FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[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
[ ] TRANSMISSION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period
from_______________________to_________________________
Commission file number: 0-14684
RYAN, BECK & CO., INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1773796
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 South Orange Avenue, Livingston, New Jersey 07039
(Address of principal executive offices)
973-597-6000 (Issuer's telephone number)
80 Main Street, West Orange, New Jersey 07052
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check (x) whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act during the past 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__________
APPLICABLE ONLY TO CORPORATE ISSUERS:
At November 1, 1997 there were 3,551,112 shares of Common Stock, par
value $.10 per share, outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
The following consolidated financial statements of Ryan, Beck & Co.,
Inc. (the "Company") as of September 30, 1997 and for the three and nine
months ended September 30, 1997 and 1996 reflect all material adjustments
and disclosures which, in the opinion of management, are necessary for a
fair statement of results for the interim period. Certain information and
footnote disclosures required under generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission, although the Company
believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated financial
statements be read in conjunction with the year-end consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 as filed with the Securities
and Exchange Commission.
The results of operations for the three and nine month periods ended
September 30, 1997 are not necessarily indicative of the results to be
expected for the entire fiscal year or any other period.
<TABLE>
RYAN, BECK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except per share data)
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 550 $ 13
Cash segregated under federal
and other regulations 24 17
Receivable from:
Brokers and dealers 23 25
Accrued revenues 1,127 225
Other 50 371
Securities owned, at market value 22,762 33,789
Prepaid income taxes - 950
Deferred income taxes 697 830
Property and equipment, at cost, less
accumulated depreciation and amortization 2,630 371
Other assets 463 356
Total assets $ 28,326 $ 36,947
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to clearing broker $ 3,951 $ 15,375
Securities sold, but not yet purchased,
at market value 4,704 5,424
Accrued employee compensation and benefits 3,144 2,249
Accounts payable and other accrued expenses 2,034 2,192
ESOP loan obligation - 538
Bank note payable 2,000 -
Total liabilities 15,833 25,778
Stockholders' equity:
Preferred stock - $.10 par value
Authorized - 2,000,000 shares
Issued and outstanding - 0 shares at
September 30, 1997 and 397,948
shares at December 31, 1996 - 40
Common stock - $. 10 par value
Authorized - 30,000,000 shares
Issued - 3,639,412 shares September 30, 1997
and 3,253,695 shares December 31, 1996 364 325
Additional paid-in capital 11,349 11,875
Retained earnings 1,875 246
Treasury Stock, at cost, 88,000 common shares
at September 30, 1997 and December 31, 1996 (624) (624)
Unearned compensation - restricted stock grants (471) (173)
Unearned ESOP compensation - (520)
Total stockholders' equity 12,493 11,169
Total liabilities and stockholders' equity $ 28,326 $ 36,947
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
RYAN, BECK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Principal transactions $4,637 $2,710 $ 12,076 $7,487
Investment banking 2,295 2,124 7,802 10,485
Commissions 1,472 960 3,736 3,186
Interest and dividends 285 343 945 947
Other 105 71 193 76
Total revenues 8,794 6,208 24,752 22,181
Interest expense 205 207 552 658
Net revenues 8,589 6,001 24,200 21,523
Non-interest expenses:
Compensation and benefits 5,175 4,814 14,467 13,879
Communications 486 326 1,335 1,061
Occupancy and equipment rental
and depreciation 447 482 991 1,016
Floor brokerage, exchange and
clearance fees 580 515 1,632 1,586
Marketing and development expense 273 236 633 726
Professional fees 346 475 1,103 1,053
Other 315 254 975 816
Total non-interest expenses 7,622 7,102 21,136 20,137
Earnings (loss) before provision
for income taxes 967 (1,101) 3,064 1,386
Provision (benefit) for
income taxes 345 (440) 1,084 517
Net income (loss) $ 622 $ (661) $ 1,980 $ 869
Earnings (loss) per common share:
Primary $ .17 $ (.22) $ .56 $ .23
Fully diluted $ .17 $ (.22) $ .56 $ .23
Cash dividends declared $ .01 $ .05 $ .07 $ .15
Weighted average number of shares:
Primary 3,323 3,175 3,218 3,211
Fully diluted 3,593 3,494 3,536 3,532
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
RYAN, BECK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Unearned Unearned Total
Additional Compensation ESOP Stock-
Common Preferred Paid-in Retained Restricted Compen- Treasury holders'
Stock Stock Capital Earnings Stock Grants sation Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine months ended Sept. 30, 1996
Balance at January 1, 1996 $327 $41 $12,049 $818 $(401) $(657) $(91) $12,086
Retirement of 19,393 shares of
common stock (2) - (127) - - - 129 -
Unearned compensation - restricted
stock grants (25,857 shares) - - - - (175) - - (175)
Amortization of restricted stock grants -
unearned compensation - - - - 188 - - 188
Amortization of ESOP
unearned compensation - - 11 - - 108 - 119
Conversion of Preferred stock
to Common stock (10,925 shares) 1 (1) - - - - - -
Purchase of Treasury stock
(93,475 shares) - - - - - - (662) (662)
Net Income - - - 869 - - - 869
Dividends declared: Common stock - - - (483) - - - (483)
Preferred stock - - - (145) - - - (145)
Balance at September 30, 1996 $ 326 $ 40 $11,933 $ 1,059 $ (388) $ (549) $ (624) $11,797
Nine months ended September 30, 1997
Balance at January 1, 1997 $325 $40 $11,875 $246 $(173) $(520) $(624) $11,169
Shares issued under Employee Restricted
Stock Purchase Plan (221,038 shares) 22 - 1,166 - (237) - - 951
Cancellation of restricted stock grants
(20,648 shares) (2) - (109) - 111 - - -
Unearned compensation -
restricted stock grants (49,439 shares) 5 - 186 - (249) - - (58)
Amortization of restricted stock grants -
unearned compensation - - - - 101 - - 101
Redemption of Preferred stock - (37) (2,423) - - 442 - (2,018)
(364,288 shares)
Forfeiture of restricted stock grants
(20,648 shares) - - - - (24) - - (24)
Amortization of ESOP
unearned compensation - - - - - 78 - 78
Issuance of 89,399 shares to ESOP 9 - 570 - - - - 579
Issuance of 21,500 shares through 2 - 84 - - - - 86
exercised stock options
Conversion of Preferred stock to
Common stock (33,660 shares) 3 (3) - - - - - -
Net Income - - - 1,980 - - - 1,980
Dividends declared: Common stock - - - (222) - - - (222)
Preferred stock - - - (129) - - - (129)
Balance at September 30, 1997 $ 364 $ - $11,349 $ 1,875 $ (471) $ - $(624) $12,493
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
RYAN, BECK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,980 $ 869
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 258 460
Forfeiture of restricted stock grants (24) -
Amortization of restricted stock grants 101 188
Amortization of ESOP unearned
compensation 78 119
Deferred income taxes 133 (454)
(Increase) decrease in assets:
Cash segregated under federal and
other regulations (7) (22)
Receivables -
Brokers, dealers and clearing organizations 2 (6,040)
Accrued revenues (902) (263)
Other 321 283
Securities owned, at market value 11,027 (5,432)
Prepaid income taxes 950 (44)
Other assets (107) 89
Increase (decrease) in liabilities:
Payables -
Payable to clearing broker (11,424) (16,180)
Securities sold, but not yet purchased
at market value (720) 27,585
Accrued employee compensation
and benefits 895 896
Accounts payable and other accrued
expenses (158) (330)
Total adjustments 423 855
Net cash provided by operating activities 2,403 1,724
Cash flows from investing activities:
Capital expenditures $(2,517) $ (136)
Net cash (used) in investing activities (2,517) (136)
Cash flows from financing activities:
Employee stock purchase plan 951 -
Common stock repurchased for issuance
of restricted stock grants (58) (175)
Purchase of Common stock by ESOP 579 -
Principal payments of ESOP obligation (538) (103)
Notes Payable 2,000 -
Retirement of Preferred stock (2,018) -
Purchase of Treasury stock - (662)
Proceeds from exercise of stock options 86 -
Dividends paid
Common (222) (483)
Preferred (129) (145)
Net cash (used) in financing activities 651 (1,568)
Net increase in cash 537 20
Cash at beginning of period 13 71
Cash at end of period $ 550 $ 91
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 596 $ 564
Income taxes 259 1,001
See accompanying notes to consolidated financial statements.
</TABLE>
RYAN, BECK & CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the
financial position of Ryan, Beck & Co., Inc., (the "Company") as of
September 30, 1997, and the results of its operations and cash flows for
the three and nine month periods ended September 30, 1997 and 1996. All
such adjustments are of a normal and recurring nature.
The accounting policies followed by the Company are set forth in the
notes to the Company's consolidated financial statements as set forth in
the Company's Annual Report on Form 10-K for the year ended December 31,
1996. Certain reclassifications have been made to prior years'
consolidated financial statements to conform to the current year's
presentation.
The results of operations for the three month and nine month periods
ended September 30, 1997 are not necessarily indicative of the results to
be expected for the entire fiscal year or any other future period.
2. Securities owned are stated at market value. Securities in the Company's
trading accounts consist of the following:
<TABLE>
<CAPTION>
September 30, 1997 December 31,
(Unaudited) 1996
(In thousands)
<S> <C> <C>
States and municipalities $10,290 $17,962
Corporate equity 10,542 5,195
Corporate debt 1,417 2,035
U.S. Government and agency 488 8,572
Other 25 25
Total $22,762 $33,789
</TABLE>
3. At September 30, 1997, there was $2,000,000 outstanding under a loan
facility which proceeds were used for leasehold improvements to the
Livingston and Shrewsbury locations as well as purchase of related
furniture, telephone and computer equipment. Beginning on November 1,
1997, the outstanding balance is payable in 54 equal and consecutive
monthly payments of principal together with interest. At September 30,
1997, the balance due under this bank loan facility was $2,000,000 with a
fixed rate of interest at 7.56%.
4. Effective August 22, 1997, the Company implemented the Ryan, Beck Co.
Inc. 1997 Employee Restricted Stock Purchase Plan (the "Restricted Stock
Purchase Plan"). Under the Restricted Stock Purchase Plan, the Company
matched 25% of all employee purchases. Employees purchased 176,840
shares of Common Stock from the Company and the Company received
approximately $951,000 in cash proceeds from such purchases. As part of
the matching grant under the Restricted Stock Purchase Plan, the Company
also issued 44,198 shares of restricted common stock. Such shares vest
over a three year period. Plan participants are entitled to receive
dividends on and to vote their restricted shares. The Company accrued
approximately $237,000 in connection with the matching grant of shares
under the Restricted Stock Purchase Plan. Such expense will be amortized
over three years. The Company derives a tax deduction measured by the
excess of the market value over the original cost of the grants at the
time of vesting. The related tax benefit is credited to additional paid-
in capital.
During the quarter ended September 30, 1997, the Company also redeemed
all of its 364,288 shares of outstanding Cumulative Convertible Preferred
Stock, Series A (the "Series A Preferred Shares") at a price per share of
$6.75 plus accrued dividends, for an approximate aggregate cost of
$2,502,000.
The Company's Employee Stock Ownership Plan ("ESOP"), which held the
Series A Preferred Shares for participants, used the proceeds from the
redemption to repay the outstanding balance of a loan owed by the ESOP,
and purchased 89,399 shares of newly issued common stock for $579,000.
Of the 89,399 shares issued, 77,005 will be allocated to participants
based on their December 31, 1996 account balance and the remaining shares
will be allocated based on compensation for 1997.
5. The Company is subject to the net capital provisions of Rule 15c3-1
under the Securities Exchange Act of 1934, which requires that the
Company's aggregate indebtedness shall not exceed 15 times net capital as
defined under such provision. Additionally, the Company, as a market
maker, is subject to supplemental requirements of rule 15c3-1(a)4, which
provides for a minimum net capital based on the number and price of
issues in which markets are made by the Company, not to exceed
$1,000,000. At September 30, 1997 and December 31, 1996, the Company's
net capital was approximately $4,209,000 and $3,534,000, respectively,
which exceeded minimum net capital requirements by $3,209,000 and
$2,534,000, respectively.
6. The Financial Accounting Standards Board has issued SFAS No. 128,
"Earnings per Share" ("EPS"), effective for periods ending after December
15, 1997, with restatement required for all prior periods. SFAS No. 128
replaces the current EPS categories of primary and fully diluted with
"basic", which reflects no dilution from common stock equivalents, and
"diluted", which reflects dilution from common stock equivalents based on
the average price per share of the Company's common stock during the
period. For the three and nine months ended September 30, 1997, basic
EPS and diluted EPS would have been $.18 and $.17 and $.57 and $.56
respectively. For the three months ended September 30, 1996, both basic
and diluted EPS would have been $.(22), and for the nine months ended
September 30, 1996 both basic and diluted EPS would have been $.23.
Cautionary Statement Regarding Forward Looking Statements
This report contains "forward-looking" statements. The Company is
including this statement for the express purpose of availing itself of the
protections of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to all of such forward-looking
statements. Examples of forward-looking statements include, but are not
limited to (a) projections of revenues, income or loss, earnings or loss
per share, capital expenditures, growth prospects, dividends, capital
structure and other financial items, (b) statements of plans and objectives
of the Company or its management or Board of Directors, (c) statements of
future economic performance and (d) statements of assumptions underlying
other statements and statements about the Company or its business.
The Company's ability to predict projected results or to predict the effect
of certain events on the Company's operating results is inherently
uncertain. Therefore, the Company wishes to caution each reader of this
report to carefully consider certain factors, including competition for
clients; market conditions regarding buyers and sellers of securities; and
market conditions relating to public offerings, underwritings, mergers and
acquisitions and municipal bonds and other factors discussed herein,
because such factors in some cases have affected and in the future
(together with other factors) could affect, the ability of the Company to
achieve its anticipated results and may cause actual results to differ
materially from those expressed herein.
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes related
thereto presented elsewhere herein. The discussion of results, causes and
trends should not be construed so as to imply any conclusion that such
results, causes or trends will necessarily continue in the future.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
a. Financial Condition
Total assets decreased by $8,621,000, or 23.3%, to $28,326,000 at
September 30, 1997 from $36,947,000 at December 31, 1996. The decrease in
assets is primarily due to a decrease in securities owned of $11,027,000
which was partially offset by an increase in property and equipment of
$2,259,000. The securities inventory decreased due to a decline in taxable
fixed income and municipal securities of $8,702,000 and $7,672,000
respectively, which was offset by an increase of $5,347,000 in equity
securities. The decrease in taxable fixed income securities is due to a
change in trading strategy, which resulted in a lower inventory position to
provide for a better use of capital. The decrease in the municipal
securities portfolio is attributed to larger positions held at year-end
because of reinvestment money coming due from bond maturities and
redemptions in the month of January. The increase in corporate equity
securities reflects a strong market for bank and thrift stocks. The
proceeds from the sale of the securities inventory were largely used to
reduce the payable to the clearing broker and the securities sold position
of $11,424,000 and $720,000 respectively. The increase in property and
equipment is due to leasehold improvements and furniture and equipment for
the new corporate headquarters in Livingston, New Jersey and to a lesser
extent, leasehold improvements and equipment for the Shrewsbury, New Jersey
office. The Company opened the Shrewsbury office in March, 1997 and moved
its corporate headquarters in September, 1997.
b. Results of Operations
Three Months Ended September 30, 1997 Compared With
Three Months Ended September 30, 1996
Net income for the three months ended September 30, 1997 was $622,000,
or $.17 per share, compared to a loss of $661,000, or $.22 per share,
during the same period ended September 30, 1996. Excluding one-time after-
tax charges of approximately $661,000 in the third quarter of last year,
the Company would have reported net income of $252. The one-time after-tax
charges of $661,000 in the third quarter of last year were a result of
three separate factors: $376,000, or $.13 per share, represented the
Company's resolution of employment obligations as a result of the
resignation of a senior executive and Board member as well as related
severance adjustments; a total of $235,000, or $.08 per share, reflected
charge-offs associated with the decision to move the Company's headquarters
to a larger and more modern facility in Livingston New Jersey, and the
remaining $50,000, or $.01 per share, represented costs associated with an
abandoned debt offering.
Total revenues increased $2,586,000, or 41.7%, to $8,794,000 in the
three months ended September 30, 1997 from $6,208,000 in the three months
ended September 30, 1996.
Revenues from principal transactions increased $1,927,000, or 71.1%,
to $4,637,000 in the 1997 period from $2,710,000 for the 1996 period. This
increase can be attributed to an increase of $1,903,000 in revenue from
trading equity securities. The increase in revenue attributed to trading
equity securities reflected a continued strong bank and thrift equity
market as well as an increase in trading activity.
Revenues from investment banking increased $171,000, or 8.1%, to
$2,295,000 in the 1997 period from $2,124,000 for the 1996 period. This
increase was primarily due to an increase in consulting, placement and
valuation fees of $979,000 and an increase of $616,000 and $18,000 in
underwriting equity and municipal securities respectively. Partially
offsetting this increase in revenue was a decrease of $1,442,000 from
underwriting corporate debt securities. The increase in revenue from
consulting, placement and valuation fees resulted from an increase in both
placement fees from thrift conversions and merger and acquisition advisory
fees. The increase in revenues from merger and acquisition advisory fees
was due to the Company representing a greater number of financial
institutions in merger and acquisition transactions in the 1997 third
quarter versus the 1996 third quarter. The increase in revenue from
underwriting equity securities reflects the closing of a trust preferred
underwriting for a financial institution seeking capital in the three
months ended September 30, 1997 as well as the underwriting of the Ryan
Beck Banking Opportunity Trust, Series 5. The decrease in revenue from
underwriting corporate debt securities reflects in part the increased use
of trust preferred securities by financial institutions to meet capital
needs in 1997. The Company expects greater uncertainty in the future with
respect to revenues resulting from thrift conversions and mutual holding
company formations because of increased competition and a smaller universe
of mutual institutions.
Commission revenue increased $512,000, or 53.3%, to $1,472,000 in the
three months ended September 30, 1997 from $960,000 for the comparable
period in 1996. The increase in revenue includes an increase in equity
security commissions of $355,000 and an increase in mutual fund commissions
of $160,000. These increases are mainly attributable to increased retail
activity and higher mutual fund sales due to greater investor demand and
selection of funds.
Revenue from interest and dividends decreased by $58,000, or 16.9%, to
$285,000 in the three months ended September 30, 1997 from $343,000 for the
comparable period in 1996. The decrease in revenue from interest and
dividends is due to lower market interest rates and a decrease in high
yielding fixed income positions in the three months ended September 30,
1997 as compared to the comparable period in 1996.
Total non-interest expenses increased $520,000, or 7.3%, to $7,622,000
in 1997 from $7,102,000 in 1996. This increase is primarily attributed to
an increase in compensation and benefits of $361,000, an increase in
communications expense of $160,000, an increase in floor brokerage expense
of $65,000, and an increase in other expenses of $61,000. These increases
offset decreases in professional fees of $129,000 and occupancy and
equipment expense of $35,000. The increase in compensation and benefits is
mainly attributable to an increase in commission and salary expense of
$801,000 and $136,000 respectively, which offsets a $625,000 pre-tax charge
as a result of the resignation of a senior executive and Board member as
well as related severance adjustments in the third quarter of last year.
The increase in commission expenses is due in part to a strong equity
market which led to increased volume from the sale of bank and thrift
securities and mutual funds. The increase in communications expense is due
to increased telephone usage and quotation expense associated with a larger
number of account executives at the Livingston and Shrewsbury locations as
well as the opening of the Chicago office. The increase in floor brokerage
expense is due to increased trading volume. The increase in other expenses
is due to additional research publications and stationery and supplies
associated with the move of the Company's headquarters from West Orange,
New Jersey to Livingston, New Jersey. The decrease in professional fees
was due to one time charges in the third quarter of last year associated
with the Company's decision to move its headquarters and a pre-tax charge
of $83,000 associated with an abandoned debt offering. Partially
offsetting last year's one time professional fees are additional recruiting
expenses in this year's third quarter. The decrease in occupancy and
equipment expense is due to a one-time pre-tax charge of $192,000 in the
third quarter of last year which offset additional rent expense associated
with the opening of the new Corporate headquarters in Livingston, while
continuing operations in the West Orange location as well as rent
associated with the Shrewsbury and Chicago offices.
Income tax expense increased $785,000 to $345,000 from a benefit of
$440,000 due to an increase in pretax income of $2,068,000.
c. Results of Operations
Nine Months Ended September 30, 1997 Compared With
Nine Months Ended September 30, 1996
Net income for the nine months ended September 30, 1997 was $1,980,000
compared to $869,000 during the same period ended September 30, 1996. On a
fully diluted basis, earnings per share increased to $.56 per share for
the nine months ending September 30, 1997 from $.23 per share during the
same period in 1996. For the nine months ended September 30, 1996,
excluding one-time after tax charges of approximately $661,000 in last
year's third quarter, the Company would have reported net income of
$1,530,000, or $.45 per share.
Total revenues increased $2,571,000, or 11.6%, to $24,752,000 for the
nine months ended September 30, 1997 as compared to $22,181,000 in the
prior year period.
Revenues from principal transactions increased $4,589,000, or 61.3%,
to $12,076,000 in the 1997 period from $7,487,000 for the nine months ended
September 30, 1996. This increase can be attributed to an increase of
$4,251,000 from trading equity securities, an increase of $176,000 from
trading tax-exempt securities and an increase of $162,000 from trading
taxable debt securities. The increase in revenues from trading equity
securities reflected a strong bank and thrift market and increased volume
during the nine months ended September 30, 1997. The increase in revenue
from trading tax-exempt and taxable debt securities was due to favorable
market conditions and less volatility during the nine months ended
September 30, 1997.
Revenues from investment banking decreased $2,683,000, or 25.6 %, to
$7,802,000 in the 1997 period from $10,485,000 for the comparable 1996
period. This was due to a $3,091,000 decrease in revenues related to
consulting, placement and valuation fees and a decrease of $1,442,000 in
underwriting taxable debt securities. This decrease was partially offset
by an increase in revenue from underwriting equity securities of $1,643,000
and an increase in revenue from underwriting tax-exempt debt securities of
$207,000. The decrease in consulting, placement and valuation fees during
the nine months ended September 30, 1997 was primarily due to a reduction
in revenues related to thrift conversions and mutual holding company
formations, partially offset by an increase in revenues related to merger
and acquisition activities. The increase in underwriting equity securities
is due to revenues earned from a number of trust preferred underwritings
for financial institutions seeking additional capital as well as the
closing of the fourth and fifth Ryan Beck Banking Opportunity Trusts during
the nine months ended September 30, 1997. The Company expects greater
uncertainty in the future with respect to revenues resulting from thrift
conversions and mutual holding company formations because of increased
competition and a smaller universe of mutual institutions. The increase in
revenue from underwriting tax-exempt debt securities reflects increased
levels of issuance of new municipal securities.
Commission revenue increased $550,000, or 17.3%, to $3,736,000 in 1997
from $3,186,000 in 1996. The increase in revenue includes an increase in
both equity security and mutual fund commissions of $332,000 and $218,000
respectively.
Other revenue increased $117,000, or 154%, to $ 193,000 in 1997 from
$76,000 in 1996. The increase in revenue is due to an increase in
transaction fee income and an increase in net revenue from insurance
related operations.
Total non-interest expenses increased $999,000, or 5.0%, to
$21,136,000 in 1997 from $20,137,000 in 1996. This increase is primarily
attributable to increases in compensation and benefits of $588,000,
communication expenses of $274,000, other operating expense of $159,000,
professional fees of $50,000 and floor brokerage expense of $46,000.
Partially offsetting these increases was a decrease in marketing and
development expenses of $93,000, and occupancy and equipment expenses of
$25,000. The increase in compensation and benefits is primarily due to an
increase in commission expenses of $1,541,000 associated with the sales of
the trust preferred underwritings and the sale of the fourth and fifth Ryan
Beck Banking Opportunity Trusts as well as increased trading volume
associated with a strong bank and thrift equity market. The increase in
commission expense more than offset a reduction in salary and bonus
expenses of $990,000. The decrease in salary expense is primarily due to a
$625,000 pre-tax charge as a result of the resignation of a senior
executive and Board member as well as related severance adjustments in the
third quarter last year. The increase in communication expense is primarily
associated with increased quotation and telephone usage due to additional
account executives at the Corporate headquarters and the opening of the
Shrewsbury and Chicago locations . The increase in other operating expenses
is due to additional stationery and supplies associated with the move of
the Company's headquarters from West Orange, New Jersey to Livingston, New
Jersey and additional publication and insurance expense. The increase in
professional fees is due to an increase in recruiting expenses, costs
associated with the Company moving its headquarters and fees associated
with amending prior years' tax returns. These expenses more than offset
last year's one time professional fees associated with the Company's
decision to move its headquarters and a pre-tax charge of $83,000
associated with an abandoned debt offering in last year's third quarter.
The increase in floor brokerage expense is due to additional clearing
expenses associated with increased trading volume. The decrease in
marketing and development expense is primarily due to a decrease in
convention and seminar expenses and travel and entertainment expenses. The
decrease in occupancy and equipment expense is due to a one-time pre-tax
charge of $192,000 in the third quarter of last year which offset
additional rent expense associated with the opening of the new Corporate
headquarters in Livingston, while continuing operations in the West Orange
location as well as rent associated with the Shrewsbury and Chicago
offices.
Income tax expense increased by $567,000, or 109.7%, to $1,084,000
from $517,000 due to an increase of pretax income of $1,678,000.
Liquidity and Capital Funds
As of September 30, 1997, the Company's Consolidated Statement of
Financial Condition reflects an essentially liquid financial position, with
most of the Company's assets consisting of cash or assets readily
convertible into cash. The Company's securities positions (both long and
short) are, in most instances, readily marketable.
The Company finances its business through a number of sources,
consisting primarily of capital, funds generated by operations and short-
term secured borrowings. The Company maintains a facility pursuant to which
it may borrow from its clearing broker at prevailing federal funds rate
plus 62.5 basis points. The amount available for borrowing under this
facility is related to the level of securities inventory at the clearing
broker which may be pledged as collateral. At September 30, 1997, the
balance due to the clearing broker was approximately $3,951,000.
On June 11, 1997, the Company secured a commitment for a $2,000,000
loan facility to finance construction, leasehold improvements, furniture,
and telephone and computer equipment for the Livingston and Shrewsbury
offices. Beginning on November 1, 1997, the outstanding balance is payable
in 54 equal and consecutive monthly payments of principal together with
interest. At September 30, 1997, the balance due under this loan facility
was $2,000,000 with a fixed rate of interest at 7.56%.
On June 11, 1997, the Company also secured a commitment for a
$2,000,000 revolving credit facility to finance the Company's working
capital needs. The facility is secured by the Company's certificate of
deposit inventory maintained with the Pershing division of Donaldson,
Lufkin and Jenrette Corp. in an amount which is at least 105% of the
outstanding loan amount. Loans under this facility accrue interest at a
rate equal to the LIBOR rate plus 100 basis points (30, 60 and 90 day
interest periods are available). At September 30, 1997, there were no
borrowings under this facility.
During the three months ended September 30, 1997, the Company
implemented the Ryan, Beck & Co. Inc. 1997 Employee Restricted Stock
Purchase Plan (the "Restricted Stock Purchase Plan"). Under the Restricted
Stock Purchase Plan, the Company matched 25% of all employee purchases.
Employees purchased 176,840 shares of Common Stock from the Company and
the Company received approximately $951,000 in cash proceeds from such
purchases. As part of the matching grant under the Restricted Stock
Purchase Plan, the Company also issued 44,198 shares of restricted common
stock. Such shares vest over a three year period. Plan participants are
entitled to receive dividends on and to vote their restricted shares. The
Company accrued approximately $237,000 in connection with the matching
grant of shares under the Restricted Stock Purchase Plan. Such expense
will be amortized over three years. The Company derives a tax deduction
measured by the excess of the market value over the original cost of the
grants at the time of vesting. The related tax benefit is credited to
additional paid-in capital.
During the quarter ended September 30, 1997, the Company also redeemed
all of its 364,288 shares of outstanding Cumulative Convertible Preferred
Stock, Series A (the "Series A Preferred Shares") at a price per share of
$6.75 plus accrued dividends, for an aggregate cost of approximately
$2,502000.
The Company's Employee Stock Ownership Plan ("ESOP"), which held the
Series A Preferred Shares for participants, used the proceeds from the
redemption to repay the outstanding balance of a loan owed by the ESOP, and
purchased 89,399 shares of newly issued common stock for approximately
$579,000. Of the 89,399 shares issued, 77,005 will be allocated to
participants based on their December 31, 1996 account balance and the
remaining shares will be allocated based on 1997 compensation.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Set forth below is information concerning certain litigation matters to
which the Company is a party and in which there have been developments of a
material nature during the quarter ended September 30, 1997. For
information concerning other possible legal proceedings involving the
Company, please see the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
The Company, Ryan Beck Financial Corp., a wholly-owned subsidiary of
the Company, and a former account executive of the Company have been named
as third-party defendants in Inrevco Associates v. BDO Seidman, et al., v.
Ryan, Beck & Co., et al., Superior Court of New Jersey, Law Division, No.
MRS-L-2961-94. Inrevco is a New Jersey limited partnership. Ryan, Beck
Financial Corp. ("RBFC") is a special limited partner in the partnership
and such former account executive is a limited partner. The third-party
complaint alleges that certain duties were owed to the partnership by the
Company and RBFC. The third-party plaintiffs allege that the Company and
RBFC breached these duties and are liable to the third-party plaintiffs for
contribution in the event the plaintiff prevails at trial.
On March 9, 1995, RBFC and the Company's former account executive were
dismissed by order of the Court. On September 5, 1995, certain defendants
filed a new third-party complaint seeking contribution from the Company,
RBFC and certain present and former employees and officers of the Company
as additional third-party defendants. All of the claims asserted against
the Company are for contribution. On October 15, 1995, the Company, RBFC
and all individual defendants named as third-party defendants in the
litigation entered into a settlement agreement with Inrevco. The terms of
the settlement agreement include a provision for an automatic judgment
reduction in the event any liability is apportioned against the Company,
RBFC or any individual third-party defendant on the contribution claims.
Pursuant to the settlement agreement, Inrevco has released the Company and
RBFC from any liability in the suit. The Company is still named a third-
party defendant in this action and, as such, will be required to
participate in discovery and other pre-trial procedures with respect to the
ongoing litigation. On July 25, 1997, the Company and the individual third
party defendants filed a motion for summary judgment based on the existence
of the settlement agreement with Inrevco. On October 23, 1997, the Court
denied the Company's motion and will not dismiss the Company on the basis
of the settlement agreement. Thus, while the Company has been released
from all liability on the contribution claims by Inrevco, the Company is
still a named defendant on the accountant-defendants' third party claims.
On or about October 1, 1997, a complaint under the caption Robert A.
Bermann, et. al vs. Northwest Savings Bank ("Northwest"), Ryan, Beck & Co.,
Inc., et. al, (C.A. No. 97-15803) was filed in the Court of Common Pleas in
Allegheny County, Pennsylvania. The complaint alleges breach of contract,
breach of the implied covenant of good faith and fair dealing, tortiuous
interference with contract, breach of fiduciary duty and aiding and
abetting a breach of fiduciary duty in connection with Northwest Savings
Bank's reorganization from a mutual savings bank to a stock mutual holding
company.
The complaint seeks unspecified compensatory and rescissionary damages
against the defendants, including the Company, on behalf of all persons who
subscribed for and purchased shares of common stock in Northwest's public
offering. In connection with the offering, Northwest executed an Agency
Agreement with the Company whereby Northwest agreed, among other things, to
indemnify and contribute sums to the Company for losses and legal fees in
connection with the offering.
The Company had been previously a named defendant in an action filed in
the United States District Court for the Western District of Pennsylvania
(the "Federal Court Action"), which sought class certification for alleged
claims relating to the same offering. This lawsuit was successfully
dismissed on November 17, 1995, which dismissal was subsequently reaffirmed
on appeal by the United States Court of Appeals for the Third Circuit. In
connection with the Federal Court Action, Northwest honored its obligations
pursuant to the Agency Agreement and reimbursed the Company for its
expenses in defending the Federal Court Action.
This matter is in a preliminary stage. Although the outcome of
litigation is inherently uncertain, and no assurance can be given as to the
ultimate outcome of this matter, the Company believes that it has
meritorious defenses in this matter and intends to contest this matter
vigorously.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 - Restricted Stock Purchase Plan (incorporated by
reference from Exhibit 4 ofRegistration Statement on Form S-8 dated August
12, 1997)
Exhibit 27 - Financial Data Schedule
(b) Reports of Form 8-K
The Company filed a report on Form 8-K filed with the Securities and
Exchange Commission on July 9, 1997 to report the transfer of all
customer accounts formerly held with First Interregional Equity
Corporation to the Company.
The Company filed a report on Form 8-K filed with the Securities and
Exchange Commission on August 22, 1997 to report the redemption of
the Series A Preferred Stock.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
RYAN, BECK & CO., INC.
By:/s/ Ben A. Plotkin
Ben A. Plotkin
President and
Chief Executive Officer
/s/ Leonard J. Stanley
Leonard J. Stanley
Senior Vice President
Chief Financial and Administrative Officer
(Principal Financial and
Accounting Officer)
Dated: November 13, 1997
17
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