FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For Quarter Ended March 31, 1997
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 0-8016
OLD STONE CORPORATION
(Exact name of registrant as specified in its charter)
Rhode Island 05-0341273
(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) 434-4632
(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 March 31, 1997: 8,298,761
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION: PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets - 1
March 31, 1997 and December 31, 1996
Consolidated Statements of Operations - 2
For the Three Months and Nine Months Ended
March 31, 1997 and 1996
Consolidated Statements of Changes in Stockholders' 3
Equity (Deficit) -
For the Three Months Ended March 31, 1997 and 1996
Consolidated Statements of Cash Flows - 4
For the Three Months Ended March 31, 1997 and 1996.
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 8
<PAGE>
FORM 10-Q
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 March 31, 1997
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 Identification Number)
incorporation or organization)
957 Warren Avenue
East Providence, Rhode Island 02914
(Address of Principal Executive Offices) Zip Code
(401) 434-4632
(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, $1.00 par
value, as of March 31, 1997; 8,298,761
INDEX
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OLD STONE CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in Thousands)
March 31, 1997 December 31, 1996
Unaudited
ASSETS
Cash $15 $33
Short-term investments 383 401
Loans (net of reserve for loan losses 55 56
of $14 in 1996 and $112 in 1995)
Accrued interest receivable 1 1
Other assets 51 79
-- --
505 570
=== ===
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
LIABILITIES
Other liabilities $1,139 $1,173
----- -----
TOTAL LIABILITIES 1,139 173
REDEEMABLE
PREFERRED STOCK
Preferred stock, series B,
$1,000 par value; 1,046,914
shares authorized, issued and
outstanding
(Liquidation value $20,938)
20,153 20,104
STOCKHOLDERS' EQUITY
(DEFICIT)
Common stock, $1.00 par
value; 25,000,000 shares
authorized; 8,298,761 shares
issued in 1997 and 8,300,175 in 1996
8,299 8,300
Additional paid-in capital 91,832 91,881
Surplus 30,000 30,000
Accumulated deficit (149,776) (149,745)
Treasury stock, at cost; 54,000
shares in 1997 and 1996 (1,143) (1,143)
------- -------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)
(20,787) (20,707)
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
$505 $570
==== ====
<PAGE>
The accompanying notes are an integral part of the consolidated
financial statements.
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1996
($ in Thousands except for per share data)
(Unaudited)
1997 1996
INCOME:
Interest income $6 $7
Securities gains, net 12 11
Other income 32 39
-- --
TOTAL INCOME 50 57
EXPENSES:
Salaries and employee
benefits
37 40
Net occupancy expense 2 7
Equipment expense,
including depreciation 2 2
Other expenses 40 79
-- --
TOTAL EXPENSES 81 128
-- ---
(Loss from continuing
operations before income taxes (31) (71)
Income taxes -0- -0-
--- ---
NET (LOSS) ($31) ($71)
===== =====
NET (LOSS) AVAILABLE
FOR COMMON STOCKHOLDERS ($708) ($748)
AVERAGE SHARES
OUTSTANDING 8,298,761 8,300,175
========= =========
(LOSS PER SHARE) ($.09) ($.09)
==== ======
<PAGE>
<TABLE>
<CAPTION>
The accompanying notes are an integral part of the consolidated
financial statements.
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
Three Months Ended March 31, 1997 and 1996
($ in Thousands)
(Unaudited)
Additional Accumulated
Common stock Paid-In Treasury
Capital Surplus (Deficit) Stock Total
December 31,
<C> <C> <C> <C> <C> <C> <C>
1995 $8,300 $92,077 $30,000 ($149,446) ($1,143) ($20,212)
Net (loss) ( 71) ( 71)
Accretion of
discount on
preferred
stock, series B ( 48) ( 48)
March 31, 1996 $8,300 $92,029 $30,000 ($149,517) ($1,143) ($20,331)
====== ======= ======= ========== ======== =========
December 31,
1996 $8,300 $91,881 $30,000 ($149,745) ($1,143) ($20,331)
Net (loss) ( 31) ( 31)
Accretion of
discount on
preferred
stock, series B ( 49) ( 49)
March 31, 1997 $8,300 $91,832 $30,000 ($149,776) ($1,143) ($20,787)
====== ======= ======= ========== ======== =========
</TABLE>
<PAGE>
The accompanying notes are an integral part of the consolidated
financial statements.
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1997 and 1996
($ in Thousands)
(Unaudited)
1997 1996
Operating Activities:
Net (loss) ($31) ($71)
Adjustments to reconcile net (loss)
to net cash provided (used) by
operating activities:
(Increase) in interest receivable -0- -0-
Other, net 6 44
- --
Net cash provided (used) by operating
activities (37) (27)
Investing activities:
Net decrease in investments 18 44
Net decrease in loans 1 1
Net cash provided by investing
activities 19 45
-- --
Increase (decrease) in cash (18) 18
Cash at beginning of period 33 272
-- ---
Cash at end of period $15 $290
=== ====
<PAGE>
The accompanying notes are an integral part of the consolidated
financial statements.
OLD STONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Three Months Ended March 31, 1997 and 1996
(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 audited 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 three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the consolidated financial
statements and notes thereto included in Old Stone Corporation Annual Report on
Form 10-K for the year ended December 31, 1996. 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
Three Months Ended March 31, 1997 and 1996
($ 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):
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
PRIMARY (LOSS):
Net loss ($31) ($71)
Deduct accretion of
discount on series B
preferred stock and
preferred dividends 677 677
--- ---
Net (loss) applicable
to common stock ($708) ($748)
====== ======
ALLOCATION
OF PRIMARY
LOSS:
(Loss) from continued
operations ($31) ($71)
Deduct accretion of
discount on series B
preferred stock and
preferred dividends 677 677
--- ---
TOTAL NET (LOSS) ($708) ($748)
====== =====
Average shares
outstanding 8,298,761 8,300,175
========= =========
PRIMARY (LOSS) PER
COMMON SHARE ($.09) ($.09)
====== ======
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 March 31, 1997, cumulative
preferred dividends of $13,819,264 ($13.20 per share) had not been declared or
paid.
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 $18,432 for the three month
period ended March 31, 1997, compared to a loss of $27,058 for the three month
period ended March 31, 1996.
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 March 31, 1997, the Corporation had $.5 million in assets, $1.1 million in
total liabilities, $20.1 million in redeemable preferred stock, and a
stockholders' deficit of ($20.8) million. Compared to $.6 million in assets,
$1.2 million in total liabilities, $20.1 million in redeemable preferred stock
and stockholders' deficit of ($20.7) million at December 31, 1996.
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 $7,000 for the three month period ended March 31, 1997 as
compared to the same period in 1996. This decrease was primarily attributable to
a decrease in other income of $7,000 in the 1997 period over the comparable
period in 1996.
Interest income was $6,000 for the three month period ended March 31, 1997,
compared to $7,000 for the three month period ended March 31, 1996. Other income
was $32,000 for the three month period ended March 31, 1997, compared to $39,000
for the three month period ended March 31, 1996. The decrease was primarily due
to lower fee income generated by Old Stone Securities Company.
Total expenses decreased $47,000 for the three month period ended March 31, 1997
as compared to the three month period ended March 31, 1996. The decrease was
primarily attributable to decreases in other expenses of $39,000, of which was
primarily legal and professional expenses, over the comparable period in 1996.
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 $81,000 for the three month period ended
March 31, 1996, compared to $128,000 for the same period in 1996.
As a result of the foregoing, the Corporation reported a net loss of $31,000 for
the three month period ended March 31, 1997, compared to a net loss of $71,000
for the same period in 1996.
The loss per share available for common stockholders was ($.09) for the three
month period ended March 31, 1997 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 March 31, 1996 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.
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 credits 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 supervisory
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 cases 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 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 been granted leave to intervene in the litigation on behalf of
the bank. The Corporation filed a Second Amended Complaint on April 18, 1997. No
prediction as to the outcome of this case can be made at this time.
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 damage that it has incurred because of Defendant's conduct.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Corporation discounted 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 March 31, 1997 was
$13,819,264.
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: May , 1997 /s/Geraldine Nelson
--------------------
Geraldine Nelson
President and Treasurer
(Chief Executive and Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 15,000
<RECEIVABLES> 1,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 383,000
<PP&E> 9,610
<TOTAL-ASSETS> 505,000
<SHORT-TERM> 0
<PAYABLES> 1,139,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
20,153,000
0
<COMMON> 8,299,000
<OTHER-SE> (29,087,000)
<TOTAL-LIABILITY-AND-EQUITY> 505,000
<TRADING-REVENUE> 12,000
<INTEREST-DIVIDENDS> 6,000
<COMMISSIONS> 32,000
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 37,000
<INCOME-PRETAX> (31,000)
<INCOME-PRE-EXTRAORDINARY> (31,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,000)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
