| Each of the Company's businesses is highly competitive. Competition in the
Company's markets can take many forms, including convenience in obtaining a loan, customer service, marketing and distribution channels, amount and terms of the loan, loan origination fees and interest rates. Many of the Company's competitors are substantially larger and have considerably greater financial, technical and marketing resources than the Company.
The Company's competitors in subprime mortgage finance include other consumer finance companies, mortgage banking companies, commercial banks, credit unions, savings associations and insurance companies. The Company competes in the insurance premium finance business with other specialty finance companies, independent insurance agents who offer premium finance services, captive premium finance affiliates of insurance companies and direct bill plans established by insurance companies. The Company competes in the subprime automobile finance industry with commercial banks, the captive finance affiliates of automobile manufacturers, savings associations and companies specializing in subprime automobile finance, many of which have established relationships with automobile dealerships and may offer dealerships or their customers other forms of financing, including dealer floor plan financing and lending, which are not offered by the Company. In attracting deposits, the Bank competes primarily with other savings institutions, commercial banks, brokerage firms, mutual funds, credit unions and other types of investment companies. The profitability of the Company's lending activities and the low barriers to entry could attract additional competitors. Certain large, national finance companies and mortgage originators have announced their intention to adapt
their mortgage loan origination programs and allocate resources to the
origination of subprime loans. The Company and its competitors may also face
increasing competition from government-sponsored entities, such as the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FHLMC currently purchases what it terms "Alternative-A" mortgage loans and has announced its intention to purchase what it terms "A-" mortgage loans by the end of 1997. In addition, FHLMC has expressed its intention to purchase so-called "B" and "C" mortgage loans in the future. FHLMC also has purchased securities backed by subprime mortgage loans and has re-securitized them for resale. Additional competition may lower the rates the Company can charge borrowers, reduce the volume of the Company's loan originations and increase demand for the Company's key employees and the potential that such employees will leave the Company for its competitors. Fluctuations in interest rates and general and localized economic conditions also may affect the competition the Company faces. Competitors with lower costs of capital have a competitive advantage over the Company. During periods of declining interest rates, competitors may solicit the Company's customers to refinance their loans. In addition, during periods of economic slowdown or recession, the Company's borrowers may face financial difficulties and be more receptive to offers of the Company's competitors to refinance their loans. As the Company expands into new geographic markets, it will face additional competition from lenders already established in these markets. There can be no assurance that the Company will be able to compete successfully with these lenders. |