<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File No. 0-20185
BHC FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2264646
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
TWELVE HUNDRED
ONE COMMERCE SQUARE
2005 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103-3212
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 636-3000
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
The number of shares of the Registrant's common stock, par value
$.001 per share, outstanding as of May 8, 1996 was 6,543,877.
<PAGE> 2
BHC FINANCIAL, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED March 29, 1996
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements:
Consolidated Statements of Financial Condition 3
as of March 29, 1996 (unaudited) and
December 31, 1995
Consolidated Statements of Income (unaudited) 4
for the quarters ended March 29, 1996 and
March 31, 1995
Consolidated Statements of Cash Flows (unaudited) 5
for the quarters ended March 29, 1996 and
March 31, 1995
Notes to Consolidated Financial Statements 6
(unaudited)
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
<PAGE> 3
FINANCIAL STATEMENTS
BHC FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except par values)
<TABLE>
<CAPTION>
March 29, December 31,
1996 1995
---------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents.............................$ 24,551 $ 21,517
Cash and securities segregated under federal
regulations.......................................... 2,330 2,312
Receivable from brokers or dealers and clearing
organizations........................................ 133,392 196,321
Receivable from customers............................. 369,648 377,535
Securities owned, at market value..................... 17,067 11,502
Furniture, equipment, capitalized leases and leasehold
improvements, net.................................... 4,921 4,714
Intangible assets, net................................ 4,697 4,799
Other assets.......................................... 12,228 15,302
------- -------
Total assets..........................................$568,834 $634,002
======= =======
LIABILITIES
Short-term bank loans payable......................... - $ 41,900
Payable to brokers or dealers and clearing
organizations........................................$145,086 190,810
Payable to customers (including free credit balances
of $251,484, and $230,243 respectively).............. 293,216 270,761
Securities sold, but not yet purchased,at market value 2,315 1,420
Accrued expenses and other liabilities................ 41,411 43,803
------- -------
Total liabilities..................................... 482,028 548,694
------- -------
Commitments and Contingencies.........................
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001,authorized 10,000....
shares; none outstanding.............................
Nonvoting common stock, par value $.001, authorized
3,000 shares; none outstanding.......................
Voting common stock, par value $.001, authorized
30,000 shares; issued 7,579 shares................... 8 8
Additional paid-in capital............................ 39,582 39,582
Retained earnings..................................... 56,846 52,091
Treasury Stock, at cost - 820 shares and 582 shares,
respectively......................................... (9,630) (6,373)
------- -------
Total stockholders' equity............................ 86,806 85,308
------- -------
Total liabilities and stockholders' equity............$568,834 $634,002
======= =======
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
<PAGE 4>
BHC FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarters ended
-------------------------
MARCH 29, MARCH 31,
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Clearing and execution fees...................... $8,865 $7,309
Margin interest.................................. 6,266 6,449
Other interest................................... 1,275 793
Commissions...................................... 2,581 1,216
Other............................................ 4,989 3,232
------ ------
Total revenues.................................. 23,976 18,999
Interest expense................................ 3,627 4,176
------ ------
Net revenues.................................... 20,349 14,823
------ ------
Expenses, excluding interest:
Employees' compensation and benefits............. 5,809 4,798
Floor brokerage and clearing..................... 1,662 1,271
Communications................................... 907 513
Occupancy and equipment.......................... 1,587 1,515
Other............................................ 2,156 2,052
------ ------
Total expenses, excluding interest.............. 12,121 10,149
------ ------
Income before income taxes........................ 8,228 4,674
Provision for income taxes........................ 3,256 1,772
------ ------
Net income........................................ $4,972 $2,902
===== =====
Earnings per share $ 0.70 $ 0.40
===== =====
Weighted average shares outstanding 7,104 7,244
===== =====
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
<PAGE> 5
BHC FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarters ended
-------------------------
MARCH 29, MARCH 31,
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................... $4,972 $2,902
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 497 669
(Increase) decrease in operating assets:
Cash and securities segregated under federal
regulations.................................... (18) (14)
Receivable from brokers or dealers and clearing
organizations.................................. 62,929 (134,675)
Receivable from customers....................... 7,887 (13,396)
Securities owned................................ (5,565) 420
Other assets.................................... 3,074 2,912
Increase (decrease) in operating liabilities:
Payable to brokers or dealers and clearing
organizations.................................. (45,724) 141,999
Payable to customers............................ 22,455 9,550
Securities sold, but not yet purchased.......... 895 (1,489)
Accrued expenses and other liabilities.......... (2,392) 10,335
------- ------
Cash provided by operating activities........... 49,010 19,213
------- ------
Cash flows from financing activities:
Payments on short term loans, net.................(41,900) (2,100)
Principal payments under capital lease obligations - (292)
Dividends paid.................................... (210) (144)
Payments for purchases of common stock for treasury(3,280) (1,229)
Proceeds from issuance of stock options........... 16 -
------ ------
Cash used in financing activities.................(45,374) (3,765)
------ ------
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements..................................... (602) (355)
------ ------
Cash used in investing activities................ (602) (355)
------ ------
Increase in cash and cash equivalents............. 3,034 15,093
Cash and cash equivalents, beginning of period.... 21,517 34,538
------ ------
Cash and cash equivalents, end of period..........$24,551 $49,631
====== ======
Supplementary Information:
Cash paid for interest $5,929 $5,350
====== ======
Cash paid for income taxes $ 307 $52
====== ======
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
<PAGE 6>
BHC FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
1. Summary of Significant Accounting Policies:
The accompanying consolidated financial statements include the accounts
of BHC Financial, Inc. (the "Parent") and its wholly-owned subsidiaries
(collectively the "Company"), the most significant of which are BHC
Securities, Inc.("BHC"), TradeStar Investments, Inc. ("TradeStar"), BHCM Inc.
("BHCM") and netVest, Inc. ("netVest"). All significant intercompany accounts
and transactions have been eliminated in consolidation. The financial
statements were prepared in accordance with generally accepted accounting
principles which require the use of management's estimates.
The Company prepares its interim consolidated financial statements as of
the last Friday of the period. The consolidated financial statements for the
quarters ended March 29, 1996 and March 31, 1995 are unaudited, and should be
read in conjunction with the consolidated financial statements and notes
thereto for the year-ended December 31, 1995 included in the Company's Annual
Report to Stockholders. In the opinion of management, the interim
consolidated financial statements reflect all adjustments of a normal and
recurring nature necessary for a fair presentation of the information set
forth therein. The results of operations for the quarter ended March 29, 1996
are not necessarily indicative of the operating results to be expected for the
full year or any other period.
BHC, TradeStar and BHCM are registered broker-dealers in securities under
the Securities Exchange Act of 1934, as amended (the "1934 Act"). BHC provides
integrated support and processing services to securities brokerage affiliates
of banks and other financial institutions and TradeStar provides discount
retail brokerage services and markets BHC's processing and support services to
community banks. BHCM, a third party marketer, sells investment products
including fixed and variable annuities and insurance. netVest provides
telephone and PC inquiry, trading and quote services.
Earnings per share is computed based on the weighted average number of
shares outstanding and the effect of common stock equivalents if dilutive.
Total revenues include related party revenues of $4,417, and $2,963,
respectively; and interest expense includes related party interest expense of
$1,719, and $1,062, respectively for the quarters ended March 29, 1996 and
March 31, 1995.
2. Net Capital Requirements:
BHC is subject to the Securities and Exchange Commission's ("SEC")
Uniform Net Capital Rule (Rule 15c3-1 under the 1934 Act) which requires the
maintenance of minimum net capital. At March 29, 1996, BHC had net capital of
$64,951, or approximately 17% of aggregate debit balances, which was $57,417
in excess of its minimum net capital requirement of $7,534. <PAGE>
<PAGE 7>
BHC FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. Litigation and Claims:
On January 21, 1994, BHC received notice that a purported holder of a
brokerage account with a BHC client filed a complaint in the Supreme Court of
the State of New York which alleges that BHC received, in violation of New
York statutory and common law, cash payments from market makers in certain
securities (referred to as payment for order flow) in return for BHC executing
customer orders with such market makers. In the complaint, the plaintiff seeks
injunctive relief and damages, a return of cash payments for order flow, in
addition to clearing and execution fees earned by BHC from January 1, 1990,
certification of this matter as a class action, punitive damages, and costs
and attorneys' fees in an unspecified amount. Payment for order flow is
common practice within the securities industry. BHC removed this to the
United States District Court for the Southern District of New York, and the
federal court on December 18, 1995, dismissed the complaint for failure to
state a claim upon which relief can be granted. The plaintiff has appealed
the dismissal.
In the opinion of management, the ultimate liability, if any, resulting
from this matter will have no material effect on the Company's consolidated
financial position. The materiality of this matter on the Company's future
operating results depends on the level of future results of operations, as
well as on the timing and amount of the ultimate outcome.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
The Company's principal source of revenue is derived from providing
processing and support services to securities brokerage affiliates of banks
and other financial institutions and broker dealers. In addition, increased
revenue is derived from commissions generated by the Company's retail
brokerage subsidiary, TradeStar Investments, Inc.
The Company's revenues are directly affected by trading volume and the
level of interest rates charged on margin debit balances. The results of
operations for the quarter ended March 29, 1996 are not necessarily indicative
of the operating results to be expected for the full year or any other period.
RESULTS OF OPERATIONS
Business conditions related to the provision of processing and support
services to the securities brokerage affiliates of banks and other financial
institutions and broker dealers were favorable in the first quarter of 1996
compared to the first quarter of 1995. Lower interest rates in the first
quarter of 1996 when compared to the first quarter of 1995 have resulted in
increased stock and mutual fund activity.
<PAGE> 9
The information in the tables below should be considered when
reading the discussion and analysis of operating results:
<TABLE>
<CAPTION>
Percent Change
For the Quarters Ended Increase
March 29, 1996 March 31, 1995 (Decrease)
-------------- -------------- -------------
<S> <C> <C> <C>
Total transactions processed
(in thousands) 565.0 369.9 53 %
Daily average transactions
processed 8,968 5,871 53 %
Transaction days in quarter 63 63 - %
Average margin debit balances
(in thousands) $332,206 $323,961 3 %
Average broker call rate 7.11% 7.55%
</TABLE>
First Quarter 1996 Compared to First Quarter 1995
For the first quarter of 1996, net revenues increased $5,526,000, or 37%,
over the first quarter of 1995. The increase was a result of increases in
clearing and execution fees, commissions, net interest income and other
interest income and other income ancillary to the securities brokerage
industry. Clearing and execution fees increased $1,556,000 to $8,865,000, a
21% increase, which was due to a 53% increase in transactions processed offset
by a 21% decrease in the average price per ticket. Generally in periods where
daily transaction volumes are increasing, clearing and execution revenue will
increase, while clearing and execution revenue per ticket will decline. This
is due to BHC's volume discount program which rewards clients for high
transaction volumes by reducing the charge per transaction when various volume
levels are achieved.
Net interest income (margin interest and other interest less interest
expense) increased $848,000 to $3,914,000 in the first quarter of 1996 when
compared to the same period last year. Margin interest decreased $183,000 due
to the decrease in the average broker call rate of 44 basis points. Offsetting
this drop in interest rates was an increase of $8.2 million in average margin
balances outstanding which averaged $332.2 million at March 29, 1996 and
$324.0 million at March 31, 1995. This increase in average balances was
despite the loss of a single margin account of $30 million in the second
quarter of 1995 as a result of management's determination that the account was
unduly concentrated. Other interest income of $1,275,000 in the first quarter
of 1996 increased $482,000, or 61% over the first quarter of 1995. The
increase was due to increased securities lending business where BHC acts as
both the borrower and the lender and makes a spread on the transaction. A
decrease in the average Federal Funds rate of approximately 45 basis points
led to a decrease in the Company's cost of borrowing, which resulted in
interest expense decreasing $549,000, or 13%.
Commissions on retail sales from TradeStar increased $1,365,000, or 112%,
in the first quarter of 1996 compared to 1995. This was the result of
transaction volume which was up 89% in the first quarter of 1996 when compared
to the first quarter of 1995. Customer accounts purchased in the third quarter
<PAGE 10>
of 1995 represented 54% of the increase and the remainder of the increase was
due to growth in retail activity.
In the first quarter of 1996, other income increased $1,757,000, or 54%,
over 1995. The increase was due to increases in the payments for order flow on
some listed and some over-the-counter transactions, administrative fees
related to money market and mutual fund transactions, revenues generated by
netVest Inc.'s VoiceQuote product, and other fees ancillary to the processing
of securities transactions.
Expenses, excluding interest, increased by 19% in the first quarter of
1996 compared to the same period in 1995, primarily related to increases in
employees' compensation and benefits, floor brokerage and clearing charges and
communication costs.
Employees' compensation and benefits increased $1,011,000, or 21%, in the
first quarter of 1996 when compared to the first quarter of 1995. This
increase was primarily due to the effect of staff additions related to the
business units acquired in the third quarter of 1995 and normal and recurring
salary adjustments as well as to increased bonus rates based on the
performance of the Company in the first quarter of 1996. The number of average
full time employees increased 14% (including business units acquired) over the
first quarter of 1995.
The increase in floor brokerage and clearing charges of $391,000, or 31%,
in the first quarter of 1996 when compared to the first quarter of 1995, was
related to the increase in transactions processed. Although these costs vary
somewhat directly with transactions processed, they represented approximately
19% and 17% of clearing and execution fees for the first quarters of 1996 and
1995, respectively.
Occupancy and equipment costs increased $72,000, or 5%, in the first
quarter of 1996 when compared to the first quarter of 1996, due in part to
increased variable costs related to mutual fund processing.
Communications expenses increased $394,000, or 77%, in the first quarter
of 1996 when compared to the first quarter of 1995, due in part to the costs
associated with the PC and telephone inquiry, trading and quote services
offered through netVest, Inc., which was acquired in the third quarter of 1995
and increased quote costs related to the Banquote product which provides low
cost quote services to BHC's Clients.
Other operating expenses increased $104,000, or 5%, in the first quarter
of 1996 when compared to the first quarter of 1995. The primary reason for
the increase was increased promotional expenses and state franchise taxes.
The provision for income taxes increased $1,484,000 and the effective rate
was 40% for the first quarter of 1996 and 38% for the first quarter of 1995.
The increase in the effective tax rate was due to a reduction in state tax
exempt income.
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1996, 96% of assets consisted of cash, assets readily
convertible into cash, and assets collateralized by marketable securities.
Stockholders' equity was $86.8 million at March 29, 1996, up $1.5 million, or
2%, from December 31, 1995, which was due to the first quarter's earnings,
offset by the repurchase of shares of the Company's common stock and
dividends declared.
<PAGE 11>
The Company has credit arrangements totaling $215,000,000 with several
banks. These demand loans, which are used to finance receivables in
customers' margin accounts, bear interest at the respective bank's overnight
borrowing rate and are collateralized by securities held in customers' margin
accounts and the Company's cash equivalents. At March 29, 1996, the Company
had no borrowings under these arrangements. In the opinion of management, the
Company's existing credit arrangements will be adequate to meet the Company's
short-term operating capital needs.
On April 17, 1996, the Company's Board of Directors declared a $.03 per
share dividend payable May 15, 1996 to stockholders of record on May 1, 1996,
resulting in a payment of approximately $196,000.
The Company's Board of Directors previously authorized the repurchase,
from time to time, of up to 1,099,000 of the Company's common stock in the
open market, of which 828,000 have been repurchased as of March 29, 1996.
BHC is subject to the requirements of the SEC and the NYSE, relating to
liquidity, minimum net capital levels and the use of customer funds and
securities. BHC has always operated in excess of the applicable minimum net
capital requirements. See Note 2 of Notes to Unaudited Consolidated Financial
Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K:
Date of Report Item
-------------- -------
March 13, 1996 5
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BHC FINANCIAL, INC.
DATE:May 8, 1996 BY: /s/WILLIAM T. SPANE, JR.
------------------------
William T. Spane
Chairman of the Board
Chief Executive Officer
and President
(Principal Executive Officer)
DATE:May 8, 1996 BY: /s/ LAWRENCE E. DONATO
-------------------------
Lawrence E. Donato
Senior Vice President
Chief Financial Officer
and Treasurer
(Principal Financial Officer)
DATE:May 8, 1996 BY: /s/ RICHARD M. BARE
-------------------------
Controller
<PAGE> 13
Exhibit Index
Exhibit No. Description
- - ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from BHC
Financial's first quarter 1996 unaudited consolidated financial statements
and is qualified in its entirety by reference to such unaudited consolidated
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-29-1996
<CASH> 24551
<RECEIVABLES> 377589
<SECURITIES-RESALE> 1334
<SECURITIES-BORROWED> 124117
<INSTRUMENTS-OWNED> 17067
<PP&E> 4921
<TOTAL-ASSETS> 568834
<SHORT-TERM> 0
<PAYABLES> 345428
<REPOS-SOLD> 1326
<SECURITIES-LOANED> 132959
<INSTRUMENTS-SOLD> 2315
<LONG-TERM> 0
0
0
<COMMON> 8
<OTHER-SE> 86798
<TOTAL-LIABILITY-AND-EQUITY> 568834
<TRADING-REVENUE> 140
<INTEREST-DIVIDENDS> 7541
<COMMISSIONS> 2581
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 13714
<INTEREST-EXPENSE> 3627
<COMPENSATION> 5809
<INCOME-PRETAX> 8228
<INCOME-PRE-EXTRAORDINARY> 8228
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4972
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
