Henry Coffey's universe encompasses more than the usual list of mainstream banks these days.

Beginning two years ago, the J.C. Bradford & Co. analyst began paying closer attention to nonbanks that have created profitable niches providing financial services to the unbankable.

He now recommends four southern companies: Litchfield Financial, a rural land lender; EquiCredit, a home equity lender; Regional Acceptance, an auto financer; and World Acceptance Corp., which specializes in small loans.

"This is an area that has much higher growth characteristics than traditional banking," he said. "While the loss ratios of a consumer finance company may be higher, they are significantly more predictable than those of a bank."

Litchfield Impressive

His current favorite is Litchfield, which makes consumer loans for the purchase of undeveloped rural land to use as the lot for a manufactured home, for retirement, or recreation.

Mr. Coffey said that, while Litchfield is like a mortgage company, its spread is 10 times greater - exceeding 400 basis points. The company makes money by retaining servicing rights and selling the loans to institutional investors. Litchfield has a $90 million servicing portfolio.

And it has no real competition, Mr. Coffey points out.

Like banks, the finance companies face margin pressure. But Mr. Coffey said they enjoy better cash flow - and the pricing power that comes with serving borrowers who have few options.

"When we started in 1992, it was like trying to get people to eat the first oyster," Mr. Coffey said. "It's not as difficult to get their attention today."

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