U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended February 28, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission file number 33-65292C
Heartland Group of Companies, Inc., dba, THE BANC STOCK GROUP
(Name of small business issuer in its charter)
Florida 65-0190407
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6230 Busch Boulevard, Columbus, Ohio 43229
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (614) 848-5100
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Securities registered under Section 12(g) of the Exchange A
(Title of class)
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB [ ]
State issuer's revenues for its most recent fiscal year $3,965,423
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date within the
past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.)
As of March 31, 1997: 7,931,717 Class A shares
@ Bid of $1.9375 = $15,367,701
@ Asked of $2.125 = $16,854,898
State the number of shares outstanding of each of the issuer's classes of
common equity, as of March 31, 1997:
Class A Shares: 7,931,717
Class C Shares: 480,000
<PAGE>
PART I
ITEM 1: Description of Business
General
The Heartland Group of Companies, Inc., dba, The Banc Stock Group (the
"Company") is a Florida corporation incorporated in April, 1990. The Company
was organized for the purpose of investing in financial services companies
(such as stock brokerage companies) and to acquire minority interests in
independent community banks. The Company has three wholly-owned subsidiary
operating companies.
Banc Stock Financial Services, Inc. (BSFS), an Ohio corporation, is an NASD
broker/dealer specializing in the trading and brokerage of bank stocks
nationwide. BSFS is registered with the SEC and the Securities Commissions in
Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky,
Maryland, Michigan, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, Virginia, West Virginia and the District of Columbia. BSFS
trades securities on a fully-disclosed basis (i.e., BSFS does not hold
customer securities or funds but, rather, "clears" each transaction through a
clearing broker). BSFS clears its transactions through Mesirow Financial,
Inc., Chicago, Illinois.
Heartland Advisory Group, Inc., an Ohio corporation ("HAG") is a Registered
Investment Advisor offering managed accounts to qualified investors. Buckeye
Bancstocks is an Ohio corporation established in 1977 to act as a broker-
dealer trading in Ohio bank stocks.
The Company operates primarily as a holding company with broker/dealer
operations conducted by BSFS and Buckeye Bancstocks and investment advisory
services provided by HAG. References to the Company also include references
to BSFS, HAG and Buckeye Bancstocks.
Market Making and Brokerage Activities
The primary business of the Company is the marketing and trading of bank stocks
through its brokerage subsidiaries. For the foreseeable future, the Company
intends to utilize the experience of its management to acquire and market a
diversified portfolio of small and medium cap bank stocks. At any given
time, the Company may have a significant amount of its investments and
related income generated from a few specific bank stocks. As of February 28,
1997, the Company had no single investment representing more than 10% of the
marketable equitable securities of the Company at that time.
Historically, through its brokerage subsidiaries, the Company has recommended
that its customers purchase those bank stocks which the Company believes to be
most likely to show an increase in value over both the short and the long term.
Market making and trading has been done primarily through BSFS.
Management of the Company believes that the bank stocks which have
historically shown the largest long term market value increases have certain
characteristics in common. These include: (a) county seat banks with more
than $50,000,000 but less than $5,000,000,000 in assets; (b) banks with
strong capital (capital/assets ratios of 8% or more); (c) banks with high
earnings (return on equity of 12% or more); and (d) banks with low loan
losses (less than .5% of loans declared uncollectible and lost each year).
Through its brokerage subsidiaries and its research capabilities and
experience, the Company endeavors to identify banks meeting this profile.
The Company researches the entire U.S. market for these bank stocks.
Although these stocks are listed on a variety of over-the-counter markets,
including the National Quotation Bureau "Pink Sheets", NASD Bulletin Board,
NASDAQ Small-Cap Issues, NASDAQ National Market System, AMEX and NYSE, there
can be no assurances that the stock of such banks will be available for sale
or show price increases if they are acquired.
The rate of mergers of banks has accelerated during the last ten years,
partially as a result of statewide branching and nationwide branching law
changes. Many mergers have occurred to some degree as a result of such
banking law changes. Bank stock prices in the open market have also increased
significantly. Many mergers are accomplished at prices which represent a
premium over the trading price of the stock. As a result, many investment
professionals have begun to notice and purchase these bank stocks, resulting
in substantial increases in the trading volume for these securities.
In June 1993, the Company began to emphasize its retail sales and money
management activities through BSFS. While BSFS has had this capability for
some time, the Company began to actively market the establishment of
discretionary client accounts with BSFS, which enables the Company to more
quickly move client funds in response to changes in the market for bank
stocks. The Company believes that by administering discretionary accounts,
it will be able to better serve its clientele by more rapidly responding to
market fluctuations while at the same time continuing to generate significant
fee income for the Company from both discretionary and non-discretionary
accounts.
There can be no assurance that the Company will be successful in predicting
increases or in evaluating and recommending bank stocks.
Market Research
The Company's brokerage subsidiaries compile extensive research on small and
medium cap banks. The Company evaluates profit potential of these banks
stocks over one, three, five, and ten year horizons. The Company develops a
Bank Presentation or Profile which highlights: financial performance, peer
group comparison, and geographic and demographic market factors. The
criteria utilized to evaluate these stocks include, but are not limited to:
1. Return on Equity: Net income (loss) before extraordinary items and
other adjustments divided by average total equity. This return
should be fairly constant at 12% - 20% per year. The company seeks
opportunities where ROE is above 12%.
2. Return on Assets: This is calculated by using income (loss) before
extraordinary items and other adjustments divided by average total
assets. The Company seeks opportunities where ROA is above 1.2%.
3. Price to Earnings Ratio: P/E is calculated by taking the current
price of the stock and dividing it by the earnings per share. The
company seeks opportunities where the P/E is below 11.5.
4. Stock Price: The Company seeks to purchase stocks that are priced
under comparably priced stocks based upon past earnings records.
5. Risk: Limiting, not eliminating risk is an important
consideration. The Company seeks the shares of banks that
experience low loan losses, has strict loan guidelines, and make an
effort to know their customers.
6. Ownership: The Company seeks well run banks where there is
significant insider ownership. The Company believes that ten to
forty percent ownership in the hands of management, the Board, and
local shareholders, encourages market share growth, responsibility
to the bottom line, and a customer oriented culture.
7. Dividends: Generally, the Company does not seek high dividend
returns with its investments. However, it occasionally invests in
preferred issues that achieve a higher than average return compared
to national or regional returns.
8. Market Area: The Company seeks stable and growing market areas
across the United States. Community oriented banks are found in
areas of population from as small as 25,000 MSA (metropolitan
statistical area) to 3-5 million MSA in some urban/suburban areas.
9. Markets: The Company's portfolio is generally made up of stocks
that trade on the National Quotation Bureau "Pink Sheets", NASD
Bulletin Board, NASDAQ Small-Cap Issues, NASDAQ National Market
System, and occasionally the AMEX and NYSE.
Competition
National and large regional brokers tend not to emphasize the markets in
which the Company specializes because of the relatively small size of the
banks and the towns in which they are headquartered and because the stock of
those institutions is usually thinly covered by researchers and inactively
traded. Consequently, the major competition in the area of bank stock
marketing has been the regional brokers in its market states. These include:
Elmer E. Powell, Hoefer & Arnett, Sutro & Co., Howe Barnes, Ferris Baker,
Stifel Nicolas, Ryan Beck, and Hill Thompson. The Company's extensive
experience in Ohio, the large number of prospects banks in other states, and
its unique method of retail marketing causes the Company's management to
believe that the Company will continue to be successful in identifying and
acquiring stock portfolios which match its targets.
Historically, the Company's brokerage subsidiaries have been consulted by
banks primarily as stock marketing problem solvers and are now being invited
into markets as market makers. Although the Company probably has more
competition to buy and sell stock now than at any time in its history,
management believes that, because of the experience of the brokerage
subsidiaries in this specialized market, the Company will continue to
experience success in its areas of operations.
Accounts
Through its brokerage subsidiaries, the Company establishes both trading
accounts and buy-hold accounts. In the trading accounts, the Company buys
positions in four to ten banks at any given time with an intent to resell
such shares. Any stock bought for the trading account will typically be
resold within nine to twenty-four months after its acquisition, whether at
wholesale (to other brokers) or at retail to the Company's clients. The
Company also establishes buy-hold accounts in which it acquires positions in
bank stocks that are held while the Company assists the bank in developing a
market for such stocks. Market development usually takes from nine to
twenty-four months or more. After the development of a market, stocks held
in the buy-hold account are sold either at retail or at wholesale or held for
long term investment. The Company acquires securities from a variety of
sources including other brokers, individuals and estates. The Company
maintains margin account balances due to broker/dealers bearing interest at
variable rates which, at February 28, 1997, averaged 7.5%. These margin
accounts are secured by the respective securities held by broker/dealers.
The market value of the securities held by broker/dealers with margin
balances was approximately $4,493,000 at February 28, 1997.
In June 1993, the Company, through BSFS, began establishing discretionary
accounts with its customers through which the Company is empowered to direct
the investment of funds. Previously, the Company would acquire a position in
a bank stock and then call upon its customers to determine whether or not
they had an interest in acquiring a personal position. Through its
discretionary accounts, the Company is now able to directly invest customer
funds in bank stocks. This enables the Company to respond to market changes
more rapidly.
Regulation
The securities industry is subject to extensive regulation under both federal
and state laws. The principal purpose of regulation of broker/dealers and
investment advisors is the protection of retail investors in the securities
markets rather than protection of creditors and stockholders of broker-
dealers and investment advisors. The SEC is the federal agency charged with
the administration of federal securities laws. The Ohio Division of
Securities is a corresponding state regulatory agency. Much of the
regulation of broker/dealers who do business on an interstate basis has been
delegated by the SEC to self-regulatory organizations, principally the NASD
and the national securities exchanges. These self-regulatory organizations
adopt rules (which are subject to approval by the SEC) which govern the
industry and conduct periodic examinations of member broker/dealers. The SEC
retains primary authority for regulation of investment advisors. Securities
firms are also subject to regulation by state securities commissions in the
states in which they are registered and, in Ohio, the Division of Securities
regulates the activities of broker/dealers which only do business within that
State.
The regulations to which broker/dealers are subject cover all aspects of the
securities business, including sales methods, trading practices among
broker/dealers, capital structure of securities firms, record keeping and
the conduct of directors, officers and employees. Additional legislation,
changes in rules promulgated by regulatory organizations or changes in the
interpretation or enforcement of existing laws and rules often affect
directly the method of operation and profitability of broker/dealers. In
addition, securities regulators may conduct administrative proceedings which
can result in censure, fine, suspension or expulsion of a broker/dealer, its
officers or employees.
The Company's subsidiaries, BSFS, HAG and Buckeye Bancstocks, each operate in
highly regulated industries and are subject to examination and licensing
requirements by federal and state authorities and subject to a variety of
special rules and regulations. BSFS is subject to regulation by the SEC and
the state securities regulatory agencies in the states in which it operates
and is a member of NASD. HAG is a registered investment advisory and subject
to regulation by the SEC pursuant to the Investment Advisors Act of 1940.
Buckeye Bancstocks is an Ohio broker/dealer operating solely within that
State. Buckeye Bancstocks' activities are subject to examination and
licensure by the Ohio Department of Commerce and, in particular, the
Division of Securities.
Due to a change in the Ohio Securities Laws, since October 11, 1994, all
broker/dealers registered in Ohio, with total revenues of $150,000 or more
during any twelve (12) month period and more than one hundred (100) retail
securities customers, must also register as a broker/dealer with the SEC
(i.e. New York Stock Exchange, American Stock Exchange, or NASD). Buckeye
Bancstocks has historically been an Ohio broker/dealer operating solely
within that state. As such, Buckeye Bancstocks was previously exempt from
registration with the SEC but subject to regulation by the Ohio Department of
Commerce. Management believes that Buckeye Bancstocks can continue to
operate under these restrictions. Additionally, Buckeye Bancstocks has
applied for an exemption from the Ohio requirements for SEC registration.
This application is pending. As a result of these various considerations,
management believes that these changes have not had a material adverse effect
on the Company's financial prospects as a whole.
Companies that control banking subsidiaries must register as Bank Holding
Companies, pursuant to the Bank Holding Company Act of 1956 (the "Bank
Holding Company Act"). A company is considered to be in control of a bank if
(a) the company directly or indirectly controls or has the power to vote 25%
or more of any class of voting securities of a bank; (b) the company controls
in any manner the election of a majority of directors or trustees of a bank;
or (c) the Federal Reserve Board determines, after notice and opportunity for
hearing, that the company directly or indirectly exercises a controlling
influence over the management or policy of a bank. Companies that hold less
than 5% of the stock of a bank are deemed not to be in control of such bank.
Neither the Company nor any of its subsidiaries controls the election of any
directors or trustees to any of the banks in which they own an interest, nor
do they own in excess of 5% of the voting securities in any bank in which
they make a market. Should the Company or one of its subsidiaries acquire
more than 5% of the voting securities of a bank, such subsidiary could become
subject to fines and penalties. The Company will endeavor to remain outside
of the purview of the Bank Holding Company Act.
Employees
The Company currently has 9 full-time employees, 8 of which are salaried
employees and none of which are members of a union. The Company generally
believes that its relationship with employees is good.
ITEM 2: Description of Property
The Company leases a total of approximately 4,750 square feet of office space
in an office complex from an unaffiliated third party for an aggregate
current monthly rental of approximately $4,700. The Company is currently
evaluating alternative office space. It is anticipated that the cost of a
move will be approximately $75,000 and that suitable space to meet the
Company's needs will increase lease cost approximately 20% to 30%.
HAG owns five acres of land in the Naples, Florida area, available for use as
a sales office.
ITEM 3: Legal Proceedings
The Company is not engaged in any material litigation.
ITEM 4: Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of the fiscal year
to a vote of security holders.
<PAGE>
PART II
ITEM 5: Market for Common Equity and Related Stockholder Matters
The Company's Class A Common Stock is traded in the over-the-counter market
under the symbol HGRC and is not listed on an exchange. On March 31, 1997, a
bid price of $1.9375 and asked price of $2.125 were quoted. There are four
market makers of HGRC. These quotations reflect inter-dealer prices, without
retail markup, markdown or commissions and may not represent actual
transactions. In addition, due to the relatively "thin" market in the
Company's Class A Common Stock, quoted prices cannot be considered
indicative of any viable market for such stock. During the fiscal year ended
February 28, 1997 approximately one million shares of the Company's Class A
Common Stock was traded in the over-the-counter market.
Class C shares are restricted and therefore, are not traded.
As of February 28, 1997, there were approximately 800 holders of record of
Class A shares and 35 holders of Class C shares. Dividends have not been
declared on any class of equity securities.
<PAGE>
ITEM 6: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Fiscal Year Ended February 28, 1997, Compared to Fiscal Year Ended February 29,
1996
Revenues for the year ended February 28, 1997 increased to $3,965,423
compared to $2,550,711 for the year ended February 29, 1996, an increase of
55%. This increase results primarily from the performance of the Company's
portfolio of bank stocks. Revenue from principal transactions involving the
trading portfolio were $2,656,030 for the year ended February 28, 1997
compared to $1,557,927 for the year ended February 29, 1996, an increase of
70%. This represents an annual rate of return on the average portfolio of
34% for the year ended February 28, 1997 compared to 23% for the year ended
February 29, 1996. The portfolio performance achieved in the past may not
necessarily be indicative of future performance.
Commission revenue of $1,082,563 was generated for the year ended February
28, 1997, primarily by Banc Stock Financial Services, Inc. (BSFS), the
Company's NASD broker-dealer subsidiary. This compares to $795,157 of
commission revenue for the year ended February 29, 1996, an increase of 36%.
BSFS has been increasing its level of business activity, especially
portfolio management services. Incentive programs have been established for
brokers to increase the amount of funds under management. This has increased
fee income from managed accounts which is included in commission revenue.
Buckeye Bancstocks, the Company's intrastate broker-dealer subsidiary,
generated agency fees of $22,502 for the year ended February 28, 1997. These
funds were earned by Buckeye in its capacity as agent for investors desiring
to acquire The Banc Stock Exchange of America, Inc. (BSA) stock or
shareholders desiring to sell their BSA shares. As an agent, Buckeye matched
corresponding buyers or sellers. Agency Fees revenue received by the Company
corresponds to payments made to Brokers classified as Brokers' commission.
There were no comparable fees for the year ended February 29, 1996. Buckeye
does not expect to generate significant agency fees in the foreseeable future.
Operating expenses for the year ended February 28, 1997 increased to
$2,250,726 compared to $1,950,969 for the year ended February 29, 1996, an
increase of 15%. Brokers' commission expenses increased to $653,283 for the
year ended February 28, 1997 compared to $392,213 for the year ended February
29, 1996, an increase of 67%. This percentage increase reflects management's
decision to increase commissions paid to brokers to provide incentives to
increase the level of business activity which corresponds to the increase in
commission revenue. Salaries, benefits, and payroll taxes increased to
$509,691 for the year ended February 28, 1997 compared to $404,946 for the
year ended February 29, 1996, an increase of 26%. This increase reflects
incentive compensation awards under the Heartland Incentive Compensation
Plan. Interest expense decreased to $53,828 for the year ended February 28,
1997 compared to $86,336 for the year ended February 29, 1996, a decrease of
38%. Interest expense decreased because of management's decision to reduce
margin balances. General and administrative expenses decreased to $1,033,924
for the year ended February 28, 1997 compared to $1,067,474 for the year
ended February 29, 1996, a decrease of 3%. This decrease is primarily the
result of decreased legal cost.
The Banc Stock Exchange of America, Inc. (BSA) is establishing an electronic
bank stock information exchange. BSA is separately owned but under common
management with the Company. The Company currently holds 16% of the
outstanding common stock of BSA. The Company's investment in BSA is
accounted for on the equity method. Equity in BSA's earnings was $35,720 for
the year ended February 28, 1997 compared to $38,310 for the year ended
February 29, 1996. BSA was a development stage enterprise through February 28,
1997, however, operations began March 1, 1997.
Liquidity and Capital Resources
Approximately 7% of the value of the Company's trading portfolio is comprised
of small bank stocks which are thinly traded and there can be no assurance
that active markets will develop. The failure of such markets to develop
could negatively affect the Company's operations and financial condition.
Approximately 93% of the Company's trading portfolio is readily marketable,
providing a high degree of liquidity. Investments in bank securities traded
on national securities markets and securities not traded on national
securities markets, but with readily ascertainable market values are valued
at market value. Other bank securities for which market quotations are not
readily available, due to infrequency of transactions, are valued at fair
value as determined in good faith by management of the Company. While
management employs objective criteria to ascertain these values, there is no
independent benchmark by which the values assigned by management can be
judged.
As of February 28, 1997, the Company had working capital of approximately
$8,980,000 compared to $7,200,000 as of February 29, 1996. Working capital
includes cash, investments and accounts and notes receivable, net of all
liabilities. The Company has no long term debt.
The Company's NASD broker-dealer subsidiary under the correspondent agreement
with its clearing broker, has agreed to indemnify the clearing broker from
damages or losses resulting from customer transactions. The Company is,
therefore, exposed to off-balance sheet risk of loss in the event that
customers are unable to fulfill contractual obligations. The Company manages
this risk by requiring customers to have sufficient cash in their account
before a buy order is executed and to have the subject securities in their
account before a sell order is executed. The Company has not incurred any
losses from customers unable to fulfill contractual obligations.
In the normal course of business, the Company periodically sells securities
not yet purchased (short sales) for its own account and writes options. The
establishment of short positions and option contracts expose the Company to
off-balance sheet market risks in the event prices change, as the Company may
be obligated to cover such positions at a loss. At February 28, 1997 the
Company had no short security positions, the Company had not written any
option contracts and did not own any options. The Company did not experience
any credit losses due to the failure of any counterparties to perform during
the year ended February 28, 1997. Senior management of the Company is
responsible for reviewing trading positions, exposures, profits and losses,
trading strategies and hedging strategies on a daily basis.
The Company's most significant industry concentration, which arises within its
normal course of business activities, is with financial institutions for bank
securities transactions. The most significant concentrations of financial
instruments are in Midwest and California bank stocks.
The operations of the Company are funded primarily by revenue from the trading
portfolio and commission revenue. Management believes that the Company's
existing resources, including available cash, and cash provided by operating
activities will be sufficient to satisfy its working capital requirements in
the foreseeable future. However, no assurance can be given that additional
funds will not be required. To the extent that returns on investments are
less than, or expenses are greater than anticipated, the Company may be
required to reduce its activities, liquidate inventory or seek additional
financing. This financing may not be available on acceptable terms, if at
all. No significant capital expenditures are expected in the foreseeable
future, except that the Company anticipates moving its offices during 1997.
The cost of this move is expected to approximate $75,000 and suitable space
to meet the Company's needs will increase lease cost approximately 20% to
30%. Working capital will be used to fund these expenditures.
Impact of Inflation and Other Factors
The Company's operations have not been significantly affected by inflation.
The Revenue Reconciliation Act of 1993 includes Mark-to-Market Rules which
essentially require dealers in securities to include unrealized gains on the
trading portfolio, in taxable income for income tax purposes. The Revenue
Reconciliation Act of 1993 was effective for the Company's tax year beginning
March 1, 1993. Unrealized gains on inventory of the Company's broker-dealer
subsidiaries, as of February 28, 1993, are being reported as taxable income
over five years. Securities held for investment rather than inventory are
not subject to the Mark-to-Market Rules. In light of the Company's net
operating loss carry forward, the Mark-to-Market Rules currently are not
expected to have a significant impact on operations. However, after the net
operating loss carry forward currently available to the Company is fully
utilized, these Rules could have a materially adverse impact on the Company's
cash flow.
Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," which supersedes
existing standards for determining earnings per share. The statement will be
effective for the Company for the year ending February 28, 1998. Primary
earnings per share will be replaced by "basic earnings per share," which will
be determined solely by the weighted average number of shares outstanding for
the period. Fully diluted earnings per share will be replaced by "diluted
earnings per share, " which will reflect the potential dilution that could
occur if securities or other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the Company. The statement will also
require a reconciliation of the numerator and denominator of basic earnings
per share with the numerator and denominator of diluted earnings per share.
Management does not believe the new statement will result in a significant
difference in amounts per share reported in these financial statements.
<PAGE>
ITEM 7: Financial Statements
HEARTLAND GROUP OF COMPANIES, INC. AND SUBSIDIARIES
DBA, THE BANC STOCK GROUP
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29,1996
TOGETHER WITH REPORT OF INDEPENDENT ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
April 9, 1997
To the Shareholders and Board of Directors of
Heartland Group of Companies, Inc. and Subsidiaries, dba,
The Banc Stock Group
In our opinion, the accompanying consolidated statement of financial
condition, the related consolidated statements of income, of changes in
shareholders' equity and of cash flows present fairly, in all material
respects, the financial position of Heartland Group of Companies, Inc. and
Subsidiaries, dba The Banc Stock Group, at February 28, 1997 and the results
of their operations and their cash flows for each of the two years in the
period then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
<PAGE>
HEARTLAND GROUP of COMPANIES, INC. and SUBSIDIARIES, DBA,
BANC STOCK GROUP
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AS OF FEBRUARY 28, 1997
ASSETS
Cash $ 160,426
Securities owned:
Marketable equity securities, at market value 8,791,716
Not readily marketable equity securities at estimated fair v 683,809
Mortgage participation notes 100,000
Accounts receivable:
Affiliates 4,643
Pending securities settlements 44,293
Notes and interest receivable 22,845
Equity investment in Banc Stock Exchange of America 489,160
Property and equipment, net of accumulated depreciation
of $176,886 88,012
Goodwill, net of accumulated amortization of $193,943 436,024
Deposits and other 86,117
Total assets $ 10,907,045
LIABILITIES
Margin accounts payable to broker-dealers $ 725,457
Accounts payable to broker-dealers and other 20,967
Accrued expenses 568,970
Total liabilities 1,315,394
SHAREHOLDERS' EQUITY
Preference stock, 50,000,000 shares authorized, -
none issued or outstanding
Common stock:
Class A, no par value, 149,400,000 shares
authorized, 8,234,762 shares issued
and 7,931,717 shares outstanding 9,102,556
Class C, no par value, 480,000 shares
authorized, issued and outstanding -
Treasury stock, at cost
(303,045 Class A shares) (385,403)
Retained earnings 874,498
Total shareholders' equity 9,591,651
Total liabilities and shareholders' equity $ 10,907,045
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HEARTLAND GROUP of COMPANIES, INC. and SUBSIDIARIES, DBA,
BANC STOCK GROUP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED FEBRUARY28, 1997 and FEBRUARY 29, 1996
1997 1996
REVENUES:
Principal transactions $ 2,656,030 $ 1,557,927
Commission revenue 1,082,563 795,157
Agency fees 22,502 -
Dividends 170,698 155,973
Interest and other 33,630 41,654
Total revenues 3,965,423 2,550,711
EXPENSES:
Brokers' commission 653,283 392,213
Salaries, benefits and payroll taxes 509,691 404,946
Interest 53,828 86,336
General and administrative 1,033,924 1,067,474
Total expenses 2,250,726 1,950,969
INCOME BEFORE TAXES 1,714,697 599,742
PROVISION FOR INCOME TAXES - -
INCOME BEFORE EQUITY IN NET EARNINGS
OF AFFILIATED COMPANY 1,714,697 599,742
Equity in net earnings of Banc Stock Exchange of 35,720 38,310
NET INCOME $ 1,750,417 $ 638,052
WEIGHTED AVERAGED SHARES,
COMMON AND COMMON
STOCK EQUIVALENTS 8,411,683 8,404,711
PRIMARY AND FULLY DILUTED
NET INCOME PER COMMON SHARE $ 0.21 $ 0.08
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HEARTLAND GROUP of COMPANIES, INC. and SUBSIDIARIES, DBA,
BANC STOCK GROUP
CONSOLIDATED STATEMENTS of CHANGES in SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 28, 1997 and FEBRAURY 29, 1996
Retained
Treasury Earnings
Class A Class C Stock (Deficit) Total
Balance 2/28/95 $9,102,556 - ($421,047) ($1,513,971) $7,167,538
Net income - - - 638,052 638,052
Balance 2/29/96 $9,102,556 - ($385,454) ($875,919) $7,841,183
Treasury stock transactions,net 51 51
Net income 1,750,417 1,750,417
Balance 2/28/97 $9,102,556 - ($385,403) $874,498 $9,591,651
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HEARTLAND GROUP of COMPANIES, INC. and SUBSIDIARIES, DBA,
BANC STOCK GROUP
CONSOLIDATED STATEMENTS of CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28, 1997 and FEBRUARY 29, 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,750,417 $ 638,052
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation and amortization 67,131 81,603
Loss on equipment disposals - 18,214
Other - 16,160
Equity in earnings of Banc Stock Exchange of
America (35,720) (38,310)
(Increase) decrease in certain assets-
Accounts receivable 17,657 (34,104)
Securities owned, net (3,175,299) 1,553,073
Mortgage participation notes (100,000) -
Other assets (3,323) 8,616
Increase (decrease) in certain liabilities-
Accounts payable to broker-dealers and other (11,669) (191,805)
Accrued expenses and other 385,444 73,191
Securities sold under agreement to
repurchase - (188,765)
Securities sold, not yet purchased - (164,800)
Net cash (used in) provided by operating
activities (1,105,362) 1,771,125
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections of notes receivable 200,969 140,181
Issuance of notes receivable (10,749) (99,040)
Redemption of certificate of deposit - 102,700
Purchase of property and equipment (33,681) (14,515)
Net cash provided by investing activities 156,539 129,326
CASH FLOWS FROM FINANCING ACTIVITIES:
Margin accounts payable to broker-dealers 668,629 (1,250,536)
Sale of treasury stock 51 35,593
Repayment of bank debt - (654,107)
Advances from affiliates 769,200 470,147
Advances to affiliates (733,968) (261,272)
Net cash provided by (used in) financing
activities 703,912 (1,660,175)
NET (DECREASE) INCREASE IN CASH (244,911) 240,276
CASH, BEGINNING OF PERIOD 405,338 165,062
CASH, END OF PERIOD $ 160,426 $ 405,338
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
1997 1996
Cash paid during the period for:
Interest $ 53,828 $ 86,336
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
HEARTLAND GROUP OF COMPANIES, INC.
DBA, THE BANC STOCK GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
(1) ORGANIZATION AND NATURE OF BUSINESS
Heartland Group of Companies, Inc., dba, The Banc Stock Group, (the Company)
is a Florida corporation incorporated in April, 1990. The Company was
organized for the purpose of investing in financial services companies (such
as stock brokerage companies) as well as trading and investing in minority
interests of independent bank stocks. The Company has three wholly-owned
subsidiary operating companies.
Banc Stock Financial Services, Inc. (BSFS), an Ohio corporation, is an NASD
registered broker-dealer specializing in the trading of bank stocks
nationwide. BSFS is registered with the Securities and Exchange Commission
and the securities commissions of seventeen states, including Ohio. BSFS
trades securities on a fully-disclosed basis and clears customer transactions
through an unaffiliated broker-dealer which also maintains the customer
accounts. BSFS derives a significant portion of its revenues from providing
private portfolio management and brokerage services.
Heartland Advisory Group, Inc. (HAG), is a registered investment advisor
offering managed accounts to qualified investors.
Buckeye Bancstocks, Inc., is an Ohio corporation established in 1977, to act
as an intrastate broker-dealer trading primarily in Ohio bank stocks.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the reported
amounts of revenues and expenses for the period. Actual results could differ
from those estimates.
The following is a summary of the Company's significant accounting policies:
Principles of Consolidation
The accompanying consolidated financial statements include the operations of
the Company, BSFS, HAG and Buckeye Bancstocks. All intercompany transactions
and balances have been eliminated in consolidation.
Cash
The Company has defined cash as demand deposits and money market accounts.
Valuation of Securities Owned
Bank securities and related options traded on national securities markets and
securities not traded on national securities markets, but with readily
ascertainable market values, are valued at market value. Other bank
securities for which market quotations are not readily available, due to
infrequency of transactions, are valued at fair value as determined in good
faith by the management of the Company. Realized and unrealized gains and
losses are included in principal transactions.
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over estimated
lives of five to seven years.
Goodwill
The excess purchase price over the fair market value of the net assets acquired
from Buckeye Bancstocks and BSFS is being amortized on a straight line basis
over 20 years.
Revenues
Securities transactions and commissions are accounted for on the trade date
basis. Dividend income is recorded on the ex-dividend date and interest
income is accrued as earned. Realized gains and losses from sales of
securities are determined utilizing the first-in, first-out method (FIFO).
Earnings Per Share
Primary and fully diluted earnings per common share were computed by dividing
net income by the weighted average number of shares of common stock
outstanding during the periods.
Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," which supersedes
existing standards for determining earnings per share. The statement will be
effective for the Company for the year ending February 28, 1998. Primary
earnings per share will be replaced by "basic earnings per share," which will
be determined solely by the weighted average number of shares outstanding for
the period. Fully diluted earnings per share will be replaced by "diluted
earnings per share, " which will reflect the potential dilution that could
occur if securities or other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the Company. The statement will also
require a reconciliation of the numerator and denominator of basic earnings
per share with the numerator and denominator of diluted earnings per share.
Management does not believe the new statement will result in a significant
difference in amounts per share reported in these financial statements.
Fair Value of Financial Instruments
Substantially all of the Company's financial instruments are carried at fair
value or amounts approximating fair value. Assets, including cash, accounts
receivable, mortgage participation notes, notes and interest receivable and
securities owned are carried at amounts which approximate fair value.
Similarly, liabilities, including margin accounts payable to broker-dealers,
accounts payable and accrued expenses are carried at amounts approximating
fair value.
Equity Investment in Banc Stock Exchange of America
The Banc Stock Exchange of America (BSA) is establishing an electronic bank
stock information exchange. BSA is under common management with the Company.
The Company currently holds 16% of the outstanding common stock of BSA. The
Company's investment in BSA is accounted for on the equity method. The
difference between the carrying amount of the investment accounted for under
the equity method and the underlying equity in net assets results from the
Company's policy of expensing pre-operating costs as incurred.
(3) CAPITAL STOCK
Common Stock
Class A Common shares have been registered with the Securities and Exchange
Commission since March 24, 1994. Commencing December 1, 1991, shares of
Class C common stock automatically convert to Class A common stock at an
annual rate of 10% of the original amount issued. The Class C common shares are
subordinate to Class A common stock in that Class A common stock has a
liquidation preference over the Class C common stock equal to $1.50 per share.
In all other respects, Class A and Class C common stock have equal rights.
Treasury Stock
During the year ended February 28, 1997, the Company sold 40 shares from
treasury. During the year ended February 29, 1996, the Company sold 26,750
shares from treasury and repurchased 2,750 shares.
As of February 28, 1997, Buckeye Bancstocks held 206,240 Class A shares of the
Company. These shares are treated as treasury stock for financial reporting
purposes.
Authorization of Preference Stock
The Company's Articles of Incorporation authorize the issuance of 50,000,000
shares of "blank check" preference stock with such designations, rights and
preferences as may be determined from time to time by the Company's Board of
Directors. The Board of Directors is empowered, without shareholder approval,
to issue preference stock with dividend, liquidation, conversion, voting, or
other rights which could adversely affect the voting or other rights of the
holders of the common stock.
(4) SECURITIES OWNED
Marketable equity securities at February 28, 1997 consist of bank stocks at
market value, as follows:
Traded on national securities markets $6,417,248
Not traded on national securities
markets, but with readily ascertainable
market value 2,374,468
Total marketable equity securities $8,791,716
The Company, at any given time, may have a significant amount of its securities
owned and related income generated from a few specific bank stocks. As of
February 28, 1997, the Company had no single investment representing more than
10% of its marketable equity securities.
Securities not readily marketable include securities for which there is no
market on a securities exchange and no independent publicly quoted market.
These securities at February 28, 1997 were $863,809 at fair value with a cost
of $615,268. As of February 28, 1997, the Company had investments in one bank
stock amounting to 39% of its not readily marketable securities.
(5) MARGIN ACCOUNTS PAYABLE TO BROKER-DEALERS
The Company maintains margin account balances due to unaffiliated broker-dealers
bearing interest at variable rates which averaged 7.5% at February 28, 1997.
These margin accounts are secured by the respective securities held by
broker-dealers. The market value of the securities held by broker-dealers with
margin account balances was approximately $4,493,000 at February 28, 1997.
(6) RELATED PARTY TRANSACTIONS
Agency Fees
Buckeye Bancstocks, acting in an agency capacity, has performed the service, for
individual investors desiring to acquire The Banc Stock Exchange of America
(BSA) stock or shareholders desiring to sell their BSA shares, of matching
corresponding buyers or sellers. Buckeye received agency fees for these
services of $22,502 for the year ended February 28, 1997.
Securities Transactions
The Company purchases from and sells securities owned to BSA at the prevailing
market price at the time of the transaction. Activity is summarized below:
Year ended Purchases Sales
February 28, 1997 $325,482 $388,822
February 29, 1996 ` $ 29,500 None
Operating Expenses
The Company and BSA are under common management. Certain expenses are paid
by the Company and allocated to BSA based upon predetermined percentages as
approved by the officers of the Companies. Operating expenses in the allocation
are primarily salaries and benefits. Total expenses allocated to BSA were
$75,290 and $85,740 for the years ended February 28, 1997 and February 29, 1996,
respectively.
(7) INCOME TAXES
The Company files a consolidated Federal income tax return. It is the policy
of the Parent to allocate the consolidated tax provision to subsidiaries as
if each subsidiary's tax liability or benefit were determined on a separate
company basis. As part of the consolidated group, subsidiaries transfer to
the Parent their current Federal tax liability or assets.
The provisions for income taxes for the years ended February 28, 1997 and
February 29, 1996 are composed of the following:
1997 1996
Current Federal income taxes $ - $ -
Deferred Federal income taxes 280,000 130,000
Change in valuation allowance (280,000) (130,000)
Provision for income taxes $ - $ -
The following schedule reconciles the statutory Federal income tax rate to the
Company's effective tax rate for the years ended February 28, 1997 and February
29, 1996:
1997 1996
Statutory Federal income tax rate 35% 35%
Dividends received deduction (2) (6)
Amortization of goodwill - 2
State and local taxes - 2
Change in valuation allowance (34) (33)
Other, net 1 -
Effective Federal income tax rate 0% 0%
Deferred tax assets and liabilities consist of the following at February 28,
1997 and February 29, 1996:
1997 1996
Deferred tax benefit of NOL carryforward $1,150,000 $1,230,000
Deferred tax liabilities on unrealized gains
on securities owned (860,000) (660,000)
Net deferred tax benefit 290,000 570,000
Valuation allowance (290,000) (570,000)
Deferred taxes $ - $ -
As of February 28, 1997, the Company and its subsidiaries had net operating loss
(NOL) carryforwards for tax purposes of approximately $3,300,000. These NOL's
will expire in 2002 through 2010. Any future changes in control may limit the
availability of NOL carryforwards. Approximately $9,000 of NOL carryforward at
February 28, 1997 is subject to an annual utilization limitation of
approximately $2,400 per year.
(8) OPERATING LEASES
The Company leases certain facilities, a vehicle and office equipment under
operating leases. Total lease expenses were approximately $87,000 in fiscal
year 1997 and $95,000 in 1996. The leases for office facilities expire in
July 1997. The Company is currently evaluating alternative office facilities
but has not negotiated a lease. The future minimum lease payments under
existing leases are as follows:
Amount
1998 $ 58,000
1999 13,000
$ 71,000
(9) EMPLOYEE INCENTIVE PLANS
Incentive Compensation Plan
All full-time executive employees of the Company are eligible to participate in
the Heartland Incentive Compensation Plan. The Plan provides that a bonus fund
will be established in an amount equal to 20% of the pre-tax realized profits
of the Company in excess of a 15% pre-tax return on equity. The amount of the
bonus fund is calculated each fiscal quarter on a cumulative basis. The
allocation of the bonus fund is to be made by the President of the Company.
The Company incurred expense of $93,000 under the Plan for the year ended
February 28, 1997.
Stock Option Plan
The Company has a Non-Qualified and Incentive Stock Option Plan which
authorizes the grant of options to purchase an aggregate of 1,000,000 shares of
the Company's Class A Common Stock. The Plan provides that the Board of
Directors, or a committee appointed by the Board, may grant options and
otherwise administer the Option Plan. The exercise price of each incentive
stock option or non-qualified stock option must be at least 100% of the fair
market value of the Class A Shares at the date of grant, and no such option
may be exercisable for more than 10 years after the date of grant. However,
the exercise price of each incentive stock option granted to any shareholder
possessing more than 10% of the combined voting power of all classes of
capital stock of the Company on the date of grant must not be less than 110%
of the fair market value on that date, and no such option may be exercisable
more than 5 years after the date of grant.
Effective September 28, 1995, the following options and warrants were granted
under this plan with a ten year term and exercise price of $2.875.
(a) 154,000 non-qualified stock options granted to employees with immediate
vesting.
(b) 55,000 non-qualified stock options granted to brokers with immediate
vesting.
(c) 145,000 non-qualified stock options granted to brokers, vesting over five
years.
(d) 121,000 qualified stock options granted to employees, vesting over five
years.
(e) 105,000 warrants granted to directors and an officer with immediate
vesting.
Effective February 29, 1996, 25,000 options were granted under this plan to the
President of the Company with a ten year term and exercise price of $2.875.
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its plans. Accordingly, no compensation
cost has been recognized for its fixed stock option plans and warrants. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value , as computed in accordance with Statement
of Financial Accounting Standards No. 123 (FAS 123), at the grant dates for
awards under those plans, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
February 28, 1997 February 29, 1996
Net income As reported $1,750,417 $ 638,052
Pro forma $1,599,059 $ 19,066
Primary and fully diluted
earnings per share
As reported $.21 $.08
Pro forma $.19 $.00
To make the computations of pro forma results under FAS 123, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions: no
dividend yield for all years; expected volatility of 31.5%; and expected
lives of ten years. The assumed risk-free interest rates for the September
28, 1995 grants is 5.83% and 6.79% for the February 29, 1996 grant. The
options and warrants granted under these plans are not registered and
accordingly, there is no quoted market price.
A summary of the status of the Company's stock option and warrants plans as of
February 28, 1997 and February 29, 1996 and changes during the years ending on
those dates is presented below:
<PAGE>
Options Warrants
Exercise Exercise
Shares Price Shares Price
Outstanding March 1, 1995 800,000 $3.00 - -
Granted 500,000 $2.875 105,000 $2.875
Exercised
Canceled 800,000 $3.00
Forfeited 10,000 $2.875
Expired unexercised 2,500 $2.875
Outstanding February 29, 1996 487,500 $2.875 105,000 $2.875
Exercisable February 29, 1996 231,500 $2.875 105,000 $2.875
Weighted-average fair value
of options and warrants
granted during the year,
computed in accordance
with FAS 123 $1.62 $1.62
Outstanding March 1, 1996 487,500 $2.875 105,000 $2.875
Granted
Exercised
Forfeited 5,000 $2.875
Expired unexercised 2,500 $2.875
Outstanding February 28, 1997 480,000 $2.875 105,000 $2.875
Exercisable February 28, 1997 279,200 $2.875 105,000 $2.875
The following table summarizes information about fixed stock options and
warrants outstanding at February 28, 1997:
Options Warrants
Number outstanding 480,000 105,000
Weighted-average remaining
contractual life in years 8.58 8.58
Exercise price $2.875 $2.875
Number exercisable 279,200 105,000
<PAGE>
(10) REGULATORY REQUIREMENTS
BSFS is subject to the uniform net capital rule of the Securities and Exchange
Commission (Rule 15c3-1), which requires that the ratio of "aggregate
indebtedness" to "net capital" not exceed 15 to 1 (as those terms are defined by
the Rule). BSFS had net capital of $825,441 as of February 28, 1997, which was
in excess of its required minimum net capital of $100,000. The ratio of
aggregate indebtedness to net capital was .12 to 1 as of February 28, 1997.
BSFS is also subject to regulations of the District of Columbia and seventeen
states in which it is registered as a licensed broker-dealer.
Buckeye Bancstocks is required by the Ohio Division of Securities to maintain an
"allowable net worth" of $25,000. The Company has guaranteed this allowable
net worth.
HAG is a Registered Investment Advisor and is subject to regulation by the SEC
pursuant to the Investment Advisors Act of 1940.
(11) CONCENTRATIONS OF CREDIT RISK AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK
The Company's NASD broker-dealer subsidiary under the correspondent agreement
with its clearing broker, has agreed to indemnify the clearing broker from
damages or losses resulting from customer transactions. The Company is,
therefore, exposed to off-balance sheet risk of loss in the event that
customers are unable to fulfill contractual obligations. The Company manages
this risk by requiring customers to have sufficient cash in their account
before a buy order is executed and to have the subject securities in their
account before a sell order is executed. The Company has not incurred any
losses from customers unable to fulfill contractual obligations.
In the normal course of business, the Company periodically sells securities
not yet purchased (short sales) for its own account and writes options. The
establishment of short positions and option contracts expose the Company to
off-balance sheet market risks in the event prices change, as the Company may
be obligated to cover such positions at a loss. At February 28, 1997, the
Company had no short security positions, the Company had not written any
option contracts and did not own any options. The Company did not experience
any credit losses due to the failure of any counterparties to perform during
the year ended February 28, 1997. Senior management of the Company is
responsible for reviewing trading positions, exposures, profits and losses,
trading strategies and hedging strategies on a daily basis.
The Company's significant industry concentrations, which arises within its
normal course of business activities, is with financial institutions for bank
securities transactions. The most significant concentrations of financial
instruments are in Midwest and California bank stocks.
ITEM 8: Changes In and Disagreements With Accountants or Accounting and
Financial Disclosures
None
<PAGE>
PART III
ITEM 9: Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
As of February 28, 1997, the members of the Company's Board of Directors, each
of whom serves until the next annual meeting of the shareholders, and the
Company's executive officers, each of whom serves at the direction of the Board,
were as follows:
Name Age Position
Michael E. Guirlinger 49 Director, President, Treasurer
Sandra L. Quinn 30 Director, Secretary, Vice President-
Human Resources, and Executive
Administrator
Jeffrey C. Barton 50 Chief Financial Officer
Larry A. Beres 50 Director
Robert K. Butner 75 Director
James G. Mathias 44 Director
J. David Smith 50 Director
Harvey J. Thatcher 63 Director
L. Jean Thiergartner 64 Director
Michael E. Guirlinger was elected President, Chief Executive Officer and
Treasurer by the Board of Directors effective May 18, 1995. Mr Guirlinger is a
member of the Board of Directors for the Company and BSA.
Mr. Guirlinger had been Vice President and Chief Operating Officer of the
Company since December, 1992 and a Director since June, 1993. Since 1992, Mr.
Guirlinger has also been Vice President of The Banc Stock Exchange of America,
Inc. From 1991 to December, 1992, Mr. Guirlinger was Director of Development
for Foxgate Farms, Inc., a residential home builder. In that same period, Mr.
Guirlinger was also Vice President of Northwest Passage Trading Co., a national
and international trading company. Mr. Guirlinger received a B.A. Degree from
Aquinas College in 1970 and an M.B.A. Degree from the Ohio State University in
1986. Mr. Guirlinger has Series 7, 24 & 63 securities licenses and is also a
member of the International Association of Financial Planners.
Sandra L. Quinn is Secretary of the Company, Vice President of Human
Resources, and Executive Administrator. Since 1992, Ms. Quinn has also been
Secretary of The Banc Stock Exchange of America, Inc. and Banc Stock Financial
Services, Inc. She has been a Director of the Company and The Banc Stock
Exchange of America, Inc. since 1993. She was also a Director of Heartland
Advisory Group. Effective October 1995 Ms. Quinn was designated Principal of
Buckeye Bancstocks, Inc. Ms. Quinn has Series 65, 63 and Series 62 securities
licenses and is a member of the American Society of Corporate Secretaries. Ms.
Quinn graduated valedictorian from Bradford Business School. She began her
employment with the Company in May, 1991.
Jeffrey C. Barton has been Chief Financial Officer of the Company since
October, 1992. Since 1990, Mr. Barton has also been Chief Financial Officer of
Saunders Pearson Company, a contract financial management company. From
1987 to 1989, Mr. Barton served as Chief Financial Officer of a financial
service subsidiary of First Chicago Corporation and a business advisor to a
number of companies. Prior to 1987, Mr. Barton spent 13 years with Price
Waterhouse in public accounting. Mr. Barton received a B.B.A. Degree from
Ohio University in 1969 and an M.B.A. Degree from Ohio University in 1972.
Larry A. Beres became a Director of the Company in 1995. He is Chief
Operating Officer of Electra Form, Inc., the country's largest manufacturer of
tooling for the plastic beverage bottle industry and President of Formex,
Division of Electra Form, a supplier of machine systems to the plastics
industry. He has been associated with these companies for more than five
years. He is a member of the Society of Plastics Engineers and Who's Who in
American Business and Industry. Mr. Beres graduated from Kent State
University with a Bachelor of Science Degree in Chemistry and attended the
K.S.U MBA Program.
Robert K. Butner is a Director of the Company (since 1993) and a Director
of HAG from 1990 to February, 1992. Mr. Butner is also a Director of The Banc
Stock Exchange of America. Mr. Butner is retired from the faculty of Ohio
University where he was a Professor of Mathematics for 39 years and Chairman of
the Mathematics Department. Upon retirement, Mr. Butner was confirmed
Emeritus Professor of Mathematics. Mr. Butner received a B.S. Degree in 1943
with Phi Beta Kappa honors and an M.S. Degree in 1949 and a Ph.D. Degree in
1952 from the State University of Iowa. From 1943 to 1946, Dr. Butner served
as an officer in the United States Navy.
Dr. James G. Mathias is a Director of the Company (since 1993) and a
Director of HAG from 1990 to February, 1993. Dr. Mathias is also a Director
of The Banc Stock Exchange of America. Since 1988, Dr. Mathias has been a
veterinarian practicing in Tipp City, Ohio, where he is the owner of the Tipp
City Animal Hospital. Dr. Mathias attended the University of Texas and
completed his education at the Ohio State University, graduating from the
College of Veterinary Medicine in 1978. He was a member of the Honor Society
of Phi Zeta, a Veterinary Honor Society. Dr. Mathias is also founder and
president of the Dayton North Womens' Center and is a speaker on Ratite
Medicine.
J. David Smith became a Director of the Company in 1995. He is President
and CEO of James W. Smith Lumber Co. in Piketon, Ohio; President of Wilco,
Inc., a pallet manufacturing facility in Spring Valley, Ohio; and President of
Mid America Lumber Co. in Piketon, Ohio. He has been involved in lumber
manufacturing for over 25 years. Mr Smith graduated with honors from Ohio
University with a Bachelor of Science in Education Degree and a minor in
Business Administration. Mr. Smith received a Ministerial Degree from
Circleville Bible College receiving a Bachelor of Sacred Literature Degree
with honors. Mr. Smith is involved in Church work as a Minister of Christ.
Harvey J. Thatcher is a Director of the Company (since 1991) and President
of Thatcher Insurance Agency, Inc. and Thatcher Lands, Inc., Van Wert, Ohio,
which he formed in 1976. He is also director of German Mutual Insurance
Company, Director of Tri-State Venture Group, and Director of The Banc Stock
Exchange of America.
Jean Thiergartner is a Director of the Company (since 1991), a Director
of The Banc Stock Exchange of America and Secretary-Treasurer of Thiergartner
Farms, Inc., for which she worked for more than forty years. She is past
Treasurer of the Ohio Beef Council, past President of the Ohio Cattle Womens'
Association, has been a member and past President of the Union County Health
Board for over 14 years and is a past delegate to the State Convention for
the Ohio Farm Bureau. She is a member of St. Paul Lutheran Church and active
on many committees, including the Parsonage Building Committee.
Based solely upon a review of Forms 3 and 4 furnished to the Company under Rule
16a-3(d), the following officers and/or directors filed reports late during
the fiscal year ended February 28, 1997. L. Jean Thiergartner filed one report
covering ten transactions.
ITEM 10: Executive Compensation
Summary Compensation Table
Name of Principal Year Salary Bonus Other* Awards Awards Payouts All
and Position Stock Options(A) LIIP Other
Michael E. 1996 75,000 11,752 1,655 25,000 sh
Guirlinger, President
Michael E. 1995 76,830 100,000 sh
Guirlinger, President
Bradley T. Smith, 1995 43,874 75,502
Former President
Bradley T. Smith, 1994 104,000 7,500
Former President
* Commissions
(A) During the fiscal year ended February 29, 1996, Mr. Guirlinger was awarded
67,000 stock options which vested immediately and 33,000 stock options which
vest over five years. These stock options expire on September 28, 2005. During
the fiscal year ended February 28, 1997, Mr. Guirlinger was awarded 25,000 stock
options effective February 29, 1996 which vested immediately. These stock
options expire February 28, 2006. At February 28, 1997 Mr. Guirlinger has
98,000 stock options which are exercisable and 26,400 stock options which vest
over four years. All of the stock options have an exercise price of $2.875.
No other officer of the Company received in excess of $100,000 compensation.
Director Compensation
Each director who is not an employee of the Company is entitled to receive a
fee of $500 plus travel expenses for each directors' meeting attended.
<PAGE>
ITEM 11: Security Ownership of Certain Beneficial Owners and Management
The following sets forth, as of March 31, 1997, certain information concerning
stock ownership of all persons known by the Company to own beneficially five
percent or more of the outstanding shares of the Company's Class A Common
Stock, each director and all officers and directors of the Company as a group,
and the percentage of voting power (assuming exercise of all options which are
currently exercisable):
Class A Options or
Shares(A) Warrants Total
Number Number Number Percentage
Larry A. Beres 40,000 10,000 50,000 *
7811 Winding Way South
Tipp City, Ohio 45371
Robert K. Butner 378,861 35,000 413,861 4.9%
12 McGuffey Lane
Athens, Ohio 45701
James G. Mathias 89,840 35,000 124,840 1.5%
7702 Winding Way South
Tipp City, Ohio 45371
J. David Smith 85,794 10,000 95,794 1.1%
526 Waldren Hills Road
Piketon, Ohio 45661
Harvey J. Thatcher 96,853 35,000 131,853 1.6%
135 East Central
Van Wert, Ohio 45891
L. Jean Thiergartner 276,172 35,000 311,172 3.7%
20896 Orchard Road
P.O. Box 387
Milford Center, OH 43045
Michael E. Guirlinger 22,127 127,700 149,827 1.8%
6230 Busch Blvd.
Columbus, Ohio 43229
Sandra L. Quinn 16,500 9,500 26,000 *
6230 Busch Blvd.
Columbus, Ohio 43229
Jeffrey C. Barton 5,000 10,000 15,000 *
290 E. Kossuth Street
Columbus, Ohio 43206
__________ ________ ___________ _______
Directors and 1,011,147 307,200 1,318,347 15.5%
Officers as a
Group (9 persons)
*less than 1% of Class
(A) Unless otherwise indicated, the sole voting and investment power is held
by the persons named. Mr. Butner disclaims beneficial ownership of 130,000
Class A shares held in trust for Phyllis F. Butner.
The following sets forth, as of March 31, 1997, certain information concerning
stock ownership of all persons known by the Company to own beneficially five
percent or more of the outstanding shares of the Company's Class C Common
Stock, each director and all officers and directors of the Company as a group,
and the percentage of voting power:
Class C Shares
Number Percentage
First Eldarado Bancshares, Inc. 175,932 36.6%
946 Fourth Street
Eldorado, IL 62930
John W. Walden 86,880 18.1%
1132 Broadway
Columbus, Georgia 31901
James T. Coppage 43,440 9.1%
6001 River Road, Suite 402
Columbus, Georgia 31904
Carol A. Wright 45,644 9.5%
755 Wagon Wheel Drive
Northport, MI 49670
Phoenix Scioto Company 25,096 5.2%
850 Old Woods Road
Columbus, OH 43235
James G Mathias, Director 10,860 2.3%
7707 Winding Way South
Tipp City, Ohio 45371
Directors and Officers
as a group (1 person) 10,860 2.3%
ITEM 12: Certain Relationships and Related Transactions - None
<PAGE>
ITEM 13: Exhibits and Reports on Form 8-K
(a) Index of Exhibits
Exhibit
*2.01 Plan and Agreement of Reorganization between the Company and First
Scioto Company.
*2.02 Agreement dated November 4, 1992 for purchase of First Scioto
Financial Services Stock by HAG.
*2.03 Agreement and Plan of Reorganization, dated January 7, 1993
between the Company and HAG.
*3.01 Amended and Restated Articles of Incorporation of Heartland Financial
Group, Inc.
*3.02 Bylaws of the Heartland Financial Group, Inc.
*4.01 Specimen Class A Common Stock Certificate.
*10.01 Property Lease between the First Scioto Company and The Continent
JV326128.
*10.03 The Heartland Incentive Compensation Plan.
*10.04 1993 Non-Qualified and Incentive Stock Option Plan.
*22.01 List of Subsidiaries
(b) Reports on Form 8-K: None
* Indicates Exhibits previously filed with the Securities and Exchange
Commission and incorporated herein by reference.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized:
HEARTLAND GROUP OF COMPANIES, INC., DBA, THE BANC STOCK GROUP
/S/Michael E. Guirlinger
By Michael E. Guirlinger
May 1, 1997
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/S/Michael E. Guirlinger President, Treasurer, May 1, 1997
Michael E. Guirlinger CEO and Director
/S/Sandra L. Quinn Secretary and Director May 1, 1997
Sandra L. Quinn
/S/Jeffrey C. Barton Chief Financial Officer May 1, 1997
Jeffrey C. Barton
/S/Larry A. Beres Director May 1, 1997
Larry A. Beres
/S/Robert K. Butner Director May 1, 1997
Robert K. Butner
/S/James G. Mathias Director May 1, 1997
James G. Mathias
/S/J. David Smith Director May 1, 1997
J. David Smith
/S/Harvey Thatcher Director May 1, 1997
Harvey Thatcher
/S/Jean Thiergartner Director May 1, 1997
L. Jean Thiergartner
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