(BANDO MCGLOCKLIN LOGO)
BANDO MCGLOCKLIN ANNUAL REPORT 1996
TOTAL VALUE $10,000 INVESTMENT
YEAR ENDING JUNE 30,
BANDO S&P
YEAR ENDING MCGLOCKLIN 500
JUNE 30, CAPITAL CORP. COMPOSITE
----------- ------------- ---------
1980 $10,000 $10,000
1981 10,000 10,000
1982 10,609 8,900
1983 19,367 14,100
1984 22,780 13,400
1985 27,996 17,300
1986 35,001 23,200
1987 48,349 28,800
1988 55,156 26,600
1989 66,041 31,700
1990 85,521 36,500
1991 100,152 38,700
1992 159,458 43,500
1993 164,883 50,700
1994 224,190 50,900
1995 177,981 61,400
1996 176,459 76,500
Total value of a $10,000 initial investment in September 1980 assuming the
reinvestment of dividends paid.
AVERAGE ANNUAL TOTAL RETURN 21.38%
Percentage is based upon the average of the total rates of return for each of
the years in the period September 1, 1980 through June 30, 1996, assuming the
reinvestment of cash dividends paid.
As with all performance results, total rates of return should not be considered
as representative of the performance of the Company in the future.
DIVIDEND REINVESTMENT PLAN
Shareholders may automatically reinvest their dividends in the Company's
Dividend Reinvestment Plan. In addition, enrolled shareholders can purchase up
to $3,000 of Bando McGlocklin stock per quarter through the Dividend
Reinvestment Plan without paying any commissions or service fees.
Please see page 24 for additional details and information on enrollment.
FOR FURTHER INFORMATION
If you would like to be added to our mailing list or receive additional copies
of the Company's 1996 Annual Report or Form N-2 filed with the Securities and
Exchange Commission, please call Carolyn Barbian, administrative assistant, at
(414) 784-9010 or write: Bando McGlocklin Capital Corporation 13555 Bishops
Court, Suite 205 Brookfield, WI 53005-6226.
<TABLE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<CAPTION>
AS OF JUNE 30, 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans Under Management
$137,924,755 $126,969,600 $112,562,155 $97,243,058 $84,872,455 $79,657,558 $70,423,553 $53,476,960 $40,044,377 $24,182,285
------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets
Under Management
$143,268,463 $131,167,466 $130,844,496$103,213,407 $90,436,481 $88,917,982 $80,170,205 $63,703,239 $54,015,079 $38,270,575
------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
TWELVE MONTHS
ENDING JUNE 30, 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- -------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Operating
Income
$9,055,146 $10,596,534 $8,814,532 $7,564,268 $8,512,687 $9,747,727 $8,798,728 $6,878,719$4,946,698 $3,714,291
------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
Interest Expense
$3,399,344 $5,519,492 $3,190,056 $2,775,688 $4,849,892 $6,531,538 $6,287,100 $4,821,679$3,132,514 $2,485,084
Other Operating
Expenses
$2,113,600 $1,547,900 $1,758,196 $1,436,787 $1,268,393 $1,244,567 $998,304 $850,716 $580,721 $458,558
------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Operating
Expenses $5,512,944 $7,067,392 $4,948,252 $4,212,475 $6,118,285 $7,776,105 $7,285,404 $5,672,395$3,713,235 $2,943,642
------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Operating
Income $3,542,202 $3,529,142 $3,866,280 $3,351,793 $2,394,402 $1,971,622 $1,513,324 $1,206,324$1,233,463 $770,649
------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Operating
Income Per Share
$0.93 $0.90 $1.00 $0.95 $0.88 $0.80 $0.74 $0.59 $0.60 $0.56
------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
Cash Dividends
Per Share $0.96 $0.96 $1.00 $0.94 $0.92 $0.88 $0.83 $0.68 $0.63 $0.60
------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
Weighted Average
Shares
Outstanding
3,812,131 3,916,315 3,863,921 3,519,723 2,727,782 2,464,527 2,044,253 2,044,2532,044,253 1,380,614
------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
NET INTEREST INCOME TO TOTAL ASSETS UNDER MANAGEMENT
YEAR ENDING JUNE 30,
1992 3.74%
1993 4.57%
1994 4.50%
1995 3.80%
1996 3.70%
RATIO CALCULATED BY AVERAGING MONTH-END BALANCES.
RETURN ON TOTAL ASSETS UNDER MANAGEMENT
YEAR ENDING JUNE 30,
1992 2.64%
1993 3.49%
1994 3.37%
1995 2.89%
1996 2.55%
RATIO CALCULATED BY AVERAGING MONTH-END BALANCES.
CAPITAL TO TOTAL ASSETS UNDER MANAGEMENT
YEAR ENDING JUNE 30,
1992 12.9%
1993 20.9%
1994 20.7%
1995 17.6%
1996 14.7%
RATIO CALCULATED BY AVERAGING MONTH-END BALANCES.
RETURN ON SHAREHOLDERS' EQUITY
YEAR ENDING JUNE 30,
1992 20.5%
1993 16.7%
1994 16.3%
1995 16.4%
1996 17.3%
RATIO CALCULATED BY AVERAGING MONTH-END BALANCES.
NET INTEREST INCOME
YEAR ENDING JUNE 30,
OTHER OPERATING
EXPENSE LESS
NET OPERATING OTHER INCOME &
INCOME PREMIUM INCOME
------------- --------------
1992 2,394,402 999,981
1993 3,351,793 1,037,902
1994 3,866,280 1,301,960
1995 3,529,142 1,110,522
1996 3,542,202 1,586,659
NET OPERATING INCOME PER SHARE
YEAR ENDING JUNE 30,
1992 0.88
1993 0.95
1994 1.00
1995 0.90
1996 0.93
CASH DIVIDENDS PER SHARE
YEAR ENDING JUNE 30,
1992 0.92
1993 0.94
1994 1.00
1995 0.96
1996 0.96
CASH DIVIDENDS PAID IN NOVEMBER, JANUARY AND MAY OF THE FISCAL YEAR PLUS THE
CASH DIVIDEND PAID IN AUGUST OF THE FOLLOWING FISCAL YEAR.
TOTAL ASSETS UNDER MANAGEMENT
AS OF JUNE 30,
1992 $90,436,481
1993 103,213,407
1994 130,844,496
1995 131,167,466
1996 143,268,463
CHAIRMAN'S LETTER
The year ending June 30, 1996 was a good one, demonstrating our ability to grow
in a highly competitive environment. Selected consolidated financial information
is disclosed on the inside front cover of this report.
Since Bando McGlocklin was formed in 1980, it has operated as a small
business investment company ("SBIC") and specialized in real estate mortgage
loans to small business concerns. Our goal, then and now, is to provide an
above-average return on investment to shareholders.
Over the last three years, changes in Small Business Administration ("SBA")
policy and the limited availability of SBA-subordinated debentures have made it
increasingly difficult to grow as a nonbank. During the same period of time, the
traditional approach of branch banking came under chal lenge by electronic
banking, which decreases the need for multiple locations and provides increased
opportunity for one-location banks. We believe the time is right to change our
strategy in order to take advantage of this opportunity.
At our last annual meeting of shareholders, we announced plans to establish a
commercial bank for the purpose of providing other types of financial services
to small business. These services include cash management, lines of credit,
machinery and equipment loans and real estate loans. Our objective is to expand
services to our existing small business customer base, and at the same time,
find a more effective way to increase our share of market in a very competitive
industry. We believe the structure of a bank will be the cornerstone of our
growth.
On January 29, 1996 our board of directors submitted an application to the
Wisconsin Commissioner of Banking for authority to organize a banking
corporation to be known as lnvestorsBank, and to the Federal Deposit Insurance
Corporation for deposit insurance. We subsequently amended our application to
permit the formation of a bank holding company to be known as InvestorsBanc
Corporation. Our application to the Wisconsin Commissioner of Banking was
recently approved. In the next thirty days, an application will be filed with
the Federal Reserve for approval to form InvestorsBanc Corporation as a bank
holding company. InvestorsBanc Corporation will own 100 percent of
InvestorsBank.
Originally, the advantage of being licensed as an SBIC was the availability
of SBA-subordinated debentures equal to three times private capital. With senior
debt, we were able to increase our debt-to-worth ratio to 9:1. This plan worked
until the SBA decided to provide funding to some SBICs and not others. Without
SBA debentures, there is no advantage to being an SBIC.
As an SBIC, in order to pass through taxable income, we had to become a
registered investment company and operate under the rules and regulations of the
Investment Company Act of 1940 ("1940 Act"). Too often in the past fifteen years
of changing and increasingly competitive market conditions, management has spent
a great deal of time and money trying to find ways to operate our business in
this highly regulated environment.
Because of the lack of benefits of being an SBIC and the difficulty of
operating under the 1940 Act, we decided to surrender our license as an SBIC,
clearing the way to restructure Bando McGlocklin Capital Corporation as a real
estate investment trust ("REIT"). REIT status will allow us to concen trate on
making business decisions that benefit shareholders. REIT status also means the
Company retains its ability to pass through 100 percent of taxable income to
shareholders as dividends. This is great news.
On August 6, 1996 we filed an application with the Securities and Exchange
Commission ("SEC") to deregister from the 1940 Act, subject to approval by
shareholders. We are not setting a date for this fall's annual meeting until we
receive comments from the SEC. We hope to obtain shareholder approval and SEC
permis sion to publish a notice of our plan to deregister in the Federal
Register by December 1, 1996. Assuming we can meet these deadlines, Bando
McGlocklin intends to qualify as a REIT as of January 1, 1997.
Our objective is to increase profits and maintain the current level of
dividends. Taxable income of Bando McGlocklin Capital Corporation will continue
to be distributed to shareholders as dividends. Net income of InvestorsBank will
be reinvested for growth. Profits of Bando McGlocklin and InvestorsBank will be
consolidated for reporting purposes. Initially, taxable income of Bando
McGlocklin will decline when we invest capital in InvestorsBank. We expect this
reduction will be offset by the sharing of operating expenses with InvestorsBank
that are currently paid by Bando McGlocklin alone, and by an increase in loans
outstanding in Bando McGlocklin Capital Corporation.
Current staff members will be cross-trained to perform many of the services
offered by the bank. Existing loan demand will be funded by the deposit growth
of InvestorsBank. Consequently, we believe InvestorsBank will be able to be
profitable sooner than the typical start-up bank.
On October 31, 1996 our new corporate headquarters and banking facility will
be completed. We will move at that time into a beautiful new facility in
Pewaukee just north of the exit at Highway J and I-94. This location, at the
west edge of the Milwaukee metropolitan area, is an excellent one for both our
corporate offices and our bank.
While the banking industry will remain very competitive in the years to come,
our bank will focus on increasing market share by taking advantage of the
opportunities caused by change. The challenge is exciting, and we are preparing
for success.
Sincerely,
/s/ George R. Schonath
George R. Schonath
Chairman and Chief Executive Officer
(Picture)
George R. Schonath, chairman and CEO of Bando McGlocklin Capital Corporation, at
the construction site of the Company's new corporate headquarters in Pewaukee.
Bando McGlocklin Capital Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996 1995
- -------- ----------- -----------
ASSETS
- ------
Loans $77,136,508 $85,330,979
Loan-backed certificates 2,205,712 1,239,060
Real estate owned - 258,773
Common stock investments 2,098,186 2,098,186
Less: reserve for losses (800,000) (800,000)
Less: retained loan discount (1,683,814) (1,007,561)
---------- ----------
Investments at fair value 78,956,592 87,119,437
Excess servicing asset 1,771,597 1,016,366
Short-term securities at market value 999,255 250,000
Investment in swap contracts
at market value 707,602 1,035,597
Interest receivable 1,323,787 1,188,004
Cash 332,389 112,786
Fixed assets - net 58,177 44,384
Other assets - net 536,529 460,918
----------- ----------
TOTAL ASSETS $84,685,928 $91,227,492
----------- -----------
----------- -----------
LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Commercial paper $24,288,887 $23,412,322
Notes payable to bank - 880,000
----------- ----------
Short-term borrowings 24,288,887 24,292,322
Small Business Administration debenture 12,620,000 12,620,000
State of Wisconsin Investment Board notes payable 7,000,000 14,333,334
Loan participations with repurchase options 3,983,990 -
Other liabilities 1,189,630 1,325,892
---------- ----------
TOTAL LIABILITIES 49,082,507 52,571,548
---------- ----------
Preferred Stock, 1 cent par value, 3,000,000 shares
authorized, 674,791 shares issued and
outstanding after deducting 15,209
shares in treasury 16,908,025 16,908,025
---------- ----------
Common Stock and Other Shareholders' Equity
Common stock, 6 2/3 cents par value,
15,000,000 shares authorized, 3,955,744 and
3,940,024 shares issued and outstanding, before
deducting shares in treasury, respectively 263,716 262,668
Additional paid-in capital 24,033,232 23,923,520
Overdistributed net operating income (211,962) (75,688)
Net unrealized (depreciation) appreciation on
investments and securities (92,398) 235,597
Realized loss on investments (2,034,579) (2,031,928)
Treasury stock, at cost (266,650
and 41,750 shares, respectively) (3,262,613) (566,250)
---------- ----------
TOTAL COMMON STOCK AND
OTHER SHAREHOLDERS' EQUITY 18,695,396 21,747,919
---------- ----------
TOTAL LIABILITIES, PREFERRED STOCK, COMMON STOCK
AND OTHER SHAREHOLDERS' EQUITY $84,685,928 $91,227,492
---------- ----------
---------- ----------
Net asset value per share $5.07 $5.58
---------- ----------
---------- ----------
The accompanying notes are an integral part of the financial statements.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1996 1995 1994
- ------------------- --------- ---------- ---------
OPERATING INCOME:
Interest on loans $8,471,061 $10,071,440 $8,014,846
--------- ---------- ---------
Interest on U.S. government
securities - - 281,184
Discount amortization - - 5,721
--------- ---------- ---------
- - 286,905
Interest on short-term securities 57,144 87,716 56,545
Premium income 78,978 8,805 -
Other income 447,963 428,573 456,236
--------- ---------- ---------
TOTAL OPERATING INCOME 9,055,146 10,596,534 8,814,532
--------- ---------- ---------
OPERATING EXPENSES:
Interest expense 3,399,344 5,519,492 3,190,056
Salaries and employee benefits 1,140,817 824,943 872,662
Other operating expenses 972,783 722,957 885,534
--------- ---------- ---------
TOTAL OPERATING EXPENSES 5,512,944 7,067,392 4,948,252
--------- ---------- ---------
Net operating income 3,542,202 3,529,142 3,866,280
Realized (loss) gain on investments (2,651) (2,031,928) 5,091
Change in unrealized depreciation/
appreciation on investments
and securities (327,995) 1,500,681 (873,755)
--------- ---------- ---------
Net operating income, realized (loss)
gain on investments and change in
unrealized depreciation/appreciation
on investments and securities $3,211,556 $2,997,895 $2,997,616
--------- ---------- ---------
--------- ---------- ---------
The accompanying notes are an integral part of the financial statements.
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
NET UNREALIZED
(OVERDISTRIBUTED) (DEPRECIATION)
ADDITIONAL UNDISTRIBUTED APPRECIATION REALIZED
COMMON PAID-IN NET OPERATING ON INVESTMENTS (LOSS) GAIN ON TREASURY
STOCK CAPITAL INCOME AND SECURITIES INVESTMENTS STOCK
-------- ---------- --------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 $255,438 $24,166,087 $309,335 $(391,329) $- $-
-------- ---------- --------- ---------- ----------- --------
Costs from sale of preferred stock - (1,028,346) - - - -
Proceeds from exercise of
stock options 6,152 672,600 - - - -
Net operating income - - 3,866,280 - - -
Change in unrealized depreciation
on investments and securities - - - (873,755) - -
Realized gain on investments - - - - 5,091 -
Cash dividends - $1.00 per share - - (3,864,292) - - -
-------- ---------- --------- ---------- ----------- --------
BALANCE, JUNE 30, 1994 261,590 23,810,341 311,323 (1,265,084) 5,091 -
-------- ---------- --------- ---------- ----------- --------
Proceeds from exercise of stock options 1,078 113,179 - - - -
Purchase of treasury stock - - - - - (566,250)
Net operating income - - 3,529,142 - - -
Change in unrealized depreciation
on investments and securities - - - 1,500,681 - -
Realized loss on investments - - - - (2,031,928) -
Cash dividends-$1.00 per share - - (3,916,153) - (5,091) -
-------- ---------- --------- ---------- ----------- --------
BALANCE, JUNE 30, 1995 262,668 23,923,520 (75,688) 235,597 (2,031,928) (566,250)
-------- ---------- --------- ---------- ----------- --------
-------- ---------- --------- ---------- ----------- --------
Proceeds from exercise of
stock options 1,048 109,712 - - - -
Purchase of treasury stock - - - - - (2,696,363)
Net operating income - - 3,542,202 - - -
Change in unrealized appreciation
on investments and securities - - - (327,995) - -
Realized loss on investments - - - - (2,651) -
Cash dividends-$.96 per share - - (3,678,476) - - -
-------- ---------- --------- ---------- ----------- --------
BALANCE, JUNE 30, 1996 $263,716 $24,033,232 $(211,962) $(92,398) $(2,034,579) $(3,262,613)
-------- ---------- --------- ---------- ----------- --------
-------- ---------- --------- ---------- ----------- --------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995 1994
- ------------------- ---- ---- ----
<S> <C> <C>
Cash Flows from Operating Activities: <C>
Net operating income, realized (loss) gain
on investments and change in
unrealized depreciation/appreciation
on investments and securities $3,211,556 $2,997,895 $2,997,616
Loans made (42,890,223) (39,385,802) (37,919,738)
Principal collected on loans 23,736,708 23,586,361 21,644,652
Loans sold 28,087,037 33,644,334 10,397,410
Premium income-net (78,978) (8,805) -
Certificate purchased from trust (1,213,315) (1,294,198) -
Loans purchased (449,615) - -
Real estate sold 216,000 - -
Purchase of short-term securities (899,255) - (15,650,000)
Proceeds from maturity of securities 150,000 15,400,000 2,460,000
Adjustments to reconcile net operating
income, realized (loss) gain on investments
and change in unrealized depreciation/
appreciation on investments and securities to
net cash provided by (used in) operating activities:
Change in unrealized depreciation/appreciation
on investments and securities 327,995 (1,500,681) 873,755
Amortization 86,739 80,270 89,168
Depreciation 25,655 25,421 26,706
(Decrease) increase in cash due to changes in:
Interest receivable (135,783) (266,599) 56,149
Other assets (201,798) (129,530) (71,394)
Other liabilities (136,262) 59,256 404,346
--------- ---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATIONS 9,836,461 33,207,922 (14,691,330)
--------- ---------- -----------
Cash Flows from Financing Activities:
Decrease in short-term borrowings (3,435) (9,024,189) (6,434,940)
Decrease in reverse repurchase agreements - - (2,656,800)
Proceeds from loan participations with
repurchase options-net 3,983,990 - -
Repayment of SWIB notes (7,333,334) (1,333,333) (4,916,667)
Repayment of SBA debentures - (560,000) (1,840,000)
(Decrease) increase in notes payable to bank - (17,600,000) 17,600,000
Proceeds from sale of preferred stock - - 16,221,654
Dividends paid (3,678,476) (3,921,244) (3,864,292)
Proceeds from exercise of stock options 110,760 114,257 678,752
Repurchase of common stock (2,696,363) (566,250) -
Repurchase of preferred stock - (341,975) -
---------- ----------- ----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (9,616,858) (33,232,734) 14,787,707
---------- ----------- ----------
Net increase (decrease) in cash 219,603 (24,812) 96,377
Cash, beginning of year 112,786 137,598 41,221
---------- ---------- ----------
Cash, end of year $332,389 $112,786 $137,598
---------- ---------- ----------
---------- ---------- ----------
Supplemental Disclosure of Cash Flow Information:
Interest paid $3,680,381 $5,373,395 $5,755,263
---------- ---------- ----------
---------- ---------- ----------
The accompanying notes are an integral part of the financial statements.
</TABLE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------
NATURE OF BUSINESS
- ------------------
Bando McGlocklin Capital Corporation (the "Company") was incorporated in
February 1980 and is registered as a closed-end management investment company
under the Investment Company Act of 1940 ("1940 Act"). The Company provides
long-term secured loans to finance the growth, expansion and modernization of
small businesses. Prior to March 26, 1993, the Company operated as a small
business investment company ("SBIC"), licensed under the Small Business
Investment Act of 1958.
On March 26, 1993, the Company completed the formation of a holding company
structure by transferring substantially all of its assets (including its license
to operate as an SBIC) and liabilities to Bando McGlocklin Small Business
Investment Corporation ("BMSBIC"), a wholly owned subsidiary of the Company.
BMSBIC is registered as an investment company under the 1940 Act and makes loans
to small business concerns qualifying under the SBIC program.
On May 5, 1993, the Company formed Bando McGlocklin Investment Company ("BMIC"),
a wholly owned subsidiary of the Company. In May 1993, a partially developed
real estate parcel was transferred at fair value to BMIC. The parcel was
previously accounted for as real estate owned.
On March 3, 1994, the Company formed Bando McGlocklin Small Business Lending
Corporation ("BMSBLC"), a wholly owned subsidiary of the Company. On June 13,
1994, BMSBLC was registered as a non-diversified closed-end management
investment company under the 1940 Act. BMSBLC makes loans to small business
concerns qualifying under the SBA 7(a) Loan Guarantee Program.
Under the 1940 Act, the Company is required to satisfy certain asset coverage
requirements. These requirements may have an impact on the Company's ability to
pay dividends. At June 30, 1996, the Company satisfied all asset coverage
requirements of the 1940 Act.
BASIS OF PRESENTATION
- ---------------------
These financial statements are prepared in accordance with generally accepted
accounting principles. 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.
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The consolidated financial statements include the accounts of the Company,
BMSBIC and BMSBLC, its wholly owned registered investment company subsidiaries,
after elimination of intercompany balances and transactions. BMIC is not a
registered investment company under the 1940 Act and as a result, is not
consolidated.
TREASURY STOCK
- --------------
Preferred stock has been reduced by the cost of shares acquired for treasury.
The common treasury stock is shown as a reduction in shareholders' equity at
cost.
INVESTMENT VALUATION
- --------------------
Under the 1940 Act, unrestricted securities, such as short-term securities, are
to be valued at current market value. In addition, the Company's investment swap
contracts are also valued at market value by the Board of Directors. Loans,
loan-backed certificates, real estate owned and common stock investments
(including BMIC) are stated at "fair value" as determined in good faith by the
Board of Directors.
The valuation of loans to small business concerns, loan-backed certificates,
real estate owned and common stock investments is based on the Board of
Directors' evaluation of the financial condition of the borrowers and/or the
underlying collateral. The values assigned are considered to be the amounts
which could be realized in the normal course of business which anticipates the
Company holding the loans to maturity and realizing the face values of the
loans. Fair value normally corresponds to cost unless adverse factors lead to a
determination of fair value at a lower amount. In such instances, a loss reserve
is established to reduce the carrying value to fair value, as determined by the
Board of Directors. Amounts which might ultimately be realized on loans and the
Company's other investments may be less than the valuations herein.
When a portion of a loan is sold, the basis of the retained portion of the loan
is discounted by the differential between the face amount of the sold portion of
the loan and the relative market value of the sold portion of the loan. This
difference is referred to as the retained loan discount. The relative market
value is determined by the expected cash flows discounted with assumptions made
on prepayments and rate of return. At the time of sale, premium income is
reduced by the retained loan discount. The retained loan discount is amortized
over the life of the underlying loan. When a loan is prepaid, the remaining
retained loan discount is recognized as an increase to interest income. When a
loan is sold, the remaining retained loan discount is included as a reduction to
the basis of the underlying loan.
EXCESS SERVICING ASSET
- ----------------------
The excess servicing asset represents the unamortized balance of the present
valued cash flows of the interest rate differential resulting from the sale of a
loan with servicing rights retained. The interest rate differential is the
difference between the interest rate on the underlying loan and the interest
rate paid to the purchaser on the sold portion after considering normal
servicing fees and transaction fees. This amount is amortized over the life of
the underlying loan, subject to periodic review of prepayment speeds.
INTEREST RATE SWAP AGREEMENTS
- -----------------------------
The Company enters into interest rate swap agreements as a means of managing its
interest rate exposure. The differential to be paid or received on all interest
rate swap agreements is accrued as interest rates change and is recognized over
the life of the agreements. Those agreements which are considered to be
investments are accounted for at market value on the consolidated balance sheet.
FIXED ASSETS
- ------------
Fixed assets are stated at cost and are depreciated using the straight-line
method for financial statement purposes and accelerated methods for income tax
purposes.
RECOGNITION OF INTEREST INCOME
- ------------------------------
Interest income is recorded on the accrual basis to the extent that management
anticipates that such amounts will be collected. In all other cases, no entry is
made to accrue interest, but the unpaid interest is monitored, and interest is
recorded upon receipt.
PREMIUM INCOME
- --------------
Premium income represents the differential at the time a portion of a loan is
sold between the present valued excess servicing income on the sold portion and
the retained loan discount.
REALIZED AND UNREALIZED GAIN OR LOSS ON INVESTMENTS
- ---------------------------------------------------
Realized gains or losses are recorded upon disposition of investments,
calculated based upon the difference between the proceeds and the cost basis
determined using the specific identification method. Payments made to modify the
terms of investment swap contracts are also accounted for as a realized loss on
investments. All other changes in the value of investments, including the
provision for losses, are included as changes in the unrealized appreciation or
depreciation in the consolidated statement of operations.
INCOME TAXES
- ------------
The Company, BMSBIC and BMSBLC intend to qualify as regulated investment
companies ("RICs") meeting certain requirements under the Internal Revenue Code
(the "Code"). As such, the Company, BMSBIC and BMSBLC will not be subject to
income tax on investment company taxable income which is distributed to
shareholders.
In order to maintain their status as RICs under the Code, the Company, BMSBIC
and BMSBLC must separately, (a) derive at least 90% of their gross income from
dividends, interest, gains from the sale or other disposition of securities and
other income related to the Company's, BMSBIC's and BMSBLC's business of
investing in securities, (b) derive less than 30% of their gross income from the
sale or other disposition of securities held for less than three months, and (c)
the Company's, BMSBIC's and BMSBLC's investments must be diversified as defined
by the Code. During the year ended June 30, 1996, the Company, BMSBIC and BMSBLC
qualified as RICs by meeting the aforementioned requirements. In 1995, BMSBLC
failed to meet the asset diversification requirement of the Code and as a
result, its income was subject to federal and state taxes.
Pursuant to a plan by the Company to restructure, an application was filed in
August 1996 with the Securities and Exchange Commission ("SEC") to deregister
from the 1940 Act effective December 31, 1996. The plan requires shareholder
approval and the application to deregister is subject to SEC approval. The
Company also intends to surrender its license to operate as an SBIC. Subsequent
to December 31, 1996 the Company intends to qualify as a real estate investment
trust ("REIT") under the Code. Under REIT status, the Company will continue to
not be subject to income tax on taxable income which is distributed to
shareholders.
During the year ended June 30, 1995, the Company made payments to modify the
terms of certain investment swap contracts which resulted in a $2,031,928
realized loss for financial statement purposes. For tax purposes, the realized
loss will be amortized over four years. As a result, ordinary taxable income was
reduced by $631,698 in 1995 and $820,598 in 1996 and will be reduced by $528,049
and $51,583 in 1997 and 1998, respectively. Primarily as a result of this
amortization for tax purposes, $746,362 of the $3,678,476 in common stock
dividends paid by the Company in fiscal year 1996 was return of capital.
NOTE 2
LOANS AND COMMON STOCK INVESTMENTS
- ----------------------------------
The Company's exposure to loss in the event of nonperformance by the borrower is
represented by the outstanding principal amount of the loans. Substantially all
loans are fully secured by first or second mortgages on owner-occupied real
estate. Approximately 88% of the Company's loan portfolio at June 30, 1996 is
comprised of loans to borrowers located within the State of Wisconsin.
The Company routinely monitors its loan portfolio for evidence of loan
impairment. A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan. Historically impairment has
not been an indicator of loss. As of June 30, 1996 and 1995, loans with balances
aggregating $4,587,979 and $6,499,921, respectively, were considered impaired.
In determining the fair value of the impaired loans, the Board of Directors
looks to the underlying collateral. A loss reserve is established if the
estimated value of the underlying collateral is insufficient to cover the
impaired loan. At June 30, 1996, a loss reserve of $583,729 was recorded on
impaired loans totaling $1,444,791. At June 30, 1995, a loss reserve of $562,271
was recorded on impaired loans totaling $2,518,995. The average impaired loan
balance during fiscal 1996 and 1995 was $5,595,521 and $7,228,746, respectively.
The accrued interest on the impaired loans totals $87,831 at June 30, 1996 and
is considered fully collectable.
The Company's loan portfolio consists primarily of variable-rate loans with
terms of five to fifteen years. The Company writes interest rate caps for terms
not exceeding five years on certain variable-rate loans to meet the financing
needs of its borrowers. Interest rate caps written by the Company enable
borrowers to modify or reduce their interest rate risk. The Company is exposed
to interest rate risk to the extent that its cost of funds exceeds the interest
rate caps. Interest rate caps do not represent exposure to credit loss for the
Company in that they do not affect the outstanding principal amounts of the
loans.
The Company has made loans which have outstanding balances at June 30, 1996 of
$4,506,466 to Bando McGlocklin Real Estate Investment Corporation, a related
party.
Under Small Business Administration ("SBA") regulations, investments in and
loans to any single small business concern are limited to 20% of BMSBIC's
private capital (common stock and additional paid-in capital). At June 30, 1996,
this limitation totaled $4,884,305. At June 30, 1996, the Company had loans
outstanding to a single borrower in excess of this regulatory limit. The Company
is not eligible for additional SBA financing until it rectifies the violation.
In addition to BMIC, common stock investments include 51% equity interests in
two BMSBIC borrowers which were acquired as a result of loan workout situations.
At June 30, 1996, no value has been attributed to the equity investments in
these two entities.
Undisbursed construction loan commitments and lines of credit totaled
$10,469,971 at June 30, 1996.
NOTE 3
LOANS SOLD
- ----------
During the years ended June 30, 1996, June 30, 1995 and June 30, 1994 the
Company sold loans to third parties. The table below summarizes the sales.
PRINCIPAL BALANCE SOLD PERCENTAGE PRINCIPAL BALANCE SOLD RECOURSE
AT DATE OF SALE SOLD AT JUNE 30, 1996 PROVISION
- ---------------------- ---------- ---------------------- ---------
During the year ended June 30, 1996:
$15,991,581 90% $15,614,025 100%
1,671,644 68-85% 1,637,487 None
1,757,275 100% 1,750,245 None
----------- -----------
$19,420,500 $19,001,757
During the year ended June 30, 1995:
$13,222,580 85% $12,617,657 100%
10,343,932 90% 8,256,009 100%
2,837,677 75-80% 2,044,925 None
1,455,000 75% 1,389,499 None
1,605,175 100% - None
----------- -----------
$29,464,364 $24,308,090
During the year ended June 30, 1994:
$10,397,410 75% $4,164,539 None
----------- -----------
During 1996, the Company also sold three loans with the option to repurchase
them at a later date. As of June 30, 1996, the balance of loan participations
with repurchase options was $3,983,990. These sales have been accounted for as
secured financings.
For the loans sold with no recourse, the Company is susceptible to loss on the
loans up to the percentage of the retained interest to the extent the underlying
collateral is insufficient in the event of nonperformance by the borrower. The
Company's retained interest is subordinated to the portion sold. For the loans
sold with full recourse, the Company is susceptible to loss equal to the total
principal balance of the loan to the extent the underlying collateral is
insufficient in the event of nonperformance. No associated loss reserve has been
established as of June 30, 1996 for loans which have been sold.
Under the terms of the agreements, the Company retains servicing rights for the
entire loan. (See Note 5.) As servicer and provider of recourse, certain
agreements require the Company to comply with various covenants, including the
maintenance of net worth. As of June 30, 1996, the Company was in compliance
with these covenants.
NOTE 4
LOAN-BACKED CERTIFICATES
- ------------------------
During the years ended June 30, 1996 and June 30, 1995, the Company sold loans
to a trust, which issued two classes of certificates as noted in the table
above.
PRINCIPAL BALANCE A CERTIFICATE B CERTIFICATE A CERTIFICATE
SOLD AT SOLD TO A CERTIFICATE SOLD TO BALANCE AT
DATE OF SALE THIRD PARTY INTEREST RATE COMPANY JUNE 30, 1996
- ---------------- ----------- ------------- ------------- -------------
During the year ended June 30, 1996:
$8,666,538 $7,453,223 6.965%(1)<F1> $1,213,315 $6,371,451
---------- ---------- ------ ---------- ----------
During the year ended June 30, 1995:
$6,540,358 $5,246,160 8.00%(2)<F2> $1,294,198 $4,736,698
---------- ---------- ------ ---------- ----------
(1)<F1>The interest rate will be reset monthly based upon the 30-day London
Interbank Offered Rate (LIBOR) plus one and one-half percent.
(2)<F2>The interest rate will be reset every three years based upon the
three-year U.S. Treasury Bond yield plus one and one-half percent.
The B Certificates purchased by the Company are subordinated to the A
Certificates. The B Certificates receive all excess interest after expenses. The
Company has risk equal to the B Certificates' principal balances to the extent
the underlying collateral is insufficient in the event of nonperformance by the
borrowers. At June 30, 1996, no associated loss reserve has been established.
Under the terms of the Pooling and Servicing Agreements, the Company retains
servicing rights for all the loans sold. (See Note 5.)
NOTE 5
EXCESS SERVICING ASSET
- ----------------------
The Company has retained the servicing rights on each of the loans it has sold
to third parties. By retaining the right to service the loan, the Company earns
an interest rate spread equal to the difference between the interest rate on the
loan and the interest rate paid to the purchaser on the sold portion (this
difference is referred to as the "Servicing Spread").
The value of this excess servicing asset has been estimated based upon the
present valued cash flow of the Servicing Spread after con sidering the effects
of estimated prepayments, normal servicing fees and transaction fees. The value
of the excess servicing asset is recognized as premium income at the time of the
sale and is concurrently capitalized on the consolidated balance sheet. It is
then amortized over the life of the loan. If actual cash flows exceed the excess
servicing asset, the Company will recognize additional income in excess of the
value of the excess servicing asset. A shorter loan life than that estimated at
the time the excess servicing asset was established will result in the carrying
value of the excess servicing asset being written down through a charge to
earnings.
The carrying value of the excess servicing asset is analyzed quarterly by the
Company to determine whether prepayment and default experience has any impact on
this carrying value.
NOTE 6
SHORT-TERM SECURITIES
- ---------------------
Short-term securities are used to invest idle cash. Short-term securities having
a maturity of less than 90 days are stated at cost (which approximates market
value). At June 30, 1996, the Company held two securities with maturities
ranging from one to five days and bearing interest at 4.26% to 4.50%.
NOTE 7
SHORT-TERM BORROWINGS
- ---------------------
Commercial paper is issued for working capital purposes with maturities of up to
90 days. The average yield on commercial paper outstanding at June 30, 1996 was
5.68%.
BMSBIC has entered into three loan agreements with certain banks. The current
loan agreements provide for a maximum of $32,500,000 less the outstanding
principal amount of commercial paper. Two facilities bear interest at the prime
rate while the other facility bears interest at the 30-, 60- or 90-day LIBOR
plus one and three-eighths percent. Interest is payable monthly. Two loan
agreements expire on October 31, 1996 while the other expires on December 2,
1996. BMSBIC is also required to pay an availability fee to each bank for the
use of these facilities. The banks are party to an Intercreditor Agreement
which grants each party a proportionate security interest in substantially all
of BMSBIC's assets which are not securing long-term debt. (See Note 8.) At June
30, 1996, under these agreements, there was no outstanding principal balance.
NOTE 8
LONG-TERM DEBT
- --------------
SMALL BUSINESS ADMINISTRATION DEBENTURE
- ---------------------------------------
This debenture has a maturity in fiscal 1998 and an interest rate of 10.35%. In
accordance with provisions of the debenture, BMSBIC has agreed not to
repurchase or retire any of its private capital or make distributions to the
Company as its sole shareholder, other than periodic payments of undistributed
net operating income and realized gains, without prior approval of the SBA.
STATE OF WISCONSIN INVESTMENT BOARD NOTES PAYABLE
- -------------------------------------------------
On July 9, 1990, BMSBIC entered into an agreement with the State of Wisconsin
Investment Board ("SWIB") providing for a term note of $10,000,000 bearing
interest at 10.1%. This note was prepaid as of January 30, 1996. A prepayment
penalty of $285,000 was expensed in other operating expenses during fiscal 1996.
On November 7, 1991, BMSBIC borrowed an additional $10,000,000 from SWIB
pursuant to a term note which bears interest at a fixed rate of 9.05% per year
through its maturity. The note is payable in equal quarterly installments of
$166,667 with a final payment of unpaid principal due on November 7, 2006, and
is secured by specific loans. At June 30, 1996, the outstanding principal
balance was $7,000,000.
REVOLVING LINE OF CREDIT
- ------------------------
On August 9, 1993, BMSBIC entered into a revolving line of credit facility with
a single bank providing for a maximum amount of $5,000,000. Outstanding
borrowings under this facility were at the prime rate announced from time to
time by such bank. Outstanding indebtedness under this facility was secured by
specific loans of BMSBIC. On September 30, 1994, BMSBIC terminated this
facility.
NOTES PAYABLE TO BANKS
- ----------------------
On April 12, 1994, BMCC entered into a credit agreement with a bank for a
maximum amount of $5,000,000 which was secured by specific loans. On September
29, 1994, the note was paid in full.
On May 19, 1994, BMSBIC entered into an additional credit agreement with the
bank for a maximum amount of $15,000,000 which was secured by specific loans. On
June 28, 1995, the note was paid in full.
The SWIB agreements and the loan agreements described in Note 7 contain
restrictions on BMSBIC's new indebtedness, acquisition of its common stock,
return of capital dividends, past due loans, and realized losses on loans, and
require maintenance of collateral, minimum equity and loan-to-debt ratios, among
others. As of June 30, 1996, BMSBIC was in compliance with all such
requirements.
Future annual maturities of long-term debt as of June 30, 1996 are as follows:
1997 $666,666
1998 13,286,667
1999 666,666
2000 666,667
2001 666,667
Later Years 3,666,667
----------
$19,620,000
-----------
-----------
Based on the borrowing rates currently available to BMSBIC for loans with
similar maturities, the estimated fair market value of the long-term debt at
June 30, 1996 was approximately $19.9 million.
NOTE 9
INTEREST RATE SWAPS
- -------------------
The Company enters into interest rate swap agreements primarily as a means of
managing interest rate risk. To the extent that the Company's variable-rate
loans are funded with fixed-rate debt, the Company is subject to interest rate
risk. To reduce interest rate risk, the Company enters into certain interest
rate swaps designed to convert variable-rate loans into fixed-rate loans.
Although these swaps reduce interest rate risk, the potential for profit or loss
on interest rate swaps still exists depending upon fluctuations in interest
rates. In addition, the Company enters into interest rate swaps in an attempt to
further manage interest rate risk resulting from interest rate movements.
In accordance with applicable accounting principles, the Company's interest rate
swap agreements are held for purposes other than trading and are further
classified as either hedges or as investment contracts. Both hedges and
investment contracts have the potential for profit and loss. Accounting
principles dictate that those contracts not meeting hedge criteria be classified
as investments and marked-to-market with any associated unrealized gain or loss
recorded in the financial statements, whereas those contracts meeting hedge
criteria are not to be classified as investments or marked-to-market in the
financial statements. On June 30, 1996, the investment contracts at market
resulted in an unrealized gain of $707,602, which was recorded as a component of
net unrealized (depreciation) appreciation on investments and securities.
Based on quoted market valuations, the estimated market value of the hedge swaps
at June 30, 1996 was approximately $1.2 million.
The table on page 14 summarizes the interest rate swap agreements in effect at
June 30, 1996. No funds were borrowed or are to be repaid under these
arrangements.
As a result of hedge arrangements, the Company recognized a $1,382,751,
$1,193,506 and $2,934,691 reduction in interest expense in fiscal years 1996,
1995 and 1994, respectively. In addition, the Company recognized a $412,129,
$73,239 and $40,591 reduction in interest expense in 1996, 1995 and 1994,
respectively, as a result of the investment swap contracts.
During the year ended June 30, 1995, the Company made payments to modify the
terms of certain investment swaps which resulted in a $2,031,928 realized loss
for financial reporting purposes. The modifications resulted in a $1,581,321
reduction to interest expense in the year ended June 30, 1995, as compared with
what would have been recorded absent the modifications.
The Company may be susceptible to risk with respect to interest rate swap
agreements to the extent of nonperformance by the financial institutions
participating in the interest rate swap agreements. However, the Company does
not anticipate nonperformance by these counterparties.
NOTE 10
MANDATORILY REDEEMABLE PREFERRED STOCK
- --------------------------------------
On October 20, 1993, the Company issued 690,000 shares of Adjustable Rate
Cumulative Preferred Stock, Series A in a public offering at $25.00 per share
less an underwriting discount of $1.0625 per share and other issuance costs
amounting to $295,221. The preferred stock is redeemable, in whole or in part at
the option of the Company, on any dividend payment date during the periods from
July 1, 2001 to June 30, 2003 and from July 1, 2006 to June 30, 2008 at $25 per
share plus accrued and unpaid dividends. Any shares of preferred stock not
redeemed prior to July 1, 2008 are subject to mandatory redemption on that date
by the Company at a price of $25 plus accrued dividends. Dividends on the
preferred stock are paid quarterly at the annual rate of 7.625%, which is
subject to adjustment effective for the five-year periods commencing July 1,
1998 and July 1, 2003. Through June 30, 1996, the Company purchased 15,209
shares for treasury.
Based on quoted market prices, the estimated fair market value of the preferred
stock outstanding as of June 30, 1996 was approximately $15.9 million.
NOTE 11
RETIREMENT PLANS
- ----------------
The Company maintains a profit sharing plan in accordance with Section 401(k) of
the Code and a money purchase plan covering all of its employees to provide for
their retirement. Participants in the 401(k) plan may elect to have the Company
make contributions to their accounts through payroll deductions ranging from 2%
to 10% of the participant's total cash compensation up to the maximum amounts
permitted by the Code. Contributions by the Company to the 401(k) plan are
dependent both upon the Company's earnings and upon decisions made by the Com
pensation Committee of the Board of Directors. The Company is obligated to make
contributions to its money purchase plan in amounts equal to 5% of each
participant's total cash compensation. All contributions are funded currently.
Total contributions by the Company to the 401(k) and money purchase plans for
the years ended June 30, 1996, 1995 and 1994 were $56,407, $47,826 and $70,110,
respectively.
<TABLE>
<CAPTION>
COMPANY COUNTERPARTY CURRENT INTEREST RATES PAID ORIGINAL NOTIONAL EXPIRATION
-------------- ---------------
COUNTERPARTY PAYMENT PAYMENT BY COMPANY BY COUNTERPARTY AMOUNT DATE
------------ ------- ------- ---------- ---------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Firstar Bank Milwaukee, N.A.(1)<F3> Floating Floating 4.67420%(2)<F4> 5.48828%(3)<F5>$50,000,000 11/28/96
Milwaukee, Wisconsin
Firstar Bank Milwaukee, N.A.(1)<F3> Floating Floating 5.56641%(5)<F7> 6.12341%(6)<F8>$25,000,000 12/26/96
Milwaukee, Wisconsin
Firstar Bank Milwaukee, N.A.(1)<F3> Floating Fixed 5.57031%(5)<F7> 4.62000% $5,000,000 12/29/96
Milwaukee, Wisconsin
Norwest Bank Minnesota, N.A. Floating Fixed 5.53125%(4)<F6> 4.66000% $10,000,000(7)<F9> 12/30/96
Minneapolis, Minnesota
Firstar Bank Milwaukee, N.A. Floating Fixed 5.49219%(5)<F7> 8.77000% $10,000,000(9)<F11>06/30/97
Milwaukee, Wisconsin
Firstar Bank Milwaukee, N.A. Floating Fixed 5.46094%(5)<F7> 6.53000% $17,500,000 07/07/97
Milwaukee, Wisconsin
Firstar Bank Milwaukee, N.A. Floating Fixed 5.46094%(5)<F7> 6.84700% $1,500,000 07/07/97
Milwaukee, Wisconsin
Firstar Bank Milwaukee, N.A.(1)<F3> Floating Floating 5.61328%(5)<F7> 6.22222%(7)<F9>$25,000,000 09/16/97
Milwaukee, Wisconsin
First Bank National Association Floating Fixed 5.50000%(4)<F6> 10.20000% $12,600,000 09/23/97
Minneapolis, Minnesota
Firstar Bank Milwaukee, N.A.(1)<F3> Floating Floating 5.46094%(5)<F7> 6.02794%(8)<F10>$35,000,000 10/06/97
Milwaukee, Wisconsin
Firstar Bank Milwaukee, N.A. Floating Fixed 5.56250%(4)<F6> 8.50270% $5,000,000 12/11/97
Milwaukee, Wisconsin
Norwest Bank Minnesota, N.A. Floating Fixed 5.61328%(5)<F7> 5.29000% $15,000,000 09/16/98
Minneapolis, Minnesota
First Bank National Association(1)<F3>Floating Fixed 5.47656%(10)<F12> 9.20000% $8,000,000(11)<F13>06/16/99
Minneapolis, Minnesota
LaSalle National Bank Floating Fixed 5.56250%(5)<F7> 6.34000% $5,400,000 03/21/01
Chicago, Illinois
Firstar Bank Milwaukee, N.A. Floating Fixed 5.60938%(5)<F7> 7.43500% $10,325,000(12)<F14>09/28/01
Milwaukee, Wisconsin
LaSalle National Bank Floating Fixed 5.53906%(5)<F7> 7.60000% $5,000,000 03/10/05
Chicago, Illinois
LaSalle National Bank Floating Fixed 5.49219%(5)<F7> 6.66000% $5,250,000(13)<F15>05/23/05
Chicago, Illinois
LaSalle National Bank Floating Fixed 5.57031%(5)<F7> 6.50000% $5,000,000(14)<F16>09/29/05
Chicago, Illinois
(1)<F3>Investment swap.
(2)<F4>Adjusted every three months to the three-month London Interbank Offered
Rate (LIBOR) then in effect minus a variable rate premium, currently at
.81408%. LIBORis an index which reflects changes in market rates.
(3)<F5>Adjusted every three months to the three-month (LIBOR) then in effect
subject to a 25 basis point maximum increase at each adjustment period.
(4)<F6>Adjusted every six months to the six-month LIBOR then in effect.
(5)<F7>Adjusted every three months to the three-month LIBOR then in effect.
(6)<F8>Adjusted every three months to the three-month LIBOR then in effect plus
a premium, currently at .557%, subject to a 25 basis point maximum increase at
each adjustment period.
(7)<F9>Adjusted every three months to the three-month LIBOR then in effect plus
a premium, currently at .60894%, subject to a 25 basis point maximum increase
at each adjustment period.
(8)<F10>Adjusted every three months to the three-month LIBOR then in effect plus
a premium, currently at .567%, subject to a 25 basis point maximum increase at
each adjustment period.
(9)<F11>The notional amount decreases by $166,667 each quarter and was
$6,166,659 at June 30, 1996.
(10)<F12>Adjusted every month to the one-month LIBOR then in effect.
(11)<F13>The notional amount decreases by $83,333 each quarter and was
$5,583,343 at June 30, 1996. $2,833,343 of this contract was designated as
a hedge; $2,750,000 was accounted for as an investment.
(12)<F14>The notional amount decreases by $166,667 each quarter and was
$7,158,333 at June 30, 1996.
(13)<F15>The notional amount decreases by $100,000 each quarter and was
$4,850,000 at June 30, 1996.
(14)<F16>The notional amount decreases by $75,000 each quarter and was
$4,775,000 at June 30, 1996.
</TABLE>
The Company provides additional supplemental retirement benefits for two
executive officers. Such benefits totaled $194,882 in fiscal 1996, $0 in fiscal
1995 and $43,422 in fiscal 1994. The payments were made in the sole discretion
of the outside members of the Board of Directors.
NOTE 12
STOCK OPTION PLANS
- ------------------
The Company has three stock option plans: the 1987 Stock Option Plan, the 1990
Stock Option Plan and the 1993 Stock Option Plan (the "Plans"). In accordance
with the Plans' provisions, the exercise prices for stock options may not be
less than the fair market value of the optioned stock at the date of grant. All
of the options are "incentive stock options" as defined under Section 422 of the
Code. All options must be exercised within ten years of the date of grant.
Additional information relating to the Plans is shown below.
FOR THE YEAR FOR THE YEAR
STOCK OPTION PLANS ENDED JUNE 30, 1996 ENDED JUNE 30, 1995
--------------------- -------------------
NUMBER AVERAGE NUMBER AVERAGE
OF OPTION OF OPTION
OPTIONS PRICE OPTIONS PRICE
------- ------- ------- -------
Options outstanding at July 1, 1995
and 1994, respectively 147,144 $9.92 149,551 $8.92
Options granted - - 30,000 14.50
Options exercised (15,720) 7.05 (16,157) 7.07
Options terminated unexercised - - (16,250) 12.00
-------- ------ -------- -----
Options outstanding at June 30, 1996
and June 30, 1995, respectively 131,424 10.26 147,144 9.92
Options available for grant
at June 30, 1996 and
June 30, 1995, respectively 23,430 - 23,430 -
-------- ------ -------- -----
TOTAL RESERVED SHARES 154,854 - 170,574 -
-------- ------ -------- -----
-------- ------ -------- -----
Options exercisable at June 30, 1996
and June 30, 1995, respectively 46,780 $8.58 47,968 $7.66
-------- ------ ------- -----
NOTE 13
RESTRICTIONS ON INTERCOMPANY CASH TRANSFERS
- -------------------------------------------
The Company is subject to limitations regarding the amount of cash which can be
transferred to it from BMSBIC in the form of loans, advances or dividends with-
out the consent of a third party. Without prior approval of the SBA, BMSBIC is
prohibited from making distributions to the Company other than periodic payments
out of "Retained Earnings Available for Distribution," as defined by the SBA
(consisting of the sum of undistributed net operating income, realized gains and
losses on investments and unrealized depreciation on investments and
securities). At June 30, 1996, BMSBIC had negative "Retained Earnings Available
for Distribution." Similarly, pursuant to covenants contained in its debt
agreements, BMSBIC is prohibited from declaring or paying any dividend on its
common stock which would constitute a return-of-capital dividend for income tax
purposes. In August 1996, upon approval from the SBA, BMSBIC distributed net
operating income totaling $604,989 to the Company for income tax purposes.
At June 30, 1996 and June 30, 1995, the condensed financial statements of the
Company (on an unconsolidated basis) are shown on page 16.
NOTE 14
SUBSEQUENT EVENTS
- -----------------
On July 18, 1996, the Company's Board of Directors declared a cash dividend of
$.24 per share payable on or before August 15, 1996 to shareholders of record on
August 5, 1996.
BALANCE SHEET, UNCONSOLIDATED JUNE 30,
- ----------------------------- -----------------------------
ASSETS 1996 1995
- ------ ----------- ------------
Investments at fair value $7,968,326 $12,106,330
Excess servicing asset 312,501 -
Investments in subsidiaries 25,516,827 25,194,643
Short-term securities at market value 100,000 250,000
Notes receivable from subsidiaries 1,403,666 859,977
Other assets-net 552,269 370,535
---------- ----------
TOTAL ASSETS $35,853,589 $38,781,485
----------- ----------
----------- ----------
Other liabilities 250,168 125,541
Preferred stock (less treasury stock) 16,908,025 16,908,025
Shareholders' equity 18,695,396 21,747,919
------------- -----------
TOTAL LIABILITIES, PREFERRED STOCK AND
SHAREHOLDERS' EQUITY $35,853,589 $38,781,485
------------ -----------
------------ -----------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
STATEMENT OF OPERATIONS, UNCONSOLIDATED JUNE 30, 1996 JUNE 30, 1995
- --------------------------------------- ------------- -------------
Interest income $1,119,127 $1,266,800
Equity in income of subsidiaries 5,351,987 4,985,096
Premium income 52,938 -
Other income 66,989 45,109
--------- ---------
TOTAL OPERATING INCOME 6,591,041 6,297,005
--------- ---------
Interest expense 1,358,422 1,392,218
Other operating expenses 1,690,417 1,375,645
--------- ---------
TOTAL OPERATING EXPENSES 3,048,839 2,767,863
--------- ---------
Net operating income 3,542,202 $3,529,142
Change in unrealized depreciation on investments
and securities 343,643 (436,036)
--------- ----------
Net operating income and change in
unrealized depreciation on investments
and securities $3,885,845 $3,093,106
---------- ----------
---------- ----------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
STATEMENT OF CASH FLOWS, UNCONSOLIDATED JUNE 30, 1996 JUNE 30, 1995
- --------------------------------------- ------------- -------------
Net Cash Provided by Operations $6,388,466 $9,401,510
Net Cash Used in Financing Activities (6,264,079) (9,314,212)
---------- ---------
Net increase in cash 124,387 87,298
---------- ---------
Cash, beginning of year 103,379 16,081
---------- ---------
Cash, end of year $227,766 $103,379
---------- ---------
---------- ---------
JUNE 30, 1996
SHORT-TERM INVESTMENTS(1)<F17> COST VALUE
- ------------------------- ---------- ----------
U. S. Treasury Bill $899,255 $899,255
Euro-Dollar 100,000 100,000
---------- ----------
$999,255 $999,255
---------- ----------
---------- ----------
Percentage of total assets 1%
----------
----------
LOANS, LOAN-BACKED CERTIFICATES AND COMMON STOCK INVESTMENTS
- ------------------------------------------------------------
UNPAID
PRINCIPAL
LOANS(2)<F18> NUMBER BALANCE
TYPE OF BUSINESS OF LOANS OR COST VALUE
- ---------------- -------- ---------- ----------
Wholesale Goods 29 $10,435,659 $10,268,482
Fabricated Metal Products 16 9,019,316 8,938,908
Industrial Machinery 46 20,680,327 20,400,045
Services 27 5,583,330 5,376,522
Commercial Printing 32 13,786,126 13,551,306
Rubber Products 3 234,634 158,505
Instruments and Related Products 8 2,871,078 2,296,671
Construction 11 2,423,320 2,387,723
Electronic Equipment 6 2,355,177 2,327,720
Retail 9 1,386,877 1,164,464
Manufacturing-Miscellaneous 16 6,190,012 6,125,429
Transportation 6 2,066,300 2,051,011
Miscellaneous 2 104,352 81,742
--- ---------- ----------
211 77,136,508 75,128,528
LOAN-BACKED CERTIFICATES 2 2,205,712 1,946,149
COMMON STOCK INVESTMENTS 3 2,098,186 1,881,915
--- ----------- -----------
216 $81,440,406 $78,956,592
--- ----------- -----------
--- ----------- -----------
Percentage of total assets 93%
-----------
-----------
(1)<F17>Short-term investments bear interest at rates ranging from 4.26% to
4.50%. All investment issuances have a maturity of 90 days or less.
2)<F18>Loans to small business concerns bear interest primarily at variable
rates ranging from 7.9% to 13.25% and are generally payable in installments
with final maturities of up to 20 years. Loans made by the Company are primarily
secured by a first or second mortgage on real estate. Names have been omitted as
disclosures to the public may be detrimental to the small business concern.
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
PER SHARE OPERATING PERFORMANCE
YEAR ENDED JUNE 30, 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987(1)<F19>
- ------------------------------- ----- ---- ---- ---- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $5.58 $5.89 $6.35 $4.19 $4.29 $3.57 $4.12 $4.34 $4.56 $4.63
Net investment income 0.92 0.90 1.00 1.01 0.88 0.83 0.74 0.63 0.60 0.03
Net realized and unrealized gains
or losses on investments (0.09) (0.13) (0.23) 0.03 (0.14) (0.07) (0.51) (0.17) (0.21) (0.10)
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment operations 0.83 0.77 0.77 1.04 0.74 0.76 0.23 0.46 0.39 (0.07)
Other capital transactions(2)<F20> (0.38) (0.08) (0.23) 2.04 0.04 0.84 - - - -
Less distributions to common shareholders
Dividends (from net
investment income)(8)<F26> (0.96) (1.00) (1.00) (0.92) (0.88) (0.88) (0.78) (0.68) (0.61) -
Distributions (from capital gains) - - - - - - - - - -
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.96) (1.00) (1.00) (0.92) (0.88) (0.88) (0.78) (0.68) (0.61) -
Net asset value, end of period $ 5.07 $ 5.58 $ 5.89 $ 6.35 $ 4.19 $ 4.29 $ 3.57 $ 4.12 $ 4.34 $ 4.56
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Per share market value, end of period $11.00 $12.00 $16.25 $12.75 $13.25 $ 9.00 $ 8.50 $ 7.25 $ 6.625$ 6.875
Total investment return(3)<F21> (0.86)%(19.37)%30.84% 3.40% 54.91% 17.11% 27.30% 11.33% 5.78%7.84%(4)<F22>
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets, end of period (in thousands) $18,695$21,748 $23,123$24,340 $11,512$11,554 $ 7,297$ 8,424 $ 8,882$ 9,326
Ratio of expenses to
average net assets(5)<F23> 26.97% 32.92% 20.86% 20.97% 52.28% 78.23% 89.39% 66.83% 40.97%28.95%(6)<F24>
Ratio of net operating income to
average net assets 17.33% 16.44% 16.30% 16.68% 20.46% 19.84% 18.57% 15.08% 13.61%7.94%(6)<F24>
Portfolio turnover rate(7)<F25> 73.42% 50.95% 27.04% 12.37% 11.22% 10.36% 16.91% 15.76% 13.05%38.14%(6)<F24>
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
(1)<F19>May 31, 1987 to June 30, 1987. The Company's initial registration
statement under the Securities Act was declared effective on May 13, 1987. Data
for the interim period from May 13, 1987 to May 31, 1987 are not available.
(2)<F20>The amounts set forth reflect treasury stock activities and stock option
exercises at amounts in excess of or less than net asset value, the decrease
in net asset value resulting from costs from sale of the preferred stock in
1994, and the increase in net asset value of $2.04 and $0.84 per share for
fiscal 1993 and for fiscal 1991, respectively, resulting from the sale of
shares of Common Stock in public offerings in fiscal 1993 and fiscal 1991 at
per share prices in excess of the Company's net asset value per share.
(3)<F21>The returns set forth assume the purchase of Common Stock at the market
price at the beginning of the period and a sale at the market price on the
last day of the period and assume the reinvestment of common dividends.
(4)<F22>Non-annualized.
(5)<F23>The expense amount used for calculating the ratios includes interest
expense incurred by the Company for each period.
(6)<F24>Annualized.
(7)<F25>Calculated for each period by dividing (a) the lesser of new loans
(including refinancings) or loan payments and maturities (including
refinancings) for the period by (b) the monthly average of loans for the
period.
(8)<F26>For tax purposes, approximately $0.20 of the dividends distributed in
1996 were return of capital.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
CONSOLIDATING BALANCE SHEET
<CAPTION>
JUNE 30, 1996 BMCC BMSBIC BMSBLC ELIMINATIONS CONSOLIDATED
- ------------- ---------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Loans $4,140,262 $71,587,697 $1,408,549 $- $77,136,508
Loan-backed certificates 2,205,712 - - - 2,205,712
Common stock investments 2,098,186 - - - 2,098,186
Less: reserve for losses (216,271) (583,729) - - (800,000)
Less: retained loan discount (259,563) (1,152,704) (271,547) - (1,683,814)
---------- ---------- ---------- ------------ -----------
Investments at fair value 7,968,326 69,851,264 1,137,002 - 78,956,592
Excess servicing asset 312,501 1,192,370 266,726 - 1,771,597
Investment in subsidiaries 25,516,827 - - (25,516,827) -
Short-term securities at market value 100,000 - 899,255 - 999,255
Investment in swap contracts at market value - 707,602 - - 707,602
Interest receivable 114,513 1,175,355 33,919 - 1,323,787
Cash 227,766 56,079 48,544 - 332,389
Fixed assets -net 41,151 17,026 - - 58,177
Notes receivable from subsidiaries 1,403,666 - - (1,403,666) -
Other assets -net 168,839 352,899 36,824 (22,033) 536,529
---------- ---------- ---------- ------------ -----------
TOTAL ASSETS $35,853,589 $73,352,595 $2,422,270 $(26,942,526) $84,685,928
---------- ---------- ---------- ------------ -----------
---------- ---------- ---------- ------------ -----------
LIABILITIES, PREFERRED STOCK AND
SHAREHOLDERS' EQUITY
Short-term borrowings $- $24,288,887 $- $- $24,288,887
SBA debenture - 12,620,000 - 12,620,000
SWIB notes payable - 7,000,000 - - 7,000,000
Loan participations with repurchase options - 3,983,990 - - 3,983,990
Notes payable to subsidiary 22,033 - - (22,033) -
Notes payable to parent - - 1,403,666 (1,403,666) -
Other liabilities 228,135 925,660 35,835 - 1,189,630
---------- ---------- ---------- ------------ -----------
TOTAL LIABILITIES 250,168 48,818,537 1,439,501 (1,425,699) 49,082,507
---------- ---------- ---------- ------------ -----------
Preferred stock 16,908,025 - - - 16,908,025
---------- ---------- ---------- ------------ -----------
Common Stock and Other
Shareholders' Equity:
Common stock 263,716 24,421,525 1,000,000 (25,421,525) 263,716
Additional paid-in capital 24,033,232 - - - 24,033,232
(Overdistributed) undistributed net
operating income (2,217,970) 2,023,239 (17,231) - (211,962)
Net unrealized (depreciation) appreciation
on investments and securities (120,969) 123,873 - (95,302) (92,398)
Realized loss on investments - (2,034,579) - - (2,034,579)
Treasury stock, at cost (3,262,613) - - - (3,262,613)
---------- ---------- ---------- ------------ -----------
TOTAL COMMON STOCK AND
OTHER SHAREHOLDERS' EQUITY 18,695,396 24,534,058 982,769 (25,516,827) 18,695,396
---------- ---------- ---------- ------------ -----------
---------- ---------- ---------- ------------ -----------
TOTAL LIABILITIES, PREFERRED STOCK,
COMMON STOCK AND OTHER
SHAREHOLDERS' EQUITY $35,853,589 $73,352,595 $2,422,270 $(26,942,526) $84,685,928
---------- ---------- ---------- ------------ -----------
---------- ---------- ---------- ------------ -----------
</TABLE>
<TABLE>
CONSOLIDATING STATEMENT OF OPERATIONS
<CAPTION>
YEAR ENDED JUNE 30, 1996 BMCC BMSBIC BMSBLC ELIMINATIONS CONSOLIDATED
- ------------------------ -------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING INCOME:
Interest on loans $964,327 $7,217,698 $289,036 $- $8,471,061
Interest on loan to subsidiary 106,710 - - (106,710) -
Equity in income of subsidiaries 5,351,987 - - (5,351,987) -
Interest on short-term securities 48,090 2,074 6,980 - 57,144
Premium income 52,938 35,832 (9,792) - 78,978
Other income 66,989 367,532 13,442 - 447,963
--------- --------- ------- ---------- ---------
TOTAL OPERATING INCOME 6,591,041 7,623,136 299,666 (5,458,697) 9,055,146
--------- --------- ------- ---------- ---------
OPERATING EXPENSES:
Interest expense 1,358,422 2,040,922 - - 3,399,344
Interest expense on loan from parent - - 106,710 (106,710) -
Salaries and employee benefits 1,081,106 514 59,197 - 1,140,817
Other operating expenses 609,311 332,541 30,931 - 972,783
--------- --------- ------- ---------- ---------
TOTAL OPERATING EXPENSES 3,048,839 2,373,977 196,838 (106,710) 5,512,944
--------- --------- ------- ---------- ---------
Net operating income 3,542,202 5,249,159 102,828 (5,351,987) 3,542,202
Realized loss on investments - (2,651) - - (2,651)
Change in unrealized depreciation/
appreciation on investments
and securities 343,643 (349,453) - (322,185) (327,995)
--------- --------- ------- ---------- ---------
Net operating income, realized loss
on investments and change in
unrealized depreciation/appreciation
on investments and securities $3,885,845 $4,897,055 $102,828 $(5,674,172) $3,211,556
--------- --------- ------- ---------- ---------
--------- --------- ------- ---------- ---------
BMCC--Bando McGlocklin Capital Corporation
BMSBIC--Bando McGlocklin Small Business Investment Corporation
BMSBLC--Bando McGlocklin Small Business Lending Corporation
SBA--Small Business Administration
SWIB--State of Wisconsin Investment Board
</TABLE>
<TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
<CAPTION>
YEAR ENDED JUNE 30, 1996 BMCC BMSBIC BMSBLC ELIMINATIONS CONSOLIDATED
- ------------------------ --------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net operating income, realized loss
on investments and change in unrealized
depreciation/appreciation on investments
and securities $3,885,845 $4,897,055 $102,828 $(5,674,172) $3,211,556
Loans made (2,951,633) (37,549,614) (2,388,976) - (42,890,223)
Principal collected on loans 1,658,744 21,089,364 988,600 - 23,736,708
Loans sold 10,423,812 15,991,581 1,671,644 - 28,087,037
Premium income-net (52,938) (35,832) 9,792 - (78,978)
Certificate purchased from trust (1,213,315) - - - (1,213,315)
Loans purchased (4,767,544) - - 4,317,929 (449,615)
Loans sold to subsidiary 749,836 - - (749,836) -
Loans sold to parent - 4,317,929 - (4,317,929) -
Loans purchased from parent - (749,836) - 749,836 -
Real estate sold - 216,000 - - 216,000
Purchase of short-term securities - - (899,255) - (899,255)
Proceeds from maturity of securities 150,000 - - - 150,000
Adjustments to reconcile net operating income,
realized loss on investments and
change in unrealized depreciation/appreciation
on investments and securities to net cash
provided by (used in) operating activities:
Change in unrealized depreciation/appreciation
on investments and securities (343,643) 349,453 - 322,185 327,995
Amortization 51,184 29,069 6,486 - 86,739
Depreciation 11,573 14,082 - - 25,655
Increase (decrease) in cash due to changes in:
Interest receivable (34,553) (112,863) 11,633 - (135,783)
Other assets (85,551) (134,522) 18,275 - (201,798)
Other liabilities 108,922 (273,626) 28,442 - (136,262)
Payable to parent - - 543,689 (543,689) -
Payable to subsidiary 15,705 - - (15,705) -
Receivable from parent - (15,705) - 15,705 -
Receivable from subsidiary (543,689) - - 543,689 -
Undistributed net operating
income of subsidiaries (674,289) - - 674,289 -
--------- --------- ------- ---------- ----------
NET CASH PROVIDED BY OPERATIONS 6,388,466 8,032,535 93,158 (4,677,698) 9,836,461
--------- --------- ------- ---------- ----------
Cash Flows from Financing Activities:
Decrease in short-term borrowings - (3,435) - - (3,435)
Proceeds from loan participations
with repurchase options-net - 3,983,990 - - 3,983,990
Repayment of SWIB notes - (7,333,334) - - (7,333,334)
Dividends paid (3,678,476) - - - (3,678,476)
Distribution to parent - (4,632,190) (45,508) 4,677,698 -
Proceeds from exercise of stock options 110,760 - - - 110,760
Repurchase of common stock (2,696,363) - - - (2,696,363)
--------- --------- ------- ---------- ----------
NET CASH USED IN FINANCING
ACTIVITIES (6,264,079) (7,984,969) (45,508) 4,677,698 (9,616,858)
--------- --------- ------- ---------- ----------
Net increase in cash 124,387 47,566 47,650 - 219,603
Cash, beginning of year 103,379 8,513 894 - 112,786
--------- --------- ------- ---------- ----------
Cash, end of year $227,766 $56,079 $ 48,544 $- $332,389
--------- --------- ------- ---------- ----------
--------- --------- ------- ---------- ----------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Bando McGlocklin Capital
Corporation
In our opinion, the accompanying consolidated balance sheet of Bando McGlocklin
Capital Corporation and its subsidiaries (the "Company"), including the
consolidated schedule of investments as of June 30, 1996, and the related
consolidated statements of operations, of changes in shareholders' equity, and
of cash flows and the financial highlights present fairly, in all material
respects, the financial position of the Company at June 30, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended June 30, 1996, and the financial highlights for each of the
nine years in the period ended June 30, 1996 and for the period May 31, 1987
through June 30, 1987, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
state ments based on our audits. We conducted our audits of these financial
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, which included
confirmation of selected loan balances by correspondence with the borrowers (and
the application of alternative auditing procedures where confirmations were not
received), provide a reasonable basis for the opinion expressed above.
Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information on pages
20-22 is presented for purposes of additional analysis rather than to present
financial position, results of operations and cash flows of the individual
companies. Accordingly, we do not express an opinion on the financial position,
results of operations and cash flows of the individual companies. However, the
con solidating information on pages 20-22 has been subjected to the auditing
procedures applied in the audit of the con soli dated financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
consolidated finan cial statements taken as a whole.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Milwaukee, Wisconsin
August 8, 1996
CORPORATE & INVESTOR INFORMATION
DIVIDEND REINVESTMENT PLAN
Any holder of record of Common Stock may elect to participate in the Bando
McGlocklin (the Company) Dividend Reinvestment Plan (DRP). Under the DRP,
participating shareholders may elect to have their dividends automatically
invested in Common Stock. The DRP also allows participants to purchase Common
Stock with supplemental cash deposits of between $25 and $3,000 per quarter.
The DRP is administered by, and additional information regarding the DRP may be
obtained from, Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, telephone (414) 765-5000. To participate in the DRP, eligible
shareholders must sign and deliver to Firstar Trust Company an authorization
form. This form may be obtained from Firstar Trust Company or from Bando
McGlocklin Capital Corporation. A shareholder may terminate participation in the
DRP by delivering written notice to Firstar Trust Company.
Reinvested Common Stock dividends and supplemental cash deposits of DRP
participants are commingled and used to purchase Common Stock. Currently, the
DRP's requirements for shares are being met through open market purchases. Upon
the purchase of additional shares by the DRP in each quarter, each participant's
account is credited with that number of shares, including fractions computed to
three decimal points, equal to the amount invested on behalf of such participant
divided by the applicable weighted average purchase price. Dividends reinvested
under the DRP are subject to Federal income tax as though they had been actually
paid in cash to the participant. Each participant is also subject to Federal
income taxation on his or her pro rata share of any brokerage commissions paid
by the Company in connection with the DRP.
DIVIDEND DATE RECORD DATE
November 15 November 5
January 31 December 31
May 15 May 5
August 15 August 5
MARKET MAKERS
Robert W. Baird & Co. Incorporated
Dain Bosworth Incorporated
A.G. Edwards & Sons Inc.
Frederick & Company, Inc.
Hamilton Investments, Inc.
Stifel, Nicolaus & Company Incorporated
NASDAQ STOCK MARKET
Common Stock Symbol: BMCC
Preferred Stock Symbol: BMCCP
TRANSFER AGENT
Firstar Trust Company
Milwaukee, Wisconsin
OR FURTHER INFORMATION
If you would like to be added to our mailing list or receive additional copies
of the Company's 1996 Annual Report, Dividend Reinvestment Plan or Form N-2
filed with the Securities and Exchange Commission, please call Carolyn Barbian,
administrative assistant, at (414) 784-9010 or write: Bando McGlocklin Capital
Corporation 13555 Bishops Court, Suite 205 Brookfield, WI 53005-6226.
NET OPERATING INCOME PER SHARE
STOCK PRICE
YEAR ENDING JUNE 30,
STOCK PRICE
HIGH LOW
1992 $.88 14.000 9.000
1993 .95 14.250 11.250
1994 1.00 18.500 12.250
1995 .90 16.500 11.500
1996 .93 13.750 10.000
STOCK PRICE
YEAR ENDING JUNE 30,
High Low Close
1987 $6.875 $6.375 $6.875
1988 7.375 5.500 6.625
1989 8.000 6.625 7.250
1990 9.000 6.500 8.500
1991 9.500 7.500 9.000
1992 14.000 9.000 13.250
1993 14.250 11.250 12.750
1994 18.500 12.250 16.250
1995 16.500 11.500 12.000
1996 13.750 10.000 11.000
NET OPERATING INCOME PER SHARE 1<F27>
YEAR ENDING JUNE 30,
First Second Third Fourth
Quarter Quarter Quarter Quarter
1987 $.175 $.135 $.120 $.126
1988 .136 .143 .155 .170
1989 .151 .172 .171 .132
1990 .150 .215 .180 .196
1991 .200 .200 .178 .221
1992 .250 .220 .221 .187
1993 .200 .230 .260 .250
1994 .250 .290 .260 .200
1995 .220 .220 .210 .260
1996 .240 .210 .240 .240
1<F27> Due to the use of weighted average shares outstanding when calculating
net operating income per share, the sum of the quarterly per share data may not
equal the per share data for the year.
RETURN ON INVESTMENT 2<F28>
YEAR ENDING JUNE 30,
Dividend Apprec./ Total
Yield Deprec. Return
1988 9.42% -3.64% 5.78%
1989 9.58 1.75 11.33
1990 12.05 15.25 27.30
1991 11.23 5.88 17.11
1992 11.67 43.24 54.91
1993 7.17 -3.77 3.40
1994 8.20 22.64 30.84
1995 5.63 -25.00 -19.37
1996 7.47 -8.33 -0.86
2<F28> Assuming the reinvestment of dividends paid
BOARD OF DIRECTORS
George R. Schonath
Chairman of the Board
Jon McGlocklin
President
Salvatore L. Bando
Robert A. Cooper
Peter A. Fischer
David A. Geraldson, Sr.
Albert O. Nicholas
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
Milwaukee, Wisconsin
GENERAL COUNSEL
Foley & Lardner
Milwaukee, Wisconsin
BANDO MCGLOCKLIN CAPITAL CORPORATION
13555 BISHOPS COURT, SUITE 205
BROOKFIELD, WISCONSIN 53005-6226
TELEPHONE (414) 784-9010
FACSIMILE (414) 784-3426
(C)1996 BANDO MCGLOCKLIN
</TABLE>
