PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OLD STONE CORPORATION
CONSOLIDATED BALANCE SHEETS
($ In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
Unaudited
ASSETS
<S> <C> <C>
Cash $ 17 $ 33
Short-term investments 282 401
Loans (net of reserve for loan losses of $32 in
1997 and in 1996) 54 56
Accrued interest receivable -0- 1
Other assets 63 79
--------- ---------
TOTAL ASSETS $ 416 $ 570
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Other Liabilities $ 1,139 $ 1,173
--------- ---------
TOTAL LIABILITIES 1,139 1,173
REDEEMABLE PREFERRED STOCK
Preferred stock, series B, $1.00 par value;
1,046,914 shares authorized, issued and
outstanding (Liquidation value $20,938) 20,251 20,104
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $1.00 par value; 25,000,000 shares
authorized; 8,300,175 shares issued in 1997
and 1996 8,300 8,300
Additional paid-in capital 91,734 91,881
Surplus 30,000 30,000
Accumulated deficit (149,865) (149,745)
Treasury stock, at cost; 54,000 shares in 1997
and 1996 ( 1,143) ( 1,143)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 20,974) ( 20,707)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 416 $ 570
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ In Thousands except for per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---- ---- ---- ----
INCOME:
Interest income $ 5 $ 9 $ 17 $ 21
Securities gains, net 8 10 30 37
Other income 30 34 90 116
--------- --------- --------- --------
TOTAL INCOME 43 53 137 174
--------- --------- --------- --------
EXPENSES:
Salaries and employee benefits 35 39 114 124
Net occupancy expense 3 2 8 17
Equipment expense, including depreciation 1 3 4 7
Other expenses 63 96 131 237
--------- --------- --------- --------
TOTAL EXPENSES 102 140 257 385
--------- --------- --------- --------
(Loss) from continuing operations
before income taxes ( 59) ( 87) ( 120) ( 211)
Income taxes -0- -0- -0- -0-
NET (LOSS) ($ 59) ($ 87) ($ 120) ($ 211)
========= ========= ========= ========
NET (LOSS) AVAILABLE FOR
COMMON STOCKHOLDERS ($ 736) ($ 764) ($ 2,151) ($ 2,242)
AVERAGE SHARES OUTSTANDING 8,246,175 8,246,175 8,246,175 8,246,175
========= ========= ========= ========
(LOSS) PER SHARE ($ .09) ($ .09) ($ .26) ($ .27)
========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
Nine Months Ended September 30, 1997 and 1996
($ in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-In Treasury
Accumulated
Stock Capital Surplus (Deficit) Stock Total
<S> <C> <C> <C> <C> <C> <C>
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)
========= ========= ======== ========= ========= =========
December 31, 1996 $ 8,300 $ 91,881 $ 30,000 ($149,745) ($ 1,143) ($ 20,707)
Net (loss) ( 120) ( 120)
Accretion of discount on
preferred stock, series B ( 147) ( 147)
--------- --------- -------- --------- --------- ---------
September 30, 1997 $ 8,300 $ 91,734 $ 30,000 ($149,865) ($ 1,143) ($ 20,974)
========= ========= ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 and 1996
($ In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
----- -----
Operating activities:
Net (loss) ($120) ($211)
Adjustments to reconcile net (loss) to net
cash provided (used) by operating activities:
(Increase) in interest receivable 1 -0-
Other, net ( 18) 31
----- -----
Net cash provided (used) by operating activities ( 137) ( 180)
Investing activities:
Net (increase) decrease in investments ( 119) ( 77)
Net decrease in loans 2 2
----- -----
Net cash provided by investing activities ( 121) ( 75)
----- -----
(Decrease) in cash ( 16) ( 255)
Cash at beginning of period 33 272
----- -----
Cash at end of period $ 17 $ 17
===== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
<PAGE>
OLD STONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Nine Months Ended September 30, 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 "Company" or "OSC") 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" or "Old Stone"). 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 Old Stone. The Resolution Trust Corporation (the
"RTC") was appointed Receiver to handle all matters related to Old Stone and as
Conservator of Old Stone Federal.
As a result of the receivership of the Bank, the Company 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, 1997 the Company'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 six months ended September 30, 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 the Old Stone Corporation's
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.
OLD STONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 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):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
----------- ----------- ----------- -----------
PRIMARY (LOSS):
Net (loss) ($ 59) ($ 87) ($ 120) ($ 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 ($ 736) ($ 764) ($ 2,151) ($ 2,242)
=========== =========== =========== ===========
ALLOCATION OF PRIMARY (LOSS):
(Loss) from continued operations ($ 59) ($ 87) ($ 120) ($ 211)
Deduct accretion of discount on
series B preferred stock
and preferred dividends 677 677 2,031 2,031
----------- ----------- ----------- -----------
TOTAL NET(LOSS) ($ 736) ($ 764) ($ 2,151) ($ 2,242)
=========== =========== =========== ===========
Average shares outstanding 8,246,175 8,246,175 8,246,175 8,246,175
=========== =========== =========== ===========
PRIMARY (LOSS) PER
COMMON SHARE ($ .09) ($ .09) ($ .26) ($ .27)
=========== =========== =========== ===========
</TABLE>
NOTE 3 - REDEEMABLE PREFERRED STOCK:
On October 6, 1991, the annual dividend of $2.40 per share of the Preferred
Series B stock was suspended. As of September 30, 1997, cumulative preferred
dividends of $15,075,561 ($14.40 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 ($55,601) for the nine month
period ended September 30, 1997, compared to a loss of ($57,645) for the nine
month period ended September 30, 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 September 30, 1997, the Corporation had $.4 million in assets, $1.1 million
in total liabilities, $20.3 million in redeemable preferred stock, and a
stockholders' deficit of ($21) 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 $10,000 for the three month period ended September 30,
1997 as compared to the same period in 1996. This decrease was primarily
attributable to a decrease in other income of $4,000 and a decrease in
securities gains of $2,000 in the 1997 period over the comparable period in
1996. Total income year to date decreased by $37,000 as compared to the same
period in 1996. The decrease was primarily attributable to reductions in other
income of $26,000 and a reduction in securities gains of $7,000 in the 1997
period over the comparable period in 1996.
Interest income was $5,000 and $9,000 respectively, for the three month periods
ended September 30, 1997 and 1996. Other income was $30,000 for the three month
period ended September 30, 1997, compared to $34,000 for the three month period
ended September 30, 1996.
Total expenses decreased $38,000 for the three month period ended September 30,
1997 as compared to the three month period ended September 30, 1996. The
decrease was attributable to a reduction in other expenses of $33,000, which
were primarily legal and professional expenses, over the comparable period in
1996.
Total expenses year to date decreased $128,000 as compared to the same period in
1996, which were primarily attributable to a decrease in legal and professional
fees.
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 $102,000 for the three month period ended
September 30, 1997, compared to $140,000 for the same period in 1996. Operating
expenses year to date were $257,000 compared to $385,000 for the same period in
1996.
As a result of the foregoing, the Corporation reported a net loss of ($59,000)
for the three month period ended September 30, 1997 compared to a net loss of
($87,000) for the same period in 1996.
The loss per share available for common stockholders was ($.09) for the three
month period ended September 30, 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 September 30, 1996 after the deduction of preferred
dividends of $677,000. No preferred or common dividends have been paid since the
second quarter of 1991 and the Corporation does not expect to pay dividends in
the foreseeable future. Further, the Corporation is prohibited from paying
dividends on the Common Stock until the aggregate deficiency on the preferred
stock dividends is paid in full. Total loss per share year to date was ($.26) as
compared to ($.27) for the same period in 1996.
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. The Plaintiffs' complaint alleges that, 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 cause 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 alledged
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.
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.
Discovery in the Corporation's case is schedule to begin in January, 1998. No
prediction as to the outcome of this case can be made at this time.
Item 2. Defaults Upon Senior Securities
The Corporation discontinued paying 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,
1997 was $15,075,561.
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: November 14, 1997 /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>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 17,000
<RECEIVABLES> 0
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 282,000
<PP&E> 9,610
<TOTAL-ASSETS> 416,000
<SHORT-TERM> 0
<PAYABLES> 1,139,000
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
20,251,000
0
<COMMON> 8,300,000
<OTHER-SE> (29,274,000)
<TOTAL-LIABILITY-AND-EQUITY> 416,000
<TRADING-REVENUE> 30,000
<INTEREST-DIVIDENDS> 17,000
<COMMISSIONS> 90,000
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 114,000
<INCOME-PRETAX> (120,000)
<INCOME-PRE-EXTRAORDINARY> (120,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (120,000)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
