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 March 31, 1998
OR
[ ] TRANSMISSION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from December 31, 1997 to March 31, 1998
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)
- --------------------------------------------------------------------------------
(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 April 30, 1998 there were 3,764,787 shares of Common Stock, par value $.10
per share, outstanding.
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RYAN, BECK & CO., INC.
INDEX
Page Number
Part 1. Financial Information..................................................1
Item 1. Financial Statements
Consolidated Statements of Financial
Condition as of March 31, 1998 and December 31, 1997................2
Consolidated Statements of Income for
the Three Months Ended March 31, 1998 and 1997 .....................3
Consolidated Statements of Changes in Stockholders'
Equity for the Three Months Ended March 31, 1998 and 1997...........4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998 and 1997..............5 - 6
Notes to Interim Consolidated Financial Statements...............7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................9 - 12
Part II. Other Information..............................................12 - 15
Signatures.............................................................15
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
The following unaudited consolidated financial statements of Ryan, Beck &
Co., Inc. (the "Company") as of March 31, 1998 and for the three months ended
March 31, 1998 and 1997 reflect all 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 financial statements be
read in conjunction with the year-end financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1997 as filed with the Securities and Exchange Commission.
The results of operations for the three month period ended March 31, 1998
are not necessarily indicative of the results to be expected for the entire
fiscal year or any other period.
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<TABLE>
<CAPTION>
RYAN, BECK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31, December 31,
1998 1997
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................ $ 335 $ 7,406
Cash segregated under federal and other regulations.................. 11 8
Receivable from:
Clearing agent...................................................... 5,016 -
Brokers and dealers................................................. 189 52
Accrued revenues.................................................... 953 216
Other............................................................... 239 366
Securities owned, at market value ................................... 25,683 43,989
Deferred income taxes................................................ 1,092 1,056
Goodwill............................................................. 2,546 -
Property and equipment, at cost, less
accumulated depreciation and amortization.......................... 2,879 2,867
Other assets......................................................... 2,742 632
---------- ---------
Total assets ........................................................ $ 41,685 $ 56,592
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Payable to clearing broker........................................... $ - $ 22,874
Securities sold, but not yet purchased, at market value.............. 4,273 3,120
Accrued employee compensation and benefits........................... 4,660 3,381
Accounts payable and other accrued expenses ......................... 3,071 2,739
Bank note payable.................................................... 1,815 1,926
Income taxes payable................................................. 960 891
---------- ---------
Total liabilities.................................................... 14,779 34,931
---------- ---------
Subordinated loan.................................................... 10,000 7,000
---------- ---------
Stockholders' equity:
Common stock - $.10 par value
Authorized: 30,000,000 shares
Issued: 3,850,475 shares at March 31, 1998
and 3,676,691 shares at December 31, 1997....................... 385 368
Additional paid-in capital.......................................... 12,478 11,602
Retained earnings................................................... 5,053 3,724
Treasury stock, at cost, 88,000 common shares
at March 31, 1998 and December 31, 1997......................... (624) (624)
Unearned compensation - restricted stock grants..................... (386) (409)
---------- ----------
Total stockholders' equity........................................... 16,906 14,661
---------- ----------
Total liabilities and stockholders' equity .......................... $ 41,685 $ 56,592
========== ==========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
RYAN, BECK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three months ended
March 31, March 31,
1998 1997
---- ----
<S> <C> <C>
Revenues:
Principal transactions............................................... $ 4,526 $ 3,875
Investment banking................................................... 6,354 1,859
Commissions.......................................................... 1,632 1,154
Interest and dividends............................................... 338 349
Other................................................................ 197 30
---------- --------
Total revenues....................................................... 13,047 7,267
Interest expense..................................................... 157 204
---------- --------
Net revenues......................................................... 12,890 7,063
---------- --------
Non-interest expenses:
Compensation and benefits............................................ 7,898 4,588
Floor brokerage, exchange and clearance fees......................... 651 547
Communications....................................................... 482 371
Occupancy, equipment rental and depreciation......................... 421 234
Professional fees.................................................... 408 315
Advertising and market development................................... 320 163
Other................................................................ 469 318
---------- ---------
Total non-interest expenses.......................................... 10,649 6,536
---------- ---------
Income before provision for income taxes.................................. 2,241 527
Provision for income taxes........................................... 876 96
---------- ---------
Net income................................................................ $ 1,365 $ 431
========== =========
Earnings per common share
Basic................................................................ $ .37 $ .12
Diluted.............................................................. $ .37 $ .12
Cash dividends declared................................................... $ .01 $ .05
Weighted average number of shares
Basic................................................................ 3,652 3,167
Diluted.............................................................. 3,674 3,503
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
RYAN, BECK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
<TABLE>
<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>
Three months ended March 31, 1997
Balance at January 1, 1997 $325 $40 $11,875 $246 $ (173) $ (520) $ (624) $ 11,169
Forfeiture of restricted stock grants
(20,498 shares) (2) - (108) - 110 - - -
Unearned compensation -
restricted stock grants (10,000 shares) - - - - (40) - - (40)
Amortization of restricted stock grants -
unearned compensation - - - - 22 - - 22
Forfeiture of restricted stock grants - - - - (23) - - (23)
Amortization of ESOP
unearned compensation - - - - - 26 - 26
Net Income - - - 431 - - - 431
Cash dividends declared: common - - - (158) - - - (158)
preferred - - - (48) - - - (48)
----- ----- ------- ------- ------ ------- ------- --------
Balance at March 31, 1997 $ 323 $ 40 $11,767 $ 471 $ (104) $ (494) $ (624) $11,379
===== ===== ======= ======= ======= ======== ======= ========
Three months ended March 31, 1998
Balance at January 1, 1998 $368 $ - $11,602 $3,724 $ (409) $ - $ (624) $14,661
Issuance of 167,742 shares for
acquisition of Cumberland
Advisors, Inc. 17 - 828 - - - - 845
Unearned compensation - restricted
stock grants (6,242 shares) 1 - 49 - (50) - - -
Amortization of restricted stock grants -
unearned compensation - - - - 73 - - 73
Cancellation of restricted stock grants
issued under Discretionary Incentive
Bonus Program (200 shares) (1) - (1) - - - - (2)
Net Income - - - 1,365 - - - 1,365
Cash dividends declared: common - - - (36) - - - (36)
------ -------- ------- -------- ------- ---------- ------ --------
Balance at March 31, 1998 $ 385 $ - $12,478 $ 5,053 $ (386) $ - $ (624) $16,906
====== ======== ======= ======== ======= ========== ====== =======
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
RYAN, BECK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended
March 31, March 31,
1998 1997
---- ----
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Cash flows from operating activities:
Net income................................................................. $ 1,365 $ 431
Non-cash items included in net income:
Goodwill amortization................................................ 14 -
Depreciation and amortization........................................ 154 57
Amortization of restricted stock grants.............................. 73 22
Forfeiture of restricted stock grants................................ (2) (23)
Amortization of ESOP unearned compensation........................... - 26
Deferred income taxes................................................ (36) (33)
(Increase) decrease in operating assets:
Cash segregated under federal and other regulations.................. (3) (8)
Receivables:
Clearing agent............................................... (5,016) -
Brokers and dealers ......................................... (137) (130)
Accrued revenues............................................. (737) (26)
Other........................................................ 127 188
Securities owned, at market value.................................... 18,306 8,215
Prepaid income taxes................................................. - 386
Other assets......................................................... (2,110) (35)
Increase (decrease) in operating liabilities:
Payable to clearing broker................................... (22,874) (4,012)
Securities sold, but not yet purchased,
at market value.............................................. 1,153 (3,374)
Accrued employee compensation and benefits................... 1,167 (314)
Accounts payable and other accrued expenses.................. 444 (658)
Income taxes payable......................................... 69 -
--------- -----------
Net cash provided by (used in) operating activities............................. (8,043) 712
---------- -----------
</TABLE>
<PAGE>
<TABLE>
RYAN, BECK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended
March 31, March 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from investing activities:
Capital expenditures, net.................................................. (166) (302)
Goodwill from acquisition of
Cumberland Advisors, Inc............................................... (1,715) -
--------- ---------
(1,881) (302)
Cash flows from financing activities:
Proceeds from subordinated loan............................................ 10,000 -
Principal repayments of subordinated loan.................................. (7,000) -
Principal repayments of bank note payable.................................. (111) -
Common stock repurchased for restricted stock grants....................... - (40)
Principal payments of ESOP obligation ..................................... - (35)
Dividends paid: common.................................................... (36) (158)
preferred................................................. - (48)
-------- ---------
Net cash provided by (used in) financing activities........................ 2,853 (281)
-------- ---------
Net increase (decrease) in cash................................................. (7,071) 129
Cash and cash equivalents at beginning of period................................ 7,406 13
-------- ----------
Cash and cash equivalents at end of period...................................... $ 335 $ 142
======== ========
Supplemental disclosures of cash flow information: Cash paid during quarter for:
Interest............................................................... $ 217 $ 236
Income taxes........................................................... 844 5
Issuance of 167,742 shares for Cumberland Advisors, Inc................ 845 -
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
RYAN, BECK & CO., INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
the financial position of Ryan, Beck & Co., Inc. (the "Company") as of
March 31, 1998, and the results of its operations and cash flows for the
three months ended March 31, 1998 and 1997. 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 financial statements as set forth in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. Certain
reclassifications have been made to prior years' financial statements to
conform to the current year's presentation.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the entire fiscal
year or any other period.
2. Securities owned are reflected at market value. Securities in the Company's
trading account consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(unaudited)
(In thousands)
<S> <C> <C>
Debt obligations:
States and municipalities................... $ 11,029 $ 32,549
Corporations................................ 1,376 1,368
U.S. Government and agencies................ 374 372
Corporate equity................................. 12,879 9,675
Other............................................ 25 25
------------- -------------
Total............................................ $ 25,683 $ 43,989
============= =============
</TABLE>
3. Other assets includes an investment made on January 28, 1998 of $1,861,000
in 8% Cumulative Convertible Preferred Stock of a New Jersey based
financial institution specializing in mortgage servicing. The carrying
value of this investment approximates fair value.
4. The Company is subject to the net capital provision 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 March 31,
1998 and December 31, 1997, the Company's net capital was approximately
$14,591,000 and $13,443,000, respectively, which exceeded minimum net
capital requirements by $13,591,000 and $12,443,000 respectively.
5. Business Combination
On February 9, 1998, the Company entered into a definitive agreement with
BankAtlantic Bancorp, Inc. ("BankAtlantic"), whereby all of the Company's
outstanding common shares would be acquired by BankAtlantic in an exchange
for BankAtlantic's Class A Common Stock. The agreement establishes a fixed
exchange ratio of .761 shares of BankAtlantic Class A Common Stock for each
share of the Company's common stock. The agreement, when consummated, also
will establish an incentive and retention pool, under which shares of
BankAtlantic's Class A common stock equal in the aggregate to approximately
20% of the aggregate value of the shares of Class A Common Stock issued in
the merger (excluding options issued in the merger in exchange for other
options and excluding shares of Class A Common Stock issued in the merger
in exchange for shares of Company Common Stock which were issued by the
Company after February 9, 1998). The retention pool will be allocated to
key employees of the Company and the allocated shares will be distributed
after four years to an employee who remains with the Company for that
period (subject to certain exceptions).
The BankAtlantic agreement is subject to the receipt of all regulatory
approvals and approval of the stockholders of the Company at a stockholders
meeting. The Company expects that the transaction will be closed during the
second quarter of 1998, and thereafter, the Company will operate as an
autonomous independent subsidiary of BankAtlantic.
On February 9, 1998, the Company entered into an agreement to acquire for
stock and cash Cumberland Advisors, a New Jersey based money manager with
approximately $400 million under management. In the transaction the Company
also acquired Cumberland Consulting, a financial advisor to state and local
governmental units. The Company paid approximately $1.3 million in cash and
issued 167,742 shares of common stock. The agreement also contains
provision for contingent payments and future earn out payments should
certain performance goals be met over the next three years.
On January 2, 1998, the Company repaid the outstanding temporary
subordinated loan obligation of $7,000,000. On March 30, 1998, the Company
borrowed $10,000,000 via a three year subordinated loan from BankAtlantic
Bancorp at the prime rate.
6. Recent Accounting Pronouncements
Employers' Disclosures about Pensions and Other Postretirement Benefits
In February 1998, the FASB released Statement of Financial Accounting
Standards ("SFAS") No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, which revises and standardizes pension and other
benefit plan disclosures that are to be included in the employer's
financial statements. SFAS 132 does not change the measurement or
recognition rules for pensions or other postretirement benefit plans. SFAS
132 will be effective for fiscal years beginning after December 15, 1997,
with earlier application encouraged. Restatement of disclosures for prior
periods provided for comparative purposes would be required unless the
information is not readily available. It is anticipated that this
pronouncement would not have a material effect on the Company.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
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 to imply any conclusion that such results, causes or trends
will necessarily continue in the future.
a. Statement of Financial Condition
Total assets decreased by $14,907,000 or 26.3%, to $41,685,000 at March
31, 1998 from $56,592,000 at December 31, 1997. The decrease in assets is
primarily due to a decrease in securities owned of $16,445,000 and cash and cash
equivalents of $7,071,000. Partially offsetting these decreases was an increase
in the amount due from the clearing agent of $5,016,000 and the recognition of
goodwill (before amortization) of $2,560,000 with respect to the acquisition of
Cumberland Advisors. The securities inventory decreased due to a decrease in
municipal securities of $21,520,000, which was partially offset by an increase
of $5,065,000 in corporate equity securities. 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 proceeds from the sale of the securities inventory were
largely used to reduce the payable to the clearing broker of $22,874,000. The
cash and cash equivalents balance at December 31, 1997 included $7,000,000 which
was held in a short term money market fund and these proceeds were used to
retire on January 2, 1998 a $7,000,000 temporary subordinated loan. On March 30,
1998, the Company borrowed $10,000,000 via a three year subordinated loan from
BankAtlantic Bancorp at the prime rate. The proceeds of the loan were used to
payoff the outstanding balance due to the clearing broker and the remaining
portion of these loan proceeds were invested with the clearing broker. The
recognition of goodwill of $2,560,000 resulted from the Company's acquisition of
Cumberland Advisors on February 27, 1998, a New Jersey based money manager with
approximately $400 million under management.
b. Results of Operations
Three Months Ended March 31, 1998
Compared With Three Months Ended March 31, 1997
Net income for the three months ended March 31, 1998 was $1,365,000
compared to $431,000 during the three month period ended March 31, 1997. Diluted
earnings per share increased 208.3% to $.37 per share for the three months
ending March 31, 1998 from $.12 per share during the same period in 1997.
Revenues
Total revenues increased $5,780,000, or 79.5%, to $13,047,000 in the three
months ended March 31, 1998 from $7,267,000 in the prior year period.
Revenues from Principal Transactions
Revenues from principal transactions increased $651,000, or 16.8%, to
$4,526,000 in the three months ended March 31, 1998 from $3,875,000 in the
comparable period in 1997. This increase is the result of an increase of
$767,000 from trading equity securities and an increase of $82,000 from trading
taxable securities, which was partially offset by a decrease in revenues
attributed to tax-exempt securities of $197,000. The increase in revenues
attributable to trading equity securities reflected a strong bank and thrift
market as many of these securities hit new highs during the first quarter of
1998 as well as an increase in trading activity and a larger size sales force.
The decrease in revenues attributable to trading tax-exempt securities reflected
strong demand for new municipal issues and these revenues are included in
investment banking revenues.
Interest Rate Risk Management
Interest rate risk arises from the possibility that changes in interest
rates will affect the value of the Company's fixed income trading instruments.
The Company will occasionally utilize a hedging strategy in its fixed-income
trading activities as part of an overall plan to manage interest rate risk. The
Company will occasionally sell short positions in U.S. Treasury futures in an
effort to manage its interest rate risk and protect the profit margins
associated with the trading of its fixed-income securities. These short
positions expose the Company to off-balance-sheet risk of loss in the event that
the changes in interest rates, and thus the value of the futures contracts, do
not closely correlate with the changes in the value of the Company's
fixed-income securities inventory. Gains and losses on the futures contracts are
recognized currently in principal transaction revenue. At March 31, 1998, the
notional value of open commitments under financial futures contracts was
$1,000,000 with a negligible fair value liability.
Revenues from Investment Banking
Revenues from investment banking services increased $4,495,000, or 241.8%,
to $6,354,000 in the three months ended March 31, 1998 from $1,859,000 in the
comparable period in 1997. This increase was due to a $2,613,000 increase in
revenues related to consulting, placement and valuation fees, an increase in
revenue from underwriting equity securities of $1,460,000 and an increase in
revenue from underwriting tax-exempt debt securities of $422,000. The increase
in consulting, placement and valuation fees resulted from an increase in both
revenues related to thrift conversions, mutual holding company formations and
merger and acquisition advisory fees. The increase in consulting, placement and
valuation revenues during the first quarter of 1998 was primarily due to three
thrift conversions or mutual holding company formations which closed in the
first quarter of 1998 as compared to no closings in the first quarter of 1997.
Additionally, fee income from merger and acquisition advisory services was
significantly higher during the first quarter of 1998 as a result of a general
increase in the Company's merger and acquisition advisory work. The Company
expects future revenues resulting from thrift conversions and mutual holding
company formations could be volatile because of increased competition and a
smaller universe of mutual institutions. The increase in revenue from
underwriting equity securities is due to the closings of two trust preferred
issues for financial institutions seeking additional capital for growth purposes
which closed in the first quarter of 1998, as well as the closing of the Ryan,
Beck Banking and Insurance Opportunity Trust, Series 6 as compared to revenues
from the Ryan, Beck Banking Opportunity Trust, Series 4 in the first quarter of
1997. The increase in revenue from underwriting tax-exempt debt securities
reflects increased levels of issuance of new municipal securities. Although
there can be no assurances that it will be successful, the Company is attempting
to diversify its revenue sources into related financial service companies.
Commission Income
Commission revenue increased $478,000, or 41.4%, to $1,632,000 for the
quarter ended March 31, 1998 from $1,154,000 in the comparable period in 1997.
The increase in commission revenue includes an increase in equity security
commissions of $278,000 and an increase in mutual fund commissions of $185,000.
This increase is reflective of continued strong demand for equity securities and
mutual funds, as well as a larger sales force. Additionally, the Company
continues to establish strategic alliances with mutual fund sponsors which has
resulted in a larger selection of mutual funds for its customers.
Expenses
Interest Expense
Interest expense decreased $47,000, or 23.0% to $157,000 for the quarter
ended March 31, 1998 from $204,000 in the comparable period in 1997. This
decrease reflects lower average borrowings from the Company's clearing broker.
Non-interest Expense
Total non-interest expenses increased $4,113,000, or 62.9%, to $10,649,000
for the quarter ended March 31, 1998 from $6,536,000 in the comparable period in
1997. This increase is primarily attributable to an increase in compensation and
benefits of $3,310,000, an increase of $187,000 in occupancy, equipment rental
and depreciation, a $157,000 increase in advertising and market development and
a $151,000 increase in other expenses. In addition, communication expense and
floor brokerage, exchange and clearance fees increased by $111,000 and $104,000,
respectively. The increase in compensation and benefits is mainly attributable
to an increase in incentive accruals, which reflect the Company's first quarter
1998 performance and commission expense of $1,058,000 which was primarily
associated with the sale of the two equity underwritings and the Unit Investment
Trust. In addition, the increase in compensation and benefits was partly due to
an increase in salary expense which reflected merit increases and an increase in
staffing levels, as well as an additional charge of $341,000 for post-retirement
benefits. The increase in occupancy and equipment expense is due to additional
depreciation of leasehold improvements and equipment and rent expense at the
Livingston, Shrewsbury and Chicago locations. The increase in advertising and
market development expense is primarily due to an increase in printing costs
associated with an increase in the number of financial institutions followed by
the research department and additional costs associated with a new and expanded
advertising campaign. The increase in other expenses is due to additional costs
associated with computer related costs, goodwill amortization and professional
membership fees. The increase in communication expense is due to additional
quotation and telephone expenses associated with a larger sales force. The
increase in floor brokerage, exchange and clearance fees is due to an increase
in trade volume.
Income tax expense increased $780,000, or 812.5%, to $876,000 from $96,000
due to an increase of pretax income of $1,714,000 and the receipt of $89,000
representing income tax refunds from amending prior years' tax returns in the
first quarter of last year.
Liquidity and Capital Funds
As of March 31, 1998, 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
additional funds on a secured short-term basis from its clearing broker at the
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 March 31, 1998, there
were no borrowings under this facility.
On March 30, 1998, the Company borrowed $10,000,000 via a three year
subordinated loan from BankAtlantic Bancorp Inc. at the prime rate. This loan
qualifies as net capital under the Securities and Exchange Commission's ("SEC")
Rule 15c3-1 and is included in net capital at March 31, 1998.
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 March 31, 1998. For information
concerning other legal proceedings involving the Company, please see the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Due to various factors including but not limited to competition, current
market conditions, legal and regulatory developments, and the timing of certain
investment banking transactions, the Company's earnings can vary significantly
from year to year. Although the Company believes it has meritorious defenses to
all current legal actions it is possible that a settlement or an adverse outcome
during a period with lower earnings could be considered material relative to the
income in such a period. The Company is unable to estimate these amounts. The
Company continues to believe the outcome of any litigation would not materially
adversely affect the financial condition of the Company.
The Company, Ryan Beck Financial Corp. ("RBFC"), a wholly-owned subsidiary
of the Company, and various current and former officers 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. RBFC is a special
limited partner in the partnership. Certain complaints are currently pending
against the Company only, which allege that the Company breached certain duties
it allegedly owed the partnership. Another complaint is pending against the
Company, RBFC and the individual 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 accountant-defendants' contribution claims. As a result of this
provision of the settlement agreement, the third-party defendants, including the
Company, have limited exposure on the third-party claims which have been
asserted to date. Inrevco also released the Company and RBFC from any liability
in the suit. The Company is still technically a named third-party defendant in
this action and will be required to participate in the ongoing litigation.
Recently, the Company and RBFC argued a motion for summary judgment, or,
alternatively, to enforce the settlement agreement with Inrevco whereby the
third party defendants would be dismissed from the case. After oral argument,
the Court denied the motion, ruling that the third party defendants are not
entitled to be dismissed absent an agreement with the accountant-defendants. The
Court expressed no view on the enforceability of the settlement agreement. Trial
is currently scheduled to commence in the Morris County Superior Court - Law
Division, on May 11, 1998.
On or about December 13, 1994, a class action complaint was filed in the
United States District Court for the Western District of Pennsylvania against
the Company, Northwest Savings Bank ("Northwest"); Northwest Bancorp, MHC; RP
Financial, Inc. and certain of Northwest's officers and directors. The complaint
alleges violations of Sections 12(2) and 15 of the Securities Act of 1933, 15
U.S.C. sections 771(2) and 770; Section 10(b) and 20(a) of the Securities
Exchange Act of 1934, 15 U.S.C. sections 78j(b) and 78t(a); Rule l0b-5
promulgated by the Securities and Exchange Commission (17 C.F.R- section 240. 1
Ob-5); as well as various state law securities and common law claims.
The complaint alleges that the Company was retained to consult with and
advise Northwest regarding its reorganization from a mutual state savings bank
to a stock mutual holding company. The complaint avers that, in connection with
the reorganization, Northwest and its Trustees offered to sell a minimum of
2,000,000 shares and a maximum of 3,000,000 shares of common stock in an initial
public offering at a price of $20 per share. The complaint alleges that, the
Company engaged in the promotion and sale of the Northwest stock. The complaint
further alleges that after the offering was concluded, the appraised value of
Northwest was increased by 15 percent and the subscription offering was diluted
by an additional 450,000 shares. The complaint further avers that between
November 7, 1994, when Northwest stock began trading on the Over-the-Counter
market, and December 13, 1994, the price of Northwest stock dropped by $5 per
share, or 25 percent.
The complaint alleges that the Offering Circular prepared in connection
with the initial public offering and dated August 12, 1994, contained
misstatements of material facts and omitted to state material facts necessary to
make the statements contained in the Offering Circular not misleading. The
complaint avers that the purported misrepresentations include false statements
representing that the appraised valuation and number of shares to be issued in
the initial offering would be increased only if market and economic conditions
warranted such increase. The complaint alleges that the increase in appraised
value was not warranted by market or economic conditions.
The complaint seeks unspecified monetary damages against the defendants,
including the Company, on behalf of all persons who subscribed for and purchased
shares of common stock in Northwest's initial public offering.
By Order dated November 17, 1995, the Court dismissed the complaint with
prejudice against all defendants on the ground that plaintiff failed to identify
affirmative misrepresentations and material omissions of fact in the Offering
Circular. On December 14, 1995, plaintiff filed an appeal with the United States
Court of Appeals for the Third Circuit and oral arguments were held on January
21, 1997. The Court of Appeals affirmed the dismissal in February of 1997.
In November of 1997, the class counsel re-filed essentially the identical
class action in state court in Allegheny County, Pennsylvania. In the new
action, plaintiffs seek damages against the Company for breach of contract,
breach of fiduciary duty and interference with contract. The Company and the
other defendants have filed preliminary objections seeking dismissal of the
complaint and to transfer the matter to Erie County, Pennsylvania.
The Company entered into an agency agreement with Northwest in which
Northwest agreed to defend and indemnify the Company. The Company believes that
it possesses strong defenses to the claims and intends to defend the case
vigorously. Given the recent filing of the suit, however, it is too soon to
project the likely outcome.
Item 2. Recent Sales of Unregistered Securities
During the three month period ended March 31, 1998, as partial
consideration to purchase Cumberland Advisors, the Company issued a total of
167,742 shares of Common Stock which were not registered under the Securities
Act of 1933, as amended (the "Securities Act") on February 27, 1998. These
shares were issued without registration under the Securities Act in reliance on
the exemption provided by Section 4(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Materially Important Events
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 2 - Plan of Reorganization [incorporated by reference
to Exhibits 99(c) and 99(d) Acquisition Agreement with
Exhibits and Merger Agreement (Cumberland) without Exhibits,
respectively] of the Company's Report on Form 8-K filed on
February 17, 1998.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K with the Securities and
Exchange Commission on February 17, 1998 to report the
Company's announcement of a strategic alliance with
BankAtlantic Bancorp and the Company's acquisition of
Cumberland Advisors.
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: BEN A. PLOTKIN
- ---------------------
Ben A. Plotkin
President and Chief Executive Officer
(Principal Executive Officer)
By: LEONARD J. STANLEY
- ----------------------
Leonard J. Stanley
Senior Vice President, Chief Financial
and Administrative Officer
(Principal Financial and Accounting Officer)
Dated:
May 15, 1998
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This schedule contains summary information extracted from the March 31, 1998
10-Q and is qualified in it's entirety by reference to such financial
statements.
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