FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Under 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1996
or
[ ] Transition Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the transition period of
to
Commission File Number 08016
OLD STONE CORPORATION
(Exact name of registrant as specified in its charter)
Rhode Island 050341273
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
957 Warren Avenue
East Providence, Rhode Island 02914
(Address of Principal Executive Offices) Zip Code
(401) 434-3314
(Registrant's Telephone Number, Including Area Code)
* 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 and 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:
The number of shares outstanding of the registrant's Common Stock, $1.00 par
value, as of September 30, 1996; 8,246,175
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OLD STONE CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
Unaudited
ASSETS
<S> <C> <C>
Cash $ 17 $ 272
Short-term investments 501 424
Loans (net of reserve for loan losses of $14 in
1996 and $112 in 1995) 74 76
Accrued interest receivable 7 7
Other assets 71 286
------------ -------------
TOTAL ASSETS $ 670 $ 1,065
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Other liabilities $ 1,185 $ 1,369
---------- ----------
TOTAL LIABILITIES 1,185 1,369
REDEEMABLE PREFERRED STOCK
Preferred stock, series B, $1.00 par value;
1,046,914 shares authorized, issued and outstanding
(Liquidation value $20,938) 20,054 19,908
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $1.00 par value; 25,000,000 shares
authorized; 8,300,175 shares issued in 1996
and 1995 8,300 8,300
Additional paid-in capital 91,931 92,077
Surplus 30,000 30,000
Accumulated deficit ( 149,657) ( 149,446)
Treasury stock, at cost; 54,000 shares in 1996
and 1995 ( 1,143) ( 1,143)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 20,569) ( 20,212)
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 670 $ 1,065
=========== ============
</TABLE>
<PAGE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in Thousands except for per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
INCOME:
<S> <C> <C> <C> <C>
Interest income $ 9 $ 8 $ 21 $ 33
Securities gains, net 10 14 37 31
Other income 34 58 116 143
---------- ---------- ------------ ------------
TOTAL INCOME 53 80 174 207
---------- ---------- ------------ ------------
EXPENSES:
Salaries and employee benefits 39 39 124 123
Net occupancy expense 2 7 17 24
Equipment expense, including depreciation 3 1 7 7
Other expenses 96 126 237 263
---------- ---------- ------------ ------------
TOTAL EXPENSES 140 173 385 417
---------- ---------- ------------ ------------
(Loss) from continuing operations
before income taxes ( 87) ( 93) ( 211) ( 210)
Income taxes -0- -0- -0- 1
----------- ----------- ------------- ------------
NET (LOSS) ($ 87) ($ 93) ($ 211) ($ 211)
======== ======== ========== ==========
NET (LOSS) AVAILABLE FOR
COMMON STOCKHOLDERS ($ 764) ($ 770) ($ 2,242) ($ 2,242)
AVERAGE SHARES OUTSTANDING 8,246,175 8,246,175 8,246,175 8,246,175
========= ========= ========= =========
(LOSS) PER SHARE ($ .09) ($ .09) ($ .27) ($ .27)
======== ======== ========== ==========
</TABLE>
<PAGE>
The accompanying notes are an integral part of the consolidated financial
statements
<TABLE>
<CAPTION>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
Nine Months Ended September 30, 1996 and 1995
($ in Thousands)
(Unaudited)
Additional
Common Paid-In Accumulated Treasury
Stock Capital Surplus (Deficit) Stock Total
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994 $ 8,300 $ 92,274 $30,000 ($148,975) ($1,143) ($19,544)
Net (loss) ( 211) ( 211)
Accretion of discount on
preferred stock, series B ( 147) ( 147)
---------------------------------------------------------------------------
September 30, 1995 $ 8,300 $ 92,127 $30,000 ($149,186) ($1,143) ($19,902)
===========================================================================
December 31, 1995 $ 8,300 $ 92,077 $30,000 ($149,446) ($1,143) ($20,212)
Net (loss) ( 211) ( 211)
Accretion of discount on
preferred stock, series B ( 146) ( 146)
---------------------------------------------------------------------------
September 30, 1996 $ 8,300 $ 91,931 $30,000 ($149,657) ($1,143) ($20,569)
===========================================================================
</TABLE>
<PAGE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996 and 1995
($ in Thousands)
(Unaudited)
1996 1995
---- ----
Operating activities:
<S> <C> <C>
Net (loss) ($ 211) ($ 211)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
(Increase) in interest receivable -0- ( 1)
Other, net 31 ( 123)
------- -------
Net cash provided (used) by operating activities ( 180) ( 335)
Investing activities:
Net (increase) decrease in investments ( 77) 329
Net decrease in loans 2 3
--------- ---------
Net cash provided by investing activities ( 75) 332
----------- ---------
(Decrease) in cash ( 255) ( 3)
Cash at beginning of period 272 32
---------- --------
Cash at end of period $ 17 $ 29
======== =========
</TABLE>
<PAGE>
The accompanying notes are an integral part of the consolidated financial
statements.
OLD STONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 1996 and 1995
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
COMPANY DESCRIPTION AND BASIS OF PRESENTATION
Until January 28, 1993, Old Stone Corporation (the "Corporation") was a unitary
savings and loan holding company which conducted substantially all of its
business primarily through its ownership of Old Stone Bank, a Federal Savings
Bank and its subsidiaries (the "Bank"). On January 29, 1993, the Office of
Thrift Supervision of the United States Department of the Treasury (the "OTS")
placed the Bank into receivership due to the Bank being critically
undercapitalized. The OTS created a new institution, Old Stone Federal Savings
Bank ("Old Stone Federal") to assume all deposits and certain assets and
liabilities of the Bank. The Resolution Trust Corporation (the "RTC") was
appointed Receiver to handle all matters related to the Bank and as Conservator
of Old Stone Federal.
As a result of the receivership of the Bank, the Corporation has undergone
material changes in the nature of its business and is no longer operating as a
unitary savings and loan holding company. As of September 30, 1996 the
Corporation's business activities included its only surviving subsidiary, Old
Stone Securities Company, a registered securities broker-dealer which provides
brokerage services to retail and institutional clients.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included and operating results for the nine months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the consolidated
financial statements and notes thereto included in the Old Stone Corporation
Annual Report on Form 10-K for the year ended December 31, 1995. All material
intercompany transactions and balances have been eliminated. Certain previously
reported amounts have been restated to conform with the current presentation.
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1996 and 1995
($ in Thousands except for per share data)
(Unaudited)
NOTE 2 - (LOSS) PER SHARE
The calculation of loss per share is as follows ($ in thousands, except for per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
PRIMARY (LOSS):
<S> <C> <C> <C> <C>
Net (loss) ($ 87) ($ 93) ($ 211) ($ 211)
Deduct accretion of discount on
series B preferred stock and
preferred dividends 677 677 2,031 2,031
---------- ---------- ------------ ------------
Net (loss) applicable to common stock ($ 764) ($ 770) ($ 2,242) ($ 2,242)
======== ======== ========== ==========
ALLOCATION OF PRIMARY (LOSS):
(Loss) from continued operations ($ 87) ($ 93) ($ 211) ($ 211)
Deduct accretion of discount on
series B preferred stock
and preferred dividends 677 677 2,031 2,031
---------- ---------- ------------ ------------
TOTAL NET (LOSS) ($ 764) ($ 770) ($ 2,242) ($ 2,242)
======== ======== ========== ==========
Average shares outstanding 8,246,175 8,246,175 8,246,175 8,246,175
============= ============= ============= =============
PRIMARY (LOSS) PER
COMMON SHARE ($ .09) ($ .09) ($ .27) ($ .27)
======== ======== ========== ==========
</TABLE>
NOTE 3 - REDEEMABLE PREFERRED STOCK:
On October 6, 1991, the annual dividend of $2.40 per share on the Corporation's
Preferred Series B stock was suspended. As of September 30, 1996, cumulative
preferred dividends of $12,562,968 ($12.00 per share) had not been declared or
paid.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Current Operations
As a result of the Bank Closing, the Corporation's present business activities
include its only surviving significant subsidiary, Old Stone Securities Company,
a registered securities broker-dealer which provides brokerage services to
retail and institutional clients.
Old Stone Securities' loss before income taxes was ($57,645) for the nine month
period ended September 30, 1996, compared to a loss of ($43,000) for the nine
month period ended September 30, 1995.
Management has invested, and intends in the future to invest, the Corporation's
assets on a short-term basis. While the Corporation's Board of Directors has
considered selling Old Stone Securities, the Board has determined not to do so
at the present time.
Liquidity and Capital Resources
At September 30, 1996, the Corporation had $ .7 million in assets, $1.2 million
in total liabilities, $20.1 million in redeemable preferred stock, and a
stockholders' deficit of ($20.6) million, compared to $1.1 million in assets,
$1.4 million in total liabilities, $19.9 million in redeemable preferred stock
and stockholders' deficit of ($20.2) million at December 31, 1995.
The Corporation's assets are currently being invested short-term, and expenses
have been reduced to a level that management believes is commensurate with the
Corporation's current activities pending resolution of any potential claims.
Results of Operations
Total income decreased $27,000 for the three month period ended September 30,
1996 as compared to the same period in 1995. This decrease was primarily
attributable to a decrease in other income of $24,000, and a decrease in
securities gains of $4,000 in the 1996 period over the comparable period in
1995. Total income year to date decreased by $33,000 as compared to the same
period in 1995. The decrease was primarily attributable to reductions in other
income of $27,000 and a reduction in interest income of $12,000 offset by an
increase in secutities gains of $6,000 in the 1996 period over the comparable
period in 1995.
Interest income was $9,000 and $8,000 respectively, for the three month periods
ended September 30, 1996 and 1995. Other income was $34,000 for the three month
period ended September 30, 1996, compared to $58,000 for the three month period
ended September 30, 1995.
Total expenses decreased $33,000 for the three month period ended September 30,
1996 as compared to the three month period ended September 30, 1995. The
decrease was primarily attributable to a reduction in other expenses of $30,000
over the comparable period in 1995.
Total expenses year to date decreased $32,000 as compared to the same period in
1995.
The Corporation's primary operating expenses have been insurance, legal and
accounting fees as well as the operating expenses of OSSC. Operating expenses
(including salaries and benefits) were $140,000 for the three month period ended
September 30, 1996, compared to $173,000 for the same period in 1995. Operating
expenses year to date were $385,000 compared to $417,000 for the same period in
1995.
As a result of the foregoing, the Corporation reported a net loss of ($87,000)
for the three month period ended September 30, 1996 compared to a net loss of
($93,000) for the same period in 1995.
The loss per share available for common stockholders was ($.09) for the three
month period ended September 30, 1996 after the deduction of preferred dividends
of $677,000. The loss per share available for common stockholders was ($.09) for
the three month period ended September 30, 1995 after the deduction of preferred
dividends of $677,000. No preferred or common dividends have been paid since the
second quarter of 1991 and the Corporation does not expect to pay dividends in
the foreseeable future. Further, the Corporation is prohibited from paying
dividends on the Common Stock until the aggregate deficiency on the preferred
stock dividends is paid in full. Total loss per share year to date, as well as
for the same period in 1995, was ($.27).
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On September 16, 1992, the Corporation and the Bank ("Plaintiffs")
instituted a suit against the United States ("Defendant") in the U.S. Court of
Federal Claims. In connection with certain government-assisted acquisitions by
Plaintiffs in the 1980's, the Defendant (through its agencies the Federal Home
Loan Bank Board ("FHLBB") and the Federal Savings and Loan Insurance
Corporation) in exchange for the Bank's purchasing certain assets and assuming
certain liabilities of Defendant, agreed among other things to provide
Plaintiffs with certain valuable capital credits and authorized Plaintiffs to
treat those credit as regulatory capital. The Defendant authorized Plaintiffs to
amortize such capital credits along with the goodwill created by such
acquisitions over a period of 25 to 30 years.
Following the passage of the Financial Institutions Reform, Recovery, and
Enforcement Act in August, 1989, the Office of Thrift Supervision (successor in
interest to the FHLBB) required the Bank to discontinue treating these capital
credits as part of regulatory capital and caused the Bank to write off
immediately approximately $80 million of such capital credits and approximately
$10 million of such goodwill. In this suit Plaintiffs allege breach of contract
by the United States, resulting in substantial injury to Plaintiffs, effecting a
taking of Plaintiffs' property without just compensation, and unjustly enriching
the Defendant at the expense of Plaintiffs. Plaintiffs seek compensation for the
damages caused by the breach, just compensation for the property taken, and
disgorgement of the amounts by which the Defendant has been unjustly enriched.
The Defendant has filed a counterclaim against the Corporation for alleged
breach of the Corporation's agreement to maintain the net worth of the Bank at
certain levels prescribed by regulation. The Corporation has filed an answer
denying such counterclaim.
The case is one of several similar cased pending before the U.S. Court of
Federal Claims. The case as to the Corporation was stayed pending the outcome of
certain other suits. On July 1, 1996, the U.S. Supreme Court held that the
Defendant was liable to certain other plaintiff thrift holding companies in
cases arising out of similar sets of facts (the WINSTAR litigation.) The
Corporation is filing a Motion for Summary Judgment asking the Court to find
against Defendant on the issue of liability. If successful, the Corporation must
then prove the damages that it has incurred because of Defendant's conduct.
The amended complaint filed by the Corporation on September 28, 1995 named only
the Corporation as a plaintiff. An agency of the Defendant now acts as receiver
for the Bank and has filed a motion for leave to intervene in the litigation on
behalf of the Bank. No prediction as to the outcome of this case can be made at
this time.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Corporation discontinued dividends to holders of its Cumulative Voting
Convertible Preferred Stock, Series B (the "preferred Stock"), during 1991 and
does not expect to pay any dividends on such stock for the foreseeable future.
As a result of the failure to pay dividends on the Preferred Stock for more than
four quarters, the holders of the Preferred Stock collectively are entitled to
elect a number of directors of the Corporation constituting twenty percent (20%)
of the total number of directors of the Corporation at the next meeting of
stockholders at which directors are to be elected. Until the aggregate
deficiency is declared and fully paid on the Preferred Stock, the Corporation
may not declare any dividends or make any other distributions on or redeem the
Common Stock. The total amount of the arrearage as of September 30, 1996 was
$12,562,968.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLD STONE CORPORATION
Date: September 13, 1996 /s/Geraldine Nelson
_________________________
Geraldine Nelson
President and Treasurer
(Chief Executive and Chief
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000074273
<NAME> None
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JUL-1-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 17,000
<RECEIVABLES> 7,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 501,000
<PP&E> 11,000
<TOTAL-ASSETS> 670,000
<SHORT-TERM> 0
<PAYABLES> 1,185,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
20,054,000
0
<COMMON> 8,300,000
<OTHER-SE> (28,869,000)
<TOTAL-LIABILITY-AND-EQUITY> 670,000
<TRADING-REVENUE> 37,000
<INTEREST-DIVIDENDS> 21,000
<COMMISSIONS> 116,000
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 124,000
<INCOME-PRETAX> (211,000)
<INCOME-PRE-EXTRAORDINARY> (211,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (211,000)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
