federal
income tax returns.
In connection with the contribution of the business, assets and assumption
of certain obligations by Central Financial of a retail store owned by Central,
an affiliated company, Central and the Company have agreed to use allocation
methods agreeable to both parties for the allocation of certain corporate
expenses of Central. In connection with the acquisition of the retail store,
the Company has agreed to assume the obligation of Central to sell certain
inventory at cost to Credit Starters LLC, an affiliated Company.
For the three months ended March 31, 2000, the Company made a capital
distributions to Central Financial totaling $723,000. The capital transactions
for the periods presented reflect contributions and distributions arising from
the changing levels of the Company's receivables portfolios.
At March 31, 2001, the Company had a note receivable from Hispanic Express
in the amount of $5,325,000 which bears interest per annum at the prime rate
calculated at the beginning of each month (8.0% at March 31, 2001) and is
payable on March 31, 2004, unless an event of default occurs at which time the
note becomes immediately due. Interest income earned on notes receivable from
Hispanic Express was $23,000 in the three months ended March 31, 2001.
9
10
5. SEGMENT INFORMATION
The Company has identified four reporting segments in accordance with SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information",
the Consumer Receivables, Mortgage Loans, Other and Corporate Overhead. The
factors for determining the reportable segments were based on the distinct
nature of their operations. Other includes primarily the operations of the
retail store and automobile insurance operations in 2001 and the automobile
insurance and insurance premium finance operations in 2000.
The accounting policies of these reportable segments are the same as those
described in the summary of significant accounting policies in the Company's
2000 Form 10-KSB. The Company evaluates the performance of its operating
segments based on revenues and operating income. Operating income for each
segment includes revenue and operating expenses directly attributable to the
segment. Operating income for each segment excludes other income and expense and
certain expenses that are managed outside the reportable segment. Costs excluded
from segment operating income include various corporate expenses and income
taxes. Corporate expenses include separately managed general and administrative
expenses. Summary information by segment follows:
REVENUES
THREE MONTHS ENDED MARCH 31,
----------------------------
2001 2000
---------- -----------
Consumer Receivables $1,410,000 $1,913,000
Mortgage Loans 419,000 288,000
Other 1,136,000 220,000
Corporate Overhead -- --
---------- ----------
Total revenues $2,965,000 $2,421,000
========== ==========
INCOME FROM OPERATIONS
THREE MONTHS ENDED MARCH 31,
-------------------------
2001 2000
--------- ---------
Consumer Receivables $ 199,000 $ 740,000
Mortgage Loans 123,000 (8,000)
Other 6,000 (31,000)
Corporate Overhead (157,000) (50,000)
--------- ---------
Income from operations $ 171,000 $ 651,000
========= =========
TOTAL ASSETS
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
Consumer Receivables $28,003,000 $24,886,000
Mortgage Loans 4,358,000 4,913,000
Other 702,000 1,156,000
Corporate Overhead -- --
----------- -----------
Total assets $33,063,000 $30,955,000
=========== ===========
10
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain matters discussed in this Quarterly Report on Form 10-QSB may
constitute forward-looking statements under Section 27A of the Securities Act of
1933, as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). These statements may
involve risks and uncertainties. These forward-looking statements relate to,
among other things, expectations of the business environment in which Banner
Central Finance Company and its subsidiaries (the "Company" which may be
referred to as "we" or "us," when referring only to the parent company) operate
in, projections of future performance, perceived opportunities in the market and
statements regarding our mission and vision. Our actual results, performance, or
achievements may differ significantly from the results, performance, or
achievements expressed or implied in such forward-looking statements. For
discussion of the factors that might cause such a difference, see "Item 1.
Description of Business -- Business Considerations and Certain Factors that May
Affect Future Results of Operations and Stock Price" contained in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2000, as amended.
FINANCIAL TRENDS
PORTFOLIOS
The following sets forth certain information relating to our portfolios for
the periods indicated:
CONSUMER PRODUCT PORTFOLIO
THREE MONTHS ENDED MARCH 31,
-----------------------------
2001 2000
----------- -----------
Gross receivable (at end of period) $17,326,000 $25,680,000
Deferred interest (at end of period) 1,859,000 2,528,000
----------- -----------
Net receivable (at end of period) 15,467,000 23,152,000
Deferred insurance (at end of period) 31,000 59,000
----------- -----------
Net carrying value (at end of period) $15,436,000 $23,093,000
=========== ===========
Average net receivable (1) $17,574,000 $23,960,000
Number of contracts (at end of period) 41,900 49,383
Average net contract balance (at end of period) $ 369 $ 468
Total interest income $ 1,140,000 $ 1,508,000
Late charge and extension fee income 220,000 243,000
Provision for credit losses $ 797,000 $ 418,000
Provision for credit loss as a percentage of
Average net receivable (2) 18.1% 7.0%
Net write-offs $ 685,000 $ 418,000
Net write-offs as a percentage of average net
Receivable (2) 15.6% 7.0%
Average interest rate on average net
Receivable (2) 25.9% 25.2%
(1) Average net receivable is defined as the average gross receivables, less
the average deferred interest and insurance.
(2) Percentages for the three months ended March 31, 2001 and 2000 are
annualized.
11
12
MORTGAGE PORTFOLIO
At March 31, 2001 and 2000, the gross receivables of the mortgage portfolio
were $4.9 million, and $5.6 million, respectively. The number of mortgage loans
outstanding at March 31, 2001 and 2000 were 629 and 638, respectively. The
average interest rate on the portfolio for the three months ended March 31, 2001
and 2000 was 17.9%, and 14.7%, respectively.
At March 31, 2001 and 2000, there were $0.2 million of receivables with
balances over 31 days past due.
DELINQUENCY EXPERIENCE AND ALLOWANCE FOR CREDIT LOSSES
Borrowers under our contracts are required to make monthly payments. The
following table sets forth our delinquency experience for accounts with payments
31 days or more past due and allowance for credit losses for our finance
receivables.
FINANCE RECEIVABLES (1)
THREE MONTHS ENDED MARCH 31,
-----------------------------
2001 2000
------------ ------------
Past due accounts 31 days or more
(gross receivable) $ 214,000 $ 1,618,000
Accounts with payments 31 days or
More past due as a percentage of end
of period gross receivables 1.2% 6.3%
Allowance for credit losses $ 612,000 $ 1,529,000
Allowance for credit losses as a percentage
of net receivables 3.9% 6.4%
(1) Includes receivables in our consumer products, independent retailer and
premium finance portfolios.
Our finance receivables accounts which were 31 days or more past due
decreased to $0.2 million at March 31, 2001 compared to $1.6 million at March
31, 2000. These declines primarily reflect the decline in the aggregate level of
our finance receivables portfolios and accelerated write-offs in the fourth
quarter of 2000. As a percentage of the end of period gross finance receivables,
accounts with 31 days or more past due decreased to 1.2% at March 31, 2001 from
6.3% at March 31, 2000. We believe the rise in the provision for credit losses
and write-offs during 2001 was a result of excessive credit burdens for some
customers partly due to an aggressive over extension of credit in the
marketplace in which we compete and partly due to a bus strike which commenced
in September 2000 and lasted approximately five weeks. The allowance for credit
losses at March 31, 2001 decreased to $0.6 million from $1.5 million at March
31, 2000, expressed as percentage of net receivables the allowance for credit
losses decreased to 3.9% at March 31, 2001 compared to 6.4% at March 31, 2000.
12
13
The following tables summarize the results of operations of the Company for
the three months ended March 31, 2001 and 2000:
THREE MONTHS ENDED
MARCH 31,
--------------------------
2001 2000
---------- ----------
REVENUES
Interest income $1,361,000 $1,862,000
Net sales 946,000 --
Other income 658,000 559,000
---------- ----------
Total revenues 2,965,000 2,421,000
---------- ----------
COSTS AND EXPENSES
Operating expenses 1,320,000 1,333,000
Provision for credit losses 874,000 418,000
Cost of sales 579,000 --
Depreciation and amortization 21,000 19,000
---------- ----------
Total costs and expenses 2,794,000 1,770,000
---------- ----------
Income before provision for income
Taxes 171,000 651,000
Provision for income taxes 66,000 261,000
---------- ----------
Net income $ 105,000 $ 390,000
========== ==========
THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THE RESULTS OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 2000
Total revenue in the three months ended March 31, 2001 increased to $3.0
million from $2.4 million in the three months ended March 31, 2000, an increase
of $0.6 million or 22.5%.
Interest income for the three months ended March 31, 2001 decreased to $1.4
million from $1.9 million in the three months ended March 31, 2000, a decrease
of $0.5 million or 26.9%. This decrease was primarily due to a decrease in our
Consumer Products Portfolio as a result of a decreased level of receivables
purchased from Central, reflecting Central's declining retail sales. For the
three months ended March 31, 2001, our net consumer products portfolio averaged
$17.6 million compared to $24.0 million in the three months ended March 31,
2000.
Net sales include retail sales from the retail store from the date Central
Financial contributed the operations to the Company on February 28, 2001. Prior
to contribution, the retail store was owned and operated by Central.
Other income for the three months ended March 31, 2001 increased to $0.7
million from $0.6 million in the three months ended March 31, 2000, an increase
of $0.1 million or 17.7%. Other income primarily includes late charges and other
fees charged on the receivables portfolio, fees earned from originating second
trust mortgages for other financial institutions, and commissions and fees
earned from the sale of automobile insurance. The increase is primarily due to
an increase in fees earned from originating second trust mortgages for other
financial institutions.
Operating expenses for each of the three months ended March 31, 2001 and
2000 were $1.3 million. Operating expenses relating to the purchased consumer
finance receivables business decreased in the three months ended March 31, 2001
by $0.4 as compare to the same period in 2000. This decrease was offset by $0.4
million of operating expenses of the retail store in the first quarter of 2001.
The provision for credit losses for the three months ended March 31, 2001
increased to $0.9 million from $0.4 million in the three months ended March 31,
2000. This increase was primarily attributable to increased write-offs and
delinquencies in the consumer products portfolio. In the three months ended
March 31, 2001, the Company also increased the provision for credit losses for
the mortgage portfolio by $0.1 million.
13
14
Cost of sales include the cost of retail sales from the retail store from
the date Central Financial contributed the operations to the Company on February
28, 2001. Cost of sales as a percentage of net retail sales was 61.2% in the
first quarter of 2001. Prior to this date, the retail store was owned and
operated by Central
As a result of the foregoing factors, net income in the three months ended
March 31, 2001 decreased to $0.1 million from $0.4 million in the three months
ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
We primarily finance our operations through the cash flow generated from
operations and the liquidation of our receivables portfolios and, historically,
from capital contributions from Central Financial.
Net cash flow provided by operating activities totaled $0.9 million and
$1.6 million in the three months ended March 31, 2001 and 2000, respectively.
The source of cash primarily consisted of net operating income after non-cash
items. Non-cash items included depreciation and amortization, provision for
credit losses and deferred income taxes. Other items affecting cash flows from
operating activities included cash flows from increases (decreases) prepaid
expenses and other current assets, inventory, accrued expenses and other
current liabilities, and income taxes payable.
Net cash used in investing activities totaled $0.7 million in the three
months ended March 31, 2001 and net cash provided by investing activities
totaled $1.0 million in the three months ended March 31, 2000. Net cash provided
by investing activities consisted of installment contracts and other contract
receivables collected in the amount of $3.4 million and $1.0 million in the
three months ended March 31, 2001 and 2000, respectively, offset by an increase
in notes receivable from affiliate of $4.1 million in 2001.
Net cash used in financing activities totaled $2.5 million for the three
months ended March 31, 2000. Net cash used in financing activities consisted of
repayment of notes payable totaling $1.8 million and capital distributions
totaling $0.7 million to Central Financial in the three months ended March 31,
2000.
We presently do not have a bank line of credit. Pursuant to the Operating
Agreement with Hispanic Express, Hispanic Express has agreed to guarantee up to
$4.0 million of bank borrowings to acquire consumer receivables that we may
purchase from Banner's Central Electric. Should we decide to expand our mortgage
business, we will need to obtain a bank line of credit.
We expect that our existing capital resources will adequately satisfy our
working capital requirements for the next 12 months. We anticipate that the
level of receivables we generate from the financing of retail sales at our
retail store and purchased receivables from Central will continue to decline in
the future and will provide us with capital resources in excess of our working
capital requirements. Our capital resources will be further enhanced should we
liquidate our portfolio of second trust mortgages. To date we have not
identified any other businesses in which to invest our excess capital resources.
Our Board of Directors has authorized open-market purchases of up to 3
million shares of our common stock, subject to applicable law and depending on
market considerations and other considerations that may affect open market
repurchases of such shares pursuant to authorization from time to time. Any
decision to purchase such shares will be based on the price of such shares and
whether we have capital available for such purchase.
14
15
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.9 Note Receivable from Hispanic Express, Inc.
(b) Reports on Form 8-K
None.
15
16
SIGNATURES
Pursuant to the requirements 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.
BANNER CENTRAL FINANCE COMPANY
May 15, 2001 /s/ Gary M Cypres
-----------------------------------------
Gary M. Cypres
Chairman of the Board, Chief Executive
Officer and Chief Financial Officer
16