UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended
September 30, 1997
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____ to ____
Commission file number: 0-22663
BANDO McGLOCKLIN CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1364345
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation) No.)
W239 N1700 Busse Road
P.O. Box 190 53072-0190
Pewaukee, Wisconsin (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (414) 523-4300
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 ___
On November 13, 1997 there was 3,689,102 shares outstanding of the
Registrant's common stock, 6 2/3 cents par value.
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION
FORM 10-Q INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1997
and December 31, 1996 . . . . . . . . . . . . . . . . . . . 3-4
Consolidated Statement of Operations - For the Three
and Nine Months Ended September 30, 1997 and 1996 . . . . . .5
Consolidated Statement of Cash Flows - For the Nine
Months Ended September 30, 1997 and 1996 . . . . . . . . . 6-7
Notes to the Consolidated Financial Statements . . . . . . 8-11
Item 2. Management's Discussion and Analysis of
Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . 12-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .18
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . 18
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . .18
Item 4. Submission of Matters to a Vote of Security Holders. . . . . 18
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . .18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 19
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 1997 December 31, 1997
(Unaudited) (Unaudited)
ASSETS
Loans $135,324,841 $69,468,291
Loan-backed certificates - 1,988,056
Land 295,002 369,577
Less: reserve for loan losses (450,000) (450,000)
Less: retained loan discount (264,176) (1,482,657)
------------ ----------
Investments $134,905,667 69,893,267
Excess servicing asset 274,128 1,555,231
Short-term securities 350,000 -
Investment in swap contracts
at market value 135,916 444,257
Accounts receivable (net of
allowance of $96,885 and
$98,083, respectively) 2,273,054 1,044,777
Inventory 3,605,662 1,700,814
Interest receivable 1,091,716 1,348,860
Cash 440,867 1,337,556
Fixed assets (net of accumulated
depreciation of $795,706 and
$617,997, respectively) 2,085,411 1,549,198
Other assets 849,620 645,438
----------- ----------
Total Assets $146,012,041 $79,519,398
=========== ==========
LIABILITIES, MINORITY INTEREST,
PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Commercial Paper $28,065,006 $21,768,394
Notes payable to banks 7,717,500 9,700,000
----------- ----------
Short-term borrowings 35,782,506 31,468,394
State of Wisconsin Investment
Board note payable 6,166,667 6,666,667
Loan participations with
repurchase options 70,879,229 5,348,619
Accounts payable 1,057,834 565,803
Other notes payable 21,871 29,469
Other liabilities 2,976,484 2,290,570
----------- ----------
Total Liabilities 116,884,591 46,369,522
----------- ----------
Minority interest in
subsidiaries 1,531,627 602,150
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
Shareholders' Equity
Common Stock, 6 2/3 cents par
value, 15,000,000 shares
authorized, 4,001,540 and
3,955,744 shares issued and
outstanding, before deducting
shares in treasury,
respectively 266,769 263,716
Additional paid-in capital 13,671,947 19,498,326
Retained earnings/(deficit) 601,593 (859,728)
Treasury stock, at cost
(312,438 and 266,650 shares,
respectively) (3,852,511) (3,262,613)
---------- -----------
Total Shareholders' Equity 10,687,798 15,639,701
Total Liabilities, Minority
Interest, Preferred Stock
and Shareholders' Equity $146,012,041 $79,519,398
=========== ==========
<PAGE>
<TABLE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Interest on loans $2,924,578 $1,850,382 $8,185,405 $5,710,547
Net sales of manufacturing
subsidiaries 4,791,450 2,724,847 12,446,386 3,378,204
Interest on short-term
securities 53,779 29,550 83,668 61,929
Premium (expense) income (2,165) 1,423 (62,622) 67,407
Other income 152,747 22,443 790,223 519,260
--------- --------- ---------- ---------
Total Revenues 7,920,389 4,628,645 21,443,060 9,737,347
--------- --------- ---------- ---------
Expenses:
Interest expense 1,893,624 567,020 4,862,157 1,868,006
Cost of goods sold of
Manufacturing subsidiaries 2,386,619 1,304,267 6,445,142 1,734,682
Salaries and employee benefits 638,412 408,946 1,602,306 1,096,778
Change in appreciation on
investment swaps 91,109 91,567 308,341 450,022
Realized (gains) losses - - - 15,926
Other operating expenses 1,258,101 691,844 3,374,514 1,766,750
--------- -------- ---------- ---------
Total Expenses 6,267,865 3,063,644 16,592,460 6,932,164
--------- -------- ---------- ----------
Net operating income before income
taxes and minority interest 1,652,524 1,565,001 4,850,600 2,805,183
--------- --------- ---------- ---------
Provision for income taxes (439,728) (341,000) (1,133,784) (341,000)
Minority interest in earnings of
Subsidiaries (359,933) (248,548) (929,478) (246,999)
--------- --------- --------- ----------
Net Income $ 852,863 $ 975,453 $2,787,338 $2,217,184
========== ========= ========= ==========
Net Income Per Common Share $ 0.23 $ 0.26 $ 0.75 $ 0.59
========== ========= ========= ==========
Weighted Average Shares Outstanding 3,691,532 3,709,512 3,701,718 3,740,098
========== ========== ========== =========
</TABLE>
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
September 30, 1997 September 30, 1996
Cash Flows from Operating
Activities
Net income $2,787,338 $2,217,184
Loans made (41,430,388) (34,880,180)
Principal collected on loans 27,209,076 14,722,027
Loans sold - 27,570,819
Premium expense (income) - net 62,622 (67,407)
Loans purchased (49,647,182) -
Other adjustments to reconcile net
income to net cash (used) provided
by operating activities:
Change in appreciation on investment
swaps 308,341 450,022
Amortization 73,565 48,523
Depreciation 177,709 70,395
Change in minority interest in
subsidiaries 929,477 235,075
Other - (181,704)
Increase (decrease) in cash due
to changes in:
Accounts receivable (1,228,277) (644,174)
Inventory (1,904,848) (60,068)
Interest receivable 257,144 115,699
Other assets (277,747) (260,000)
Accounts payable 492,031 445,867
Other liabilities 685,914 (942,411)
------------- ------------
Net Cash (Used) Provided by
Operations (61,505,225) 8,839,667
-------------- ------------
Cash Flows from Investing Activities:
Purchase of fixed assets (713,922) (268,975)
Real Estate sold 74,575 777,213
Purchase of short-term securities (2,625,000) (1,060,255)
Proceeds from maturity of securities
2,275,000 1,856,033
Acquisition of Middleton Doll - 400,325
---------- ----------
Net Cash (Used) Provided by
Investing Activities (989,347) 1,704,341
Cash Flows from Financing Activities:
Increase in short-term borrowings $4,314,112 $8,103,468
Proceeds from loan participations
with repurchase options - net 65,530,610 5,435,228
Repayment of SWIB note (500,000) (6,833,334)
Repayment of SBA debenture - (12,620,000)
Decrease in other notes payable (7,598) (2,438)
Capitalization and distribution of
InvestorsBank (6,160,000) -
Dividends paid (1,326,017) (2,687,685)
Proceeds from exercise of
stock options 336,674 -
Repurchase of common stock (589,898) (1,462,318)
---------- ----------
Net Cash Provided (Used) in Financing
Activities 61,597,883 (10,067,079)
---------- ----------
Net (decrease) increase in cash (896,689) 476,929
Cash, beginning of period 1,337,556 1,008,847
---------- ----------
Cash, end of period $440,867 $1,485,776
========== ==========
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 NATURE OF BUSINESS
Bando McGlocklin Capital Corporation (the "Company"), was incorporated in
February 1980 and provides long-term secured loans to finance the growth,
expansion and modernization of small businesses.
On March 26, 1993, the Company completed the formation of a holding
company structure by transferring substantially all of its assets and
liabilities to Bando McGlocklin Small Business Lending Corporation
("BMSBLC"), a wholly owned subsidiary of the Company. At the close of the
day on December 31, 1996, BMSLBC surrendered its Small Business
Administration ("SBA") license. BMSBLC continues to provide secured loans
to small business concerns. Prior to January 1, 1997, BMSBLC was known as
Bando McGlocklin Small Business Investment Corporation.
On May 5, 1993, the Company formed Bando McGlocklin Investment Company
("BMIC"), a subsidiary of the Company. In May 1993, a partially developed
real estate parcel was transferred to BMIC. In December 1996 one percent
of the economic interest in BMIC was sold to an unrelated third party. In
January 1997, this one percent interest was sold to an officer of the
Company, and he was given 100% of the voting stock of BMIC by the Company.
In 1997, BMSBLC contributed it's ownership interest in Lee Middleton
Original Dolls, Inc. ("Middleton Doll") and License Products, Inc.
("License Products"), both 51% owned subsidiaries engaged in the
manufacturing business to BMIC. The consolidated accounts of the Company
reflect the consolidated financial position and results of operations of
BMIC, Middleton Doll and License Products.
Prior to January 2, 1997, the Company and BMSBLC were registered as
investment companies under the Investment Company Act of 1940 ("1940
Act"). Effective January 2, 1997, the Company and BMSBLC deregistered as
investment companies under the 1940 Act. The Company continues to operate
as a registrant under the Securities Act of 1933, but now reports under
the Securities Exchange Act of 1934 ("1934 Act"). The financial position
as of December 31, 1996 and the results of operations for the three months
and nine months ended September 30, 1996 and cash flows for the nine
months ended September 30, 1996 have been restated as if the Company had
always reported under the 1934 Act. Under the 1940 Act, the investments
in BMIC, Middleton Doll and License Products were accounted for as common
stock investments and stated at "fair value" as determined in good faith
by the Board of Directors. Under the 1934 Act, these three subsidiaries
are consolidated. Since 1993, the Company only owned 49% of Middleton
Doll. The acquisition of the additional 2% of Middleton Doll was
completed at the end of June 1996. Prior to this acquisition, Middleton
Doll was accounted for on the equity method.
During 1996 the Company changed its year-end from June 30 to December 31.
On September 3, 1997, the Company capitalized InvestorsBancorp, Inc., a
bank holding company, with approximately $6.2 million and then distributed
all of its outstanding shares of InvestorsBancorp, Inc. to the Company's
shareholders. Subsequent to the spin-off of the bank holding company, the
principal business of the Company will be to manage its loan portfolio and
to participate in loans with third party loan originators. The Company is
also expanding its real estate lending business into ownership of real
property including related buildings and improvements for lease to small
businesses.
The Company and InvestorsBancorp, Inc. share common offices and personnel.
Expenses are shared between the two entities in accordance with a
Management Services and Allocation of Expenses Agreement.
NOTE 2 RESTATEMENT
As discussed in Note 1, the Company now consolidates its investments in
Middleton Doll and License Products. With respect to these subsidiaries,
the Company has made certain adjustments to the previously reported 1997
and 1996 amounts. These adjustments primarily relate to the valuation of
certain inventory and other asset amounts. The impact of these
adjustments on the unaudited consolidated financial statements of the
Company is as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
As Originally As Originally
Reported As Restated Reported As Restated
<S> <C> <C> <C> <C>
Total Revenues $ 5,442,414 $ 5,442,414 $ 2,353,395 $ 2,353,395
Net Income 744,524 638,855 708,320 729,016
Net Income per Common
Share 0.20 0.17 0.19 0.19
</TABLE>
As of March 31, 1997
As Originally
Reported As Restated
Total Assets $ 114,851,133 $ 114,551,377
Total Liabilities 80,914,606 80,933,154
Total Shareholders' Equity 16,257,825 15,926,708
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
As Originally As Originally
Reported As Restated Reported As Restated
<S> <C> <C> <C> <C>
Total Revenues $ 7,992,941 $ 7,992,941 $ 2,573,603 $ 2,573,603
Net Income 1,351,506 1,302,743 424,633 512,778
Net Income per Common
Share 0.37 0.35 0.11 0.14
</TABLE>
As of June 30, 1997
As Originally
Reported As Restated
Total Assets $140,759,426 140,403,346
Total Liabilities 105,741,387 105,756,175
Total Shareholders' Equity 16,947,365 16,567,452
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1997
As Originally As Originally
Reported As Restated Reported As Restated
<S> <C> <C> <C> <C>
Total Revenues $ 13,435,355 $ 13,435,355 $ 4,926,998 $ 4,926,998
Net Income 2,096,030 1,932,203 1,132,953 1,241,794
Net Income per Common
Share 0.57 0.52 0.30 0.33
</TABLE>
As of December 31, 1996
As Originally
Reported As Restated
Total Assets $ 79,729,297 $ 79,519,398
Total Liabilities 46,365,002 46,369,522
Total Shareholders' Equity 15,858,059 15,639,701
NOTE 3 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Bando
McGlocklin Capital Corporation (the "Company") and its majority-owned
subsidiaries have been prepared in accordance with the instructions to
Form 10-Q and do not include all of the other information and disclosures
required by generally accepted accounting principles. These statements
should be read in conjunction with the unaudited consolidated financial
statements and notes thereto for the quarter ended March 31, 1997 included
in the Company's Quarterly Report on Form 10-Q for that period.
The accompanying consolidated financial statements have not been audited
by independent accountants in accordance with generally accepted auditing
standards, but in the opinion of management such financial statements
include all adjustments, consisting only of normal recurring accruals,
necessary to summarize fairly the Company's financial position and results
of operations. The results of operations for the nine months ended
September 30, 1997 may not be indicative of the results that may be
expected for the year ending December 31, 1997.
NOTE 4 RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
which supercedes existing standards for determining earnings per share.
The statement will be effective for the Company for the year ending
December 31, 1997. Primary earnings per share will be replaced by "basic
earnings per share," which will be determined solely by the weighted
average number of shares outstanding for the period. Fully diluted
earnings per share will be replaced by "diluted earnings per share" which
will reflect the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then shared
in the earnings of the Company. The statement will also require a
reconciliation of the numerator and denominator of basic earnings per
share with the numerator and denominator of diluted earnings per share.
Under the new pronouncement, the Company will exclude common stock
equivalents, as defined by APB No. 15 "Earnings Per Share," from the
computation of basic earnings per share. Management does not believe the
new statement will result in a significant difference in amounts per share
determined for primary earnings per share.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income,"
which establishes standards for reporting of comprehensive income and its
components. This statement will be effective for the Company for the year
ending December 31, 1999, although the Statement permits earlier adoption.
This statement requires that entities classify items of other
comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from
retained earnings and surplus in the equity section of a statement of
financial condition. Comprehensive income is composed of net income and
"other comprehensive income." Other comprehensive income includes charges
or credits to equity that are not the result of transactions with the
entities' shareholders. This new presentation will have no effect on the
Company's financial position or results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information, (SFAS No. 131)" which establishes
standards for the way the Company reports information about its operating
segments in its annual report to shareholders and certain selected
information about its operating segments in interim reports to
shareholders. The standard is effective for fiscal years beginning after
December 15, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
General
Amounts presented for the 1997 reporting period and at December
31, 1996 include the consolidation of the operations of the
following companies: Bando McGlocklin Capital Corporation (the
"Company"); Bando McGlocklin Small Business Lending Corporation
("BMSBLC"), a 100% owned subsidiary of the Company; Bando
McGlocklin Investment Corporation ("BMIC"), a 99%-owned
subsidiary of the Company; Lee Middleton Original Dolls, Inc.
("Middleton Doll") and License Products, Inc. ("License
Products"), 51%-owned subsidiaries of BMIC. The September 30,
1996 reporting period includes the consolidation of the
operations of the following companies: the Company; BMSBLC and
BMIC, 100%-owned subsidiaries of the Company; Middleton Doll and
License Products, 51%-owned subsidiaries of the Company. Since
1993 the Company only owned 49% of Middleton Doll. The
acquisition of an additional two percent of Middleton Doll was
completed at the end of June 1996. Prior to this acquisition,
Middleton Doll was accounted for on the equity method.
The 1996 reporting period reflects the Company's financial
statements on a restated basis. Prior to January 2, 1997 the
Company and BMSBLC were registered investment companies, and
therefore they did not consolidate BMIC, Middleton Doll and
License Products, which were not registered investment
companies. The 1997 and 1996 consolidated financial position
and results of operations and cash flows include the accounts of
the Company and its 51% or greater owned subsidiaries and are
offset by the minority interest in BMIC's, Middleton Doll's and
License Products' ownership.
As discussed in notes to the financial statements, with respect
to the consolidation of Middleton Doll and License Products, the
Company has made certain adjustments to the previously reported
1997 and 1996 amounts. These adjustments primarily relate to
the valuation of certain inventory and other asset amounts. The
impact of these adjustments has been reflected in Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The Company's net income after income taxes and minority
interest decreased 13% to $0.9 million for the quarter ended
September 30, 1997.
Total revenues for the quarter ended September 30, 1997
increased 71% to $8.0 million from $4.6 million over the
corresponding prior year period. This increase is primarily due
to the $2.1 million increase in Middleton Doll's sales from $2.4
million for the quarter ended September 30, 1996 to $4.4 million
for the period ended September 30, 1997. Interest on loans
increased $1.1 million as a result of the Company repurchasing
loans that were previously sold to a third party. This increase
in interest income is offset by increased interest expense. The
average loans under management increased $3.4 million to $139.5
million for the quarter ended September 30, 1997 from $136.1
million for the quarter ended September 30, 1996. The increase
in interest income as a result of the increase in the prime rate
of .25% during March 1997 was completely offset by the
decreasing yield on the portfolio of loans due to the market's
competitive pricing. The remaining $0.2 million increase in
total revenues was a result of $0.1 million increase in
residential mortgages fees and $0.1 million increase due to the
combination of an increase in availability fees and an increase
in income on short-term securities.
The Company began originating residential mortgage loans in
1997. The Company sold certain loans as they were originated
for which the Company received a fee. The retained loans
approximate $3.0 million at September 30, 1997. The Company
does not expect to originate residential mortgage loans in the
future.
Total operating expenses for the quarter ended September 30,
1997 increased 105% to $6.3 million from $3.1 million over the
corresponding prior period. Middleton Doll's operating expenses
increased $1.6 million for the quarter ended September 30, 1997
compared to the same period of 1996. Interest expense increased
234% to $1.9 million from $0.6 million for the quarters ended
September 30, 1997 and 1996, respectively. Interest expense
increased by $1.1 million as a result of the repurchase of loans
by BMSBLC that had been previously sold. Those repurchased
loans were funded with new debt. This repurchase had no impact
on net operating income as both interest income and interest
expense increased by the same amount. Interest expense, which
is offset by swap income, increased by $0.2 million because of a
decline in swap income due to LIBOR rates increasing as a result
of the prime rate increasing. The remaining $0.3 million increase
in expenses over the corresponding prior period are non-recurring
expenses of which $0.1 million is the result of a salary
adjustment and $0.2 million are restructuring expenses of the
Company including legal and accounting fees, salaries and other
miscellaneous expenses. Beginning in September of 1997 certain
operating expenses are allocated based on a Management Services
and Allocation of Operating Expenses Agreement between the
Company and InvestorsBank. The effect of such agreement will be
to reduce the level of operating expenses in the Company.
The Company's consolidated net income has been reduced by the
minority interest ownership in the net earnings of BMIC and
Middleton Doll, which have been consolidated by the Company.
The minority interest in earnings of subsidiaries equaled $0.4
million for the quarter ended September 30, 1997. Also, the
Company's September 30, 1997 consolidated net income for the
quarter has been reduced by $0.4 million as a provision of
income taxes for Middleton Doll.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The Company's net income after income taxes and minority
interest increased 37% to $2.8 million for the nine months ended
September 30, 1997 compared to $2.0 million for the same period
of last year.
Total revenues for the nine months ended September 30, 1997
increased 120% to $21.4 million from $9.7 million over the
corresponding prior year period. $9.0 million of the increase
in revenues is the increase in Middleton Doll's sales for the
nine months ended September 30, 1997 compared to the same period
of last year, which only included three months of Middleton
Doll's operations. Prior to June of 1996 the Company owned 49%
of Middleton Doll and accounted for it using the equity method
rather than consolidation. The acquisition of an additional two
percent of Middleton Doll was completed at the end of June 1996
and consequently only three months of Middleton Doll's earnings
are included in the consolidation for the nine month period
ended September 30, 1996. Interest on loans increased $2.5
million as a result of the Company repurchasing loans that were
previously sold to a third party. This increase in interest
income is offset by increased interest expense. The average
loans under management increased $4.1 million to $137.0 million
for the nine months ended September 30, 1997 from $132.9 million
for the nine months ended September 30, 1996. The increase in
interest income as a result of the loan growth and the increase
in the prime rate as of the end of March 1997 was completely
offset by the decreasing yield on the portfolio of loans due to
the market's competitive pricing. BMCC received $0.5 million
from an executive's life insurance policy where BMCC was the
beneficiary and $0.1 million in residential mortgages fees.
This income was offset by a decrease of $0.1 million in
commitment fees, $0.1 million in premium income and $0.2 million
in equity income.
Total operating expenses for the nine months ended September 30,
1997 increased 140% to $16.6 million from $6.9 million over the
corresponding prior period. $6.7 million of the increase is the
result of consolidating a full nine months of Middleton Doll's
operations as opposed to the three months included in the nine
months ended September 30, 1996. License Products' operating
expenses decreased by $0.3 million. Interest expense
increased 160% to $4.9 million from $1.9 million for the nine
months ended September 30, 1997 and 1996, respectively.
Interest expense increased by $2.5 million as a result of the
repurchase of loans by BMSBLC that had been previously sold.
Those repurchased loans were funded with new debt. This
repurchase had no impact on net operating income as both
interest income and interest expense increased by the same
amount. Interest expense, which is offset by swap income,
increased by $0.5 million because of a decline in swap income
due to LIBOR rates increasing as a result of the prime rate
increasing and the Company continuing to fund its investments in
mortgage loans by utilizing leverage. Average loans increased
$4.1 million in the current nine month period over the
corresponding prior period. The expense resulting from the
decline in unrealized appreciation on investment swaps, which
are marked-to-market, decreased $0.1 million for the nine months
ending September 30, 1997. The remaining $0.2 million increase
in expenses over the corresponding prior period are non-
recurring expenses of which $0.1 million is the result of a
salary adjustment, and the remaining $0.1 million are
restructuring expenses of the Company including legal and
accounting fees and other miscellaneous expenses. Beginning in
September 1997, certain operating expenses will be allocated
based on a Management Services and Allocation of Operating
Expenses Agreement between the Company and InvestorsBank. The
effect of such agreement will be to reduce the level of
operating expenses in the Company.
The Company's consolidated net income has been reduced by the
minority interest ownership in the net earnings of BMIC and
Middleton Doll, which have been consolidated by the Company.
The minority interest in earnings of subsidiaries equaled $0.9
million for the nine months ended September 30, 1997. Also the
Company's September 30, 1997 consolidated net income for the
nine months has been reduced by $1.1 million by a provision of
income taxes for Middleton Doll.
LIQUIDITY AND CAPITAL RESOURCES
Total investment in loans and loan-backed certificates on the
balance sheet increased by $63.9 million, or 89% to $135.3
million at September 30, 1997 from $71.5 million at December 31,
1996. During the first three-quarters of 1997 the Company
repurchased $49.6 million of loans previously sold to a third
party and made new loans of $41.4 million. The Company also
collected $27.2 million of principal payments on loans on the
balance sheet and collected $9.9 million of principal payments
on loans that were sold to third parties. The Company's loans
under management increased to $142.7 million as of September 30,
1997 from $138.4 million as of December 31, 1996. The increase
in loans on the balance sheet was primarily financed through
secured borrowings.
Cash and short-term securities decreased to $0.8 million at
September 30, 1997 from $1.3 million at December 31, 1996.
The Company's total consolidated indebtedness at September 30,
1997 increased 159% to $112.9 million from $43.5 million as of
December 31, 1996. The Company, as of September 30, 1997, had
$77.1 million outstanding in long-term debt and $35.8 million
outstanding in short-term borrowings and as of December 31,
1996, had $12.0 million outstanding in long-term debt and $31.5
million outstanding in short-term borrowings. The increase of
$69.4 million is primarily the result of repurchasing loans
previously sold to third parties and the capitalization of the
bank holding company.
To the extent Middleton Doll has ongoing capital expenditure
needs, management believes those expenditures can be funded
through cash generated from operations.
On September 6, 1997 the Company distributed its shares of
InvestorsBancorp, Inc. to shareholders. The distribution of
approximately $6.2 million of InvestorsBancorp shares resulted
in a reduction of additional paid-in capital by such amount,
thereby reducing shareholders' equity from approximately $15.6
million at December 31, 1996 to approximately $10.7 million at
September 30, 1997 after accounting for other additions. The
principal business of the Company will be to manage its loan
portfolio and participate in new loans with third party loan
originators, including InvestorsBancorp, Inc. and possibly other
banks. The Company is also expanding its real estate lending
business into ownership of real property including related
buildings and improvements for lease to small businesses. The
Company anticipates that adequate cash will be available to fund
loans and new investments.
All employees of the Company terminated their employment with
the Company to become employees of the Bank, except for certain
executive officers who are employees of both the Company and the
Bank. The Company and the Bank entered into a Management Services
and Allocation of Operating Expenses Agreement (the "Agreement").
The effect of such agreement will be to reduce the level of
operating expenses in the Company. The investment and subsequent
distribution of approximately $6.2 million of capital to
InvestorsBancorp, Inc. is expected to lower the Company's
operating income. Management is unable to measure the net impact
of the Agreement and the capitalization of InvestorsBancorp, Inc.
on net operating income.
Statements included in this filing concerning the Company's
future prospects are "forward looking statements" under the
Federal securities laws. There can be no assurance that future
results will be achieved and actual results could differ
materially from forecasts and estimates.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not a defendant in any material pending legal
proceeding and no such material proceedings are known to be
contemplated.
Item 2. CHANGES IN SECURITIES
No material changes have occurred in the securities of the
Registrant.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
The Exhibits to this Quarterly Report on Form 10-Q are
identified on the Exhibit Index hereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended
September 30, 1997.
<PAGE>
SIGNATURE
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 thereunder duly authorized.
BANDO McGLOCKLIN CAPITAL CORPORATION
(Registrant)
/s/ George R. Schonath
Date: November 14, 1997 George R. Schonath
President and Chief Executive Officer
/s/ Susan J. Hauke
Susan J. Hauke, Principal Accounting
Officer
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
Exhibit
Number Exhibit
11 Statement Regarding Computation of Per
Share Earnings
27 Financial Data Schedule (EDGAR version
only)
<TABLE>
Exhibit 11
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
<CAPTION>
Quarter Ended Year To Date
September 30 September 30
1997 1996 1997 1996
PRIMARY:
<S> <C> <C> <C> <C>
Average number of common shares
outstanding 3,685,289 3,689,094 3,685,562 3,716,927
Incremental shares calculated using
the treasury stock method 6,243 20,418 16,156 23,171
--------- --------- --------- ----------
Weighted average shares outstanding 3,691,532 3,709,512 3,701,718 3,740,098
========= ========= ========= ==========
Net Income $852,863 $975,453 $2,787,338 $2,217,184
========= ========= ========= ==========
Primary net income per common share $0.23 $0.26 $0.75 $0.59
========= ========= ========= ==========
FULLY DILUTED:
Average number of common shares
outstanding 3,685,289 3,689,094 3,685,562 3,716,927
Incremental shares calculated using
the treasury stock method 6,243 20,418 16,156 23,171
--------- --------- --------- ---------
Weighted average shares outstanding 3,691,532 3,709,512 3,701,718 3,740,098
========= ========= ========= =========
Net Income $ 852,863 $975,453 $2,787,338 $2,217,184
========= ========= ========= =========
Fully diluted net income per common
share $0.23 $0.26 $0.75 $0.59
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 440,867
<SECURITIES> 135,255,667
<RECEIVABLES> 3,461,655
<ALLOWANCES> 196,885
<INVENTORY> 3,605,662
<CURRENT-ASSETS> 1,259,664
<PP&E> 3,026,619
<DEPRECIATION> (941,208)
<TOTAL-ASSETS> 146,012,041
<CURRENT-LIABILITIES> 4,056,189
<BONDS> 112,828,402
266,769
16,908,025
<COMMON> 0
<OTHER-SE> 11,952,656
<TOTAL-LIABILITY-AND-EQUITY> 146,012,041
<SALES> 12,446,386
<TOTAL-REVENUES> 21,443,060
<CGS> 6,445,142
<TOTAL-COSTS> 6,445,142
<OTHER-EXPENSES> 6,214,639
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,862,157
<INCOME-PRETAX> 3,921,122
<INCOME-TAX> (1,133,784)
<INCOME-CONTINUING> 2,787,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,787,338
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
</TABLE>
