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, 1998
[ ] 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
THE BANC STOCK GROUP, INC.
(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.)
1105 Schrock Road, Suite 437, 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 Act:
(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 $8,450,937
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, 1998: 7,082,263 Class A shares
@ Bid of $16.125 = $114,201,491
@ Asked of $16.500 = $116,857,340
State the number of shares outstanding of each of the
issuer's classes of common equity, as of March 31, 1998:
Class A Shares: 8,059,217
Class C Shares: 360,000
PART I
ITEM 1: Description of Business
General
The Banc Stock Group, Inc. (the Company), formerly,
Heartland Group of Companies, Inc., is a Florida
corporation incorporated in April, 1990. At the Annual
Meeting of Shareholders held on June 19, 1997, the
Shareholders amended the Articles of Incorporation to
change the name of the corporation to The Banc Stock
Group, Inc. The Company has three wholly-owned subsidiary
operating companies.
Banc Stock Financial Services, Inc. (BSFS), an Ohio
corporation, is an NASD (National Association of
Securities Dealers) 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 twenty-six 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 is also a registered
investment adviser offering advisory accounts to qualified
investors. 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 adviser. HAG is the Investment Adviser to The
Banc Stock Group Fund, a diversified, open-end mutual
fund.
Buckeye Bancstocks, Inc., is an Ohio corporation
established in 1977, to act as an intrastate broker-dealer
trading primarily 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 and BSFS. 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 advisory services
through its registered investment advisers and 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
recommend, acquire and market a diversified portfolio of
bank stocks with small and medium market capitalization.
As of February 28, 1998, the Company had no single
investment representing more than 10% of the marketable
equitable securities of the Company.
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 $10,000,000,000 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 1%
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.
The Company began to actively market the establishment of
discretionary client accounts with BSFS in 1997. This
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 discretionary and
non-discretionary accounts and advisory 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 13.
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
makes 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, the
large number of independent community banks, 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.
Trading Portfolio
Through its brokerage subsidiaries, the Company buys
positions in several banks at any given time with an
intent to resell such shares. Any stock bought for the
trading portfolio 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 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 are sold either
at retail or at wholesale. The Company acquires
securities from a variety of sources including other
brokers, individuals, estates and bank trust departments.
The Company maintains margin account balances due to
broker/dealers bearing interest at variable rates which,
at February 28, 1998, averaged 8%. 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
$9,344,000 at February 28, 1998.
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 and BSFS are registered investment
advisers and subject to regulation by the SEC pursuant to
the Investment Advisers 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 Securities and Exchange Commission
(SEC). 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.
Violation of the Bank Holding Company Act could subject
the Company 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 12 full-time employees, 11 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 6,124 square
feet of office space in an office complex from an
unaffiliated third party for an aggregate current monthly
rental of approximately $7,145.
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.
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 BSGK and is not
listed on an exchange. On March 31, 1998, a bid price of
$16.125 and asked price of $16.500 were quoted. There
are nine market makers of BSGK. 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, 1998,
approximately three million shares of the Company's Class
A Common Stock were traded in the over-the-counter market.
Class C shares are restricted and therefore, are not traded.
As of February 28, 1998, there were approximately 1,350
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.
ITEM 6: Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal Year Ended February 28, 1998, Compared to Fiscal
Year Ended February 28, 1997
Revenues for the year ended February 28, 1998 increased to
$8,450,937 compared to $3,965,423 for the year ended
February 28, 1997, an increase of 113%. This increase
results primarily from the performance of the Company's
trading portfolio of bank stocks and the generation of
commission revenue. The trading portfolio benefited from
the strong performance of the securities market in general
and the strong performance of the banking sector in
particular. Trading profits were $5,584,373 for the year
ended February 28, 1998 compared to $2,656,030 for the
year ended February 28, 1997, an increase of 110%. This
represents an annual rate of return on the average
portfolio of 49% for the year ended February 28, 1998
compared to 34% for the year ended February 28, 1997. The
portfolio performance achieved in the past may not
necessarily be indicative of future performance.
Commission revenue of $2,567,507 was generated for the
year ended February 28, 1998, primarily by Banc Stock
Financial Services, Inc. (BSFS), the Company's NASD
broker-dealer subsidiary. This compares to $1,082,563 of
commission revenue for the year ended February 28, 1997,
an increase of 137%. 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.
Operating expenses for the year ended February 28, 1998
increased to $3,835,346 compared to $2,250,726 for the
year ended February 28, 1997, an increase of 70%.
Brokers' commission expenses increased to $1,463,904 for
the year ended February 28, 1998 compared to $653,283 for
the year ended February 28, 1997, an increase of 124%.
Brokers' commission expenses represent 57% of Commission
revenue for the year ended February 28, 1998 compared to
60% for the year ended February 28, 1997. These
percentages reflect management's decision to increase
commissions paid to brokers which provide incentives to
increase the level of business activity with the Company
and a corresponding increase in commission revenue.
Salaries, benefits, and payroll taxes increased to
$1,049,682 for the year ended February 28, 1998 compared
to $509,691 for the year ended February 28, 1997, an
increase of 106%. This increase reflects accruals for the
Incentive Compensation Plan for employees and management's
decision to add four additional employees to establish
additional revenue sources in the future. Interest
expense increased to $94,615 for the year ended February
28, 1998 compared to $53,828 for the year ended February
28, 1997, an increase of 76%. This increase results from
additional margin positions with broker-dealers
established to buy additional securities to take advantage
of favorable market conditions. Professional fees increased
to $392,912 for the year ended February 28, 1998 compared to
$276,195 for the year ended February 28, 1997, an increase of
42%. This increase is primarily the result of consulting
services for developing and marketing new products and services.
General and administrative expenses increased to $834,233 for the
year ended February 28, 1998 compared to $757,729 for
the year ended February 28, 1997, an increase of 10%.
This increase is primarily the result of educational
seminars and training for employees, brokers and clients.
The Banc Stock Exchange of America, Inc. (BSA) has
established an electronic bank stock information service.
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 $89,830 for the year ended February 28,
1998 compared to $35,720 for the year ended February 28,
1997. BSA was a development stage enterprise through
February 28, 1997, with operations beginning March 1,
1997.
Liquidity and Capital Resources
Approximately 1% 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 99% 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, 1998, the Company had working capital
of approximately $11,490,000 compared to $8,980,000 as of
February 28, 1997. 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, 1998, 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, 1998. Senior management of the Company is responsible
for reviewing trading positions, exposures, profits and
losses, trading strategies and hedging strategies daily.
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 net cash balance increased $311,330 during the year
ended February 28, 1998. Net cash provided by operating
activities was $574,030. The primary source of this
cash flow was net income, including realized gains from
the sale of securities and net commission revenue.
Investing activities used $158,377 of cash during the year
ended February 28, 1998 with the primary use being the
purchase of office equipment.
Financing activities used $104,323 of cash during the year
ended February 28, 1998 primarily to make advances to affiliates.
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, as part
of its strategic and operational planning, continues to
explore options to expand its capital base to support
market making activities.
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. 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.
Management has initiated a program to evaluate continuity
of the Company's information systems and application
software for the year 2000. Critical application software
utilized by the Company is primarily furnished by third-party
vendors. Management is working with these vendors
to evaluate these systems. No significant incremental
costs are expected to be incurred in connection with this
process. Additionally, management is involved in a
program to evaluate personal computer applications for
year 2000 compliance. The cost of this program is not
expected to be material and will utilize existing
information technology resources.
Recent Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and
Related Information." This pronouncement establishes
standards for disclosures about operating segments in
annual financial statements and requires that companies
report selected information about operating segments in
interim financial reports. Disclosures are based on the
approach management uses to organize segments within the
company for management reporting and decision making. It
also establishes standards for related disclosures about
products and services, geographic areas, and major
customers. This pronouncement is effective for the Banc
Stock Group's fiscal year ending February 28, 1999. When
the pronouncement becomes effective, prior periods are
required to be restated, accordingly. Management is
evaluating the implementation of this pronouncement which
is not expected to have a material impact on the Company.
ITEM 7: Financial Statements
THE BANC STOCK GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 1998 AND 1997
TOGETHER WITH REPORT OF INDEPENDENT ACCOUNTANTS
REPORT OF INDEPENDENT ACCOUNTANTS
April 3, 1998
To the Shareholders and Board of Directors of
The Banc Stock Group, Inc.
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 The Banc Stock Group, Inc., at
February 28, 1998 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 audits 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
THE BANC STOCK GROUP, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AS OF FEBRUARY 28, 1998
ASSETS
Cash $ 471,756
Trading portfolio:
Marketable equity securities, at market value 13,358,158
Not readily marketable equity securities at
estimated fair value 180,898
Mortgage participation notes 100,000
Accounts receivable:
Affiliates 126,778
Clearing organization and other 101,753
Notes and interest receivable 30,229
Equity investment in Banc Stock Exchange of America 578,990
Property and equipment, net of accumulated depreciation
of $135,192 192,032
Goodwill, net of accumulated amortization of $228,827 401,140
Deposits and other 222,270
Total assets $ 15,764,004
LIABILITIES
Margin accounts payable to broker-dealers $ 266,907
Unearned commisions 177,300
Accounts payable to broker-dealers and other 59,700
Deferred taxes 1,250,000
Accrued expenses 1,125,213
Total liabilities 2,879,120
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, 8,362,262 shares issued
and 8,059,217 shares outstanding 9,120,368
Class C, no par value, 360,000 shares
authorized, issued and outstanding -
Treasury stock, at cost
(303,045 Class A shares) (385,403)
Retained earnings 4,149,919
Total shareholders' equity 12,884,884
Total liabilities and shareholders'
equity $ 15,764,004
The accompanying notes are an integral part of these consolidated
financial statements.
THE BANC STOCK GROUP, INC and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED FEBRUARY 28, 1998 and 1997
1998 1997
REVENUES:
Trading profits $ 5,584,373 $ 2,656,030
Commission revenue 2,567,507 1,082,563
Agency fees - 22,502
Dividends 244,395 170,698
Interest and other 54,662 33,630
Total revenues 8,450,937 3,965,423
EXPENSES:
Brokers' commission 1,463,904 653,283
Salaries, benefits and payroll taxes 1,049,682 509,691
Interest 94,615 53,828
Professional fees 392,912 276,195
General and administrative 834,233 757,729
Total expenses 3,835,346 2,250,726
INCOME BEFORE TAXES 4,615,591 1,714,697
PROVISION FOR INCOME TAXES 1,430,000 -
INCOME BEFORE EQUITY IN NET EARNINGS
OF AFFILIATED COMPANY 3,185,591 1,714,697
Equity in net earnings of Banc Stock Exchange
of America 89,830 35,720
NET INCOME $ 3,275,421 $ 1,750,417
BASIC EARNINGS PER SHARE $ 0.39 $ 0.21
DILUTED EARNINGS PER SHARE $ 0.36 $ 0.21
The accompanying notes are an integral part of these consolidated
financial statements.
THE BANC STOCK GROUP,INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CHANGES in SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 28, 1998 and 1997
Retained
Treasury Earnings Total
Class A Class C Stock (Deficit)
Balance 2\29\1996 $9,102,556 - ($385,454) ($875,919) $7,841,183
Treasury stock
transactions, net - - 51 - 51
Conversion of Class C
to Class A (10% per
year) - - -
Net income - - - 1,750,417 1,750,417
Balance 2\28\1997 9,102,556 - (385,403) 874,498 9,591,651
Conversion of Class C
to Class A (10% per
year) - - -
Exercise options 17,812 - - - 17,812
Net income - - 3,275,421 3,275,421
Balance 2\28\1998 $9,120,368 $ - ($385,403) $4,149,919 12,884,884
The accompanying notes are an integral part of these consolidated financial
statements.
THE BANC STOCK GROUP, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28, 1998 and 1997
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,275,421 $ 1,750,417
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 81,857 67,131
Deferred taxes 1,250,000 -
Equity in undistributed earnings of Banc
Stock Exchange of America (89,830) (35,720)
Unrealized gain (3,106,147) (1,403,153)
(Increase) decrease in certain assets-
Trading profits, net (957,384) (1,772,146)
Accounts receivable (57,460) 17,657
Other assets (136,153) (103,323)
Increase (decrease) in certain liabilities-
Margin accounts payable to broker-dealers (458,550) 668,629
Unearned commissions 177,300 -
Accounts payable to broker-dealers and other 38,733 (11,669)
Accrued expenses and other 556,243 385,444
Net cash provided by (used in)
operating activities 574,030 (436,733)
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections of notes receivable 77,100 200,969
Issuance of notes receivable (59,484) (10,749)
Dividends receivable (25,000) -
Purchase of property and equipment (155,923) (33,681)
Sale of property 4,930 -
Net cash (used in) provided by
investing activities (158,377) 156,539
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 17,812 -
Sale of treasury stock - 51
Advances from affiliates 602,783 769,200
Advances to affiliates (724,918) (733,969)
Net cash (used in) provided by
financing activities (104,323) 35,282
NET INCREASE (DECREASE) IN CASH 311,330 (244,912)
CASH, BEGINNING OF YEAR 160,426 405,338
CASH, END OF YEAR $ 471,756 $ 160,426
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
1998 1997
Cash paid during the year for:
Interest $ 94,615 $ 53,828
The accompanying notes are an integral part of these consolidated financial
statements.
THE BANC STOCK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
(1) ORGANIZATION AND NATURE OF BUSINESS
The Banc Stock Group, Inc., (the Company) is a Florida
corporation incorporated in April, 1990. At the Annual
Meeting of Shareholders held on June 19, 1997, the
Shareholders amended the Articles of Incorporation to
change the name of the corporation from Heartland Group of
Companies, Inc. 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 twenty-six
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 is also a registered
investment adviser offering advisory accounts to qualified
investors. 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 adviser. HAG is the Investment Adviser to The
Banc Stock Group Fund, a diversified, open-end mutual
fund.
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 material intercompany transactions and
balances have been eliminated in consolidation.
Cash
The Company has defined cash as demand deposits and money
market accounts.
Valuation of the Trading Portfolio
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 trading profits.
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
Basic and diluted earnings per common share are computed
in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share." A reconciliation
of the numerators and denominators used in these
calculations is shown below:
For the Year Ended February 28, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic Earnings per Share $3,275,421 8,412,342 $ .39
Effect of Dilutive Securities:
Assumed exercise of:
Stock Options 471,078 (.02)
Warrants 112,210 (.01)
Diluted Earnings per Share $3,275,421 8,995,630 $ .36
Stock options to purchase 10,000 shares at $13.37 per
share were outstanding since January 12, 1998, but were
not included in the computation of diluted earnings per
share for the year ended February 28, 1998 because the
option's exercise price was greater than the average
market price of the common stock.
For the Year Ended February 28, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic Earnings per Share $1,750,417 8,411,683 $ .21
Diluted Earnings per Share $1,750,417 8,411,683 $ .21
For the year ended February 28, 1997, none of the stock
options and warrants were included in the computation of
diluted earnings per share because the exercise prices
were greater than the average market price of the common
stock.
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.
Fair Value of Financial Instruments
Substantially all of the Company's financial instruments,
except the equity investment in BSA, are carried at fair
value or amounts approximating fair value. Assets,
including cash, accounts receivable, mortgage
participation notes, notes and interest receivable and the
trading portfolio 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.
(3) CAPITAL STOCK
Common Stock
Commencing December 1, 1991, shares of Class C common
stock automatically convert to Class A common stock at the
rate of 120,000 shares per year. 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
As of February 28, 1998, Buckeye Bancstocks held 206,240
Class A shares of the Company. These shares, along with
shares held directly by the Company, 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) TRADING PORTFOLIO
Marketable equity securities at February 28, 1998 consist
of bank stocks at market value, as follows:
Traded on national securities markets $9,120,677
Not traded on national securities
markets, but with readily ascertainable
market value 4,237,481
Total marketable equity securities $13,358,158
As of February 28, 1998, 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, 1998 were $180,898 at fair value with a cost
of $172,948.
(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 8.0% at February 28, 1998. 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 $9,344,000 at February 28,
1998.
(6) RELATED PARTY TRANSACTIONS
Securities Transactions
The Company purchases from and sells securities owned to
BSA at the prevailing market price at the time of the
transaction. There were no purchases or sales to BSA for
the year ended February 28, 1998. For the year ended
February 28, 1997, the Company made purchases of $325,482
and sales of $388,822 to BSA.
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 $154,778 and $75,290 for
the years ended February 28, 1998 and 1997, 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, 1998 and 1997 are composed of the following:
1998 1997
Current Federal income taxes $ 35,000 $ -
Deferred Federal income taxes 1,540,000 280,000
State and local income taxes 145,000 -
Change in valuation allowance (290,000) (280,000)
Provision for income taxes $1,430,000 $ -
The following schedule reconciles the statutory Federal
income tax rate to the Company's effective tax rate for
the years ended February 28, 1998 and 1997:
1998 1997
Statutory Federal income tax rate 34% 35%
Dividends received deduction (1) (2)
State and local taxes (1) -
Change in valuation allowance (6) (34)
Other, net 1 -
Effective Federal income tax rate 27% 0%
Deferred tax assets and liabilities consist of the
following at February 28, 1998 and 1997:
1998 1997
Deferred tax benefit of NOL carryforward $ 440,000 $1,150,000
Deferred tax liabilities on unrealized gains
on securities owned (1,690,000) (860,000)
Net deferred tax (liability) benefit (1,250,000) 290,000
Valuation allowance - (290,000)
Deferred taxes, net $(1,250,000) $ -
As of February 28, 1998, the Company and its subsidiaries
had net operating loss (NOL) carryforwards for tax
purposes of approximately $1,300,000. These NOL's will
expire in 2002 through 2013. Any future changes in
control may limit the availability of NOL carryforwards.
(8) OPERATING LEASES
The Company leases certain facilities, a vehicle and
office equipment under operating leases. Total lease
expenses were approximately $103,000 in fiscal year 1998
and $87,000 in 1997. The future minimum lease payments
under existing leases are as follows:
Amount
1999 $121,400
2000 110,500
2001 101,800
2002 94,300
2003 39,300
$467,300
(9) EMPLOYEE INCENTIVE PLANS
Incentive Compensation Plan
All full-time executive employees of the Company are
eligible to participate in the 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
$600,000 under the Plan for the year ended February 28,
1998.
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 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.
Effective March 4, 1997, 3,500 qualified options vesting
over five years and 3,500 non-qualified options were
granted under this plan to a new broker with ten year
terms and exercise prices of $2.125.
Effective March 7, 1997, the following options and
warrants were granted under this plan with a ten year term
and exercise price of $2.125.
(a) 61,000 non-qualified stock options granted to
employees with immediate vesting.
(b) 47,500 non-qualified stock options granted to brokers
with immediate vesting.
(c) 47,500 qualified stock options granted to brokers,
vesting over five years.
(d) 61,000 qualified stock options granted to employees,
vesting over five years.
(e) 65,000 warrants granted to directors and an officer
with immediate vesting.
Effective May 4, 1997, 7,500 qualified options vesting
over five years and 7,500 non-qualified options were
granted under this plan to a new employee with ten year
terms and exercise prices of $2.375.
Effective January 12, 1998, 5,000 qualified options
vesting over five years and 5,000 non-qualified options
were granted under this plan to a new broker with ten year
terms and exercise prices of $13.37.
The Company applies Accounting Principles Board Opinion 25
(APB 25) and related Interpretations in accounting for its
plans. In accordance with APB 25, 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, 1998 February 29, 1997
Net income As reported $3,275,421 $1,750,417
Pro forma $2,744,312 $1,599,059
Basic earnings per share As reported $.39 $.21
Pro forma $.33 $.19
Diluted earnings per share As reported $.36 $.21
Pro forma $.31 $.19
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 and expected lives of ten
years. For fiscal 1998, the average expected volatility is
61%, and the average assumed risk-free interest rate is
6.96%. 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, 1998 and 1997 and
changes during the years ending on those dates is
presented below:
Options Warrants
Exercise Exercise
Shares Price Shares Price
Outstanding March 1, 1996 487,500 $2.875 105,000 $2.875
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
Outstanding March 1, 1997 480,000 $2.875 105,000 $2.875
Granted 249,000 $2.592 65,000 $2.125
Exercised (7,500) $2.375
Outstanding February 28, 1998 721,500 $2.782 170,000 $2.588
Exercisable February 28, 1998 446,400 $2.804 170,000 $2.588
Weighted-average fair value
of options and warrants
granted during the year,
computed in accordance
with FAS 123 $1.97 $1.64
The following table summarizes information about fixed
stock options and warrants outstanding at February 28,
1998:
Options Warrants
Number outstanding 721,500 170,000
Weighted-average remaining
contractual life in years 8.07 8.13
Weighted-average exercise price $2.782 $2.588
Number exercisable 446,400 170,000
(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 $1,027,249
as of February 28, 1998, which was in excess of its
required minimum net capital of $100,000. The ratio of
aggregate indebtedness to net capital was .64 to 1 as of
February 28, 1998. BSFS is also subject to regulations of
the District of Columbia and twenty-six 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 and BSFS are Registered Investment Advisers and
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, 1998, 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, 1998. 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.
Management has initiated a program to evaluate continuity
of the Company's information systems and application
software for the year 2000. Critical application software
utilized by the Company is furnished primarily by third-party
vendors. Management is working with these vendors
to evaluate these systems. No significant incremental
costs are expected to be incurred in connection with this
process. Additionally, management is involved in a
program to evaluate personal computer applications for
year 2000 compliance. The cost of this program is not
expected to be material and will utilize existing
information technology resources.
ITEM 8: Changes In and Disagreements With Accountants or
Accounting and Financial Disclosures
None
PART III
ITEM 9: Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act
As of February 28, 1998, 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 50 Director, President, CEO & Treasurer
Jeffrey C. Barton 51 Vice President & Chief Financial Officer
Mark A. Davis 46 Vice President & Director of Research
Sandra L. Quinn 32 Director, Vice President & Corp. Secretary
Harry J. Ryan 53 Vice President & Director of Marketing
Edward E. Schmidt 51 Executive Vice President
Larry A. Beres 51 Director
Robert K. Butner 76 Director
James G. Mathias 45 Director
J. David Smith 51 Director
Harvey J. Thatcher 64 Director
L. Jean Thiergartner 65 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 1995, Mr. Guirlinger has also
been President and CEO of BSA and was Vice President from
1992 to 1995. He is also President and Treasurer of
Buckeye Bancstocks and HAG and Vice President and
Treasurer of BSFS. 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.
Jeffrey C. Barton has been Chief Financial Officer of
the Company since October, 1992. He is also Vice
President & CFO of the Company's subsidiaries and of BSA.
Since 1990, Mr. Barton has also been CFO of Saunders
Pearson Company, a contract financial management company.
From 1987 to 1989, Mr. Barton served as CFO 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.
Mark A. Davis has been with the Company since 1978
and is Vice President and Director of Research. He is
also Vice President of BSA, BSFS and HAG. He is a former
Vice President of The Phoenix Scioto Company, FS
Management Company and Buckeye Bancstocks, Inc. Mr. Davis
holds Series 4, 7, 24, 53 & 63 securities licenses. Mr.
Davis attended Yale College, New Haven, Connecticut.
Sandra L. Quinn is a Director of the Company and Vice
President & Corporate Secretary. She is also Vice
President & Corporate Secretary of the Company's
subsidiaries and of BSA. She has been a Director of the
Company and of BSA since 1993. Effective October 1995 Ms.
Quinn was designated Principal of Buckeye Bancstocks, Inc.
Ms. Quinn has Series 62, 63 and 65 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.
Harry J. Ryan is Vice President & Director of
Marketing of the Company and of BSA. He joined the
Company in January 1996. Previously, he was Vice
President of Marketing for LifeLine Shelter Systems, an
Ohio based manufacturer of mobile medical and dental
clinics with clients worldwide. Mr. Ryan holds Series 7 &
63 securities licenses. He has a Bachelor of Arts degree
from Ohio Dominican College and a Master's of Business
degree from Central Michigan University.
Edward E. Schmidt is Executive Vice President of the
Company and of BSA. Mr. Schmidt joined the Company in May
1997. Previously, he served as President, CEO and
Director of Capital West Group, Inc., subsidiary of
Capital Corp of the West, holding the additional position
of Senior Vice President. Prior to that he served as
Director of The Finley Group, Inc. Mr. Schmidt is a
Certified VIA consultant, holds a BS Business
Administration degree and is a graduate of the Pacific
Coast Banking School, University of Washington, Seattle,
Washington.
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 became a Director of the Company in
1993. 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 became a Director of the Company
in 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, 1998. Robert K. Butner, Harvey J.
Thatcher and L. Jean Thiergartner.
ITEM 10: Executive Compensation
Summary Compensation Table
Name of
Principal and Awards Awards LTIP All
Position Year Salary Bonus Other* Stock Options(A) Payouts Other
Michael E.
Guirlinger,
President 1997 80,455 36,861 35,202 45,000 sh
Mark A.
Davis,VP 1997 61,923 58,890 61,066 30,000 sh
Edward E.
Schmidt, EVP 1997 62,019 3,140 15,000 sh 94,102(A)
Michael E.
Guirlinger,
President 1996 75,000 11,752 1,655 25,000 sh
Michael E.
Guirlinger,
President 1995 76,830 100,000 sh
Bradley T.
Smith, Former Thru
President 5/95 43,874 75,502
* Commissions
(A) During the fiscal year ended February 28, 1998, Mr.
Guirlinger was awarded 22,500 stock options which vested
immediately and 22,500 stock options which vest over five
years, at an exercise price of $2.125. These stock
options expire on March 7, 2007. Mr. Davis was awarded
15,000 stock options which vested immediately and 15,000
stock options which vest over five years, at an exercise
price of $2.125. Mr. Schmidt was awarded 7,500 stock
options which vested immediately and 7,500 stock options
which vest over five years, at an exercise price of
$2.375. Mr. Schmidt exercised 7,500 of his options
resulting in compensation of the difference between the
exercise price and fair market value at date of exercise
of $94,102. 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, with an
exercise price of $2.875. 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, with an exercise price of $2.875. At
February 28, 1998 Mr. Guirlinger has 127,700 stock options
which are exercisable and 42,300 stock options which vest
over five years. Mr. Davis has 95,200 stock options which
are exercisable and 34,800 stock options which vest over
five years. Mr. Schmidt has 7,500 stock options which
vest over five years.
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.
ITEM 11: Security Ownership of Certain Beneficial
Owners and Management
The following sets forth, as of March 31, 1998, 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 372,661 35,000 407,661 5.1%
12 McGuffey Lane
Athens, Ohio 45701
James G. Mathias 102,175 35,000 137,175 1.7%
7702 Winding Way South
Tipp City, Ohio 45371
J. David Smith 45,000 10,000 55,000 *
526 Waldren Hills Road
Piketon, Ohio 45661
Harvey J. Thatcher 80,313 35,000 115,313 1.4%
135 East Central
Van Wert, Ohio 45891
L. Jean Thiergartner 254,650 35,000 289,650 3.6%
20896 Orchard Road
P.O. Box 387
Milford Center, OH 43045
Michael E. Guirlinger 21,927 127,700 149,627 1.9%
6230 Busch Blvd.
Columbus, Ohio 43229
Jeffrey C. Barton 5,000 10,000 15,000 *
290 E. Kossuth Street
Columbus, Ohio 43206
Mark A. Davis 31,228 95,200 126,428 1.6%
6215 Northgate Rd. Apt. D
Columbus, Ohio 43229
Sandra L. Quinn 10,500 16,500 27,000 *
6230 Busch Blvd.
Columbus, Ohio 43229
Harry J. Ryan 13,500 - 13,500 *
3888 James River Road
New Albany, Ohio 43054
__________ ________ ___________ ______
Directors and 976,954 409,400 1,386,354 17.2%
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, 1998, 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. 131,949 36.7%
946 Fourth Street
Eldorado, IL 62930
John W. Walden 65,160 18.1%
1132 Broadway
Columbus, Georgia 31901
James T. Coppage 32,580 9.1%
6001 River Road, Suite 402
Columbus, Georgia 31904
Carol A. Wright 34,233 9.5%
755 Wagon Wheel Drive
Northport, MI 49670
James G Mathias, Director 6,511 1.8%
7707 Winding Way South
Tipp City, Ohio 45371
Directors and Officers
as a group (1 person) 6,511 1.8%
ITEM 12: Certain Relationships and Related Transactions - None
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.
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:
THE BANC STOCK GROUP, INC.
/S/Michael E. Guirlinger
By Michael E. Guirlinger
May 1, 1998
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, 1998
Michael E. Guirlinger CEO and Director
/S/Sandra L. Quinn Secretary and Director May 1, 1998
Sandra L. Quinn
/S/Jeffrey C. Barton Chief Financial Officer May 1, 1998
Jeffrey C. Barton
Director
Larry A. Beres
/S/Robert K. Butner Director May 1, 1998
Robert K. Butner
Director
James G. Mathias
Director
J. David Smith
/S/Harvey Thatcher Director May 1, 1998
Harvey Thatcher
/S/Jean Thiergartner Director May 1, 1998
L. Jean Thiergartner
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