U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 31,1998
Commission file number 33-65292C
THE BANC STOCK GROUP,INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0190407
(State of incorporation) (IRS Employer Identification No.)
1105 SCHROCK ROAD, COLUMBUS, OHIO 43229
(Address of principal executive offices)
(614) 848-5100
(Issuer's telephone number)
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
State the number of shares outstanding of each of the issuer's
classes of common equity, as of June 30, 1997:
CLASS NUMBER OF SHARES
Class A shares, No Par Value 8,059,888
Class C shares, No Par Value 360,000
TRADITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)
Yes X No
THE BANC STOCK GROUP, INC. AND SUBSIDIARIES
INDEX
PAGE
Part I Financial Information:
Item 1. Consolidated Financial Statements 3-7
Notes to Consolidated Financial Statements 8-17
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 18-21
Part II Other Information:
Item 1 through Item 6 22
Signatures 23
THE BANC STOCK GROUP, INC. AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
The accompanying consolidated financial statements of The Banc
Stock Group, Inc. are unaudited but, in the opinion of
management, reflect all adjustments (which include only normal
recurring accruals) necessary to present fairly such information
for the periods and at the dates indicated and to make the
consolidated financial statements not misleading. The results of
operations for the three months ended May 31, 1998 may not be
indicative of the results of operations for the year ending
February 28, 1999. Since the accompanying consolidated financial
statements have been prepared in accordance with Item 310 of
Regulation S-B, they do not contain all information and footnotes
normally contained in annual consolidated financial statements;
accordingly, they should be read in conjunction with the
consolidated financial statements and notes thereto appearing in
the Company's Annual Report.
THE BANC STOCK GROUP, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AS OF MAY 31, 1998
(UNAUDITED)
ASSETS
Cash $ 49,190
Trading portfolio:
Marketable equity securities, at market value 15,689,213
Not readily marketable equity securities, at
estimated fair value 193,900
Mortgage participation notes 100,000
Accounts receivable:
Affiliates 180,639
Clients 513,265
Clearing organization and other 90,975
Notes and interest receivable 8,219
Equity investment in Banc Stock Exchange of America 606,730
Property and equipment, net of accumulated
depreciation of $148,716 191,358
Goodwill, net of accumulated amortization of $237,548 392,419
Deposits and other 274,298
Total assets $18,290,206
LIABILITIES
Margin accounts payable to broker-dealers $ 1,442,298
Unearned commisions 226,750
Accounts payable to broker-dealers and other 293,226
Deferred taxes 1,740,000
Accrued expenses 712,425
Total liabilities 4,414,699
SHAREHOLDERS' EQUITY
Preference stock, 50,000,000 shares authorized,
none issued or outstanding
Common stock:
Class A, no par value, 149,640,000 shares
authorized, 8,362,933 shares issued
and 8,059,888 shares outstanding 9,121,794
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 5,139,116
Total shareholders' equity 13,875,507
Total liabilities and shareholders' equity $18,290,206
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 THREE MONTHS ENDED MAY 31, 1998 and 1997
(UNAUDITED)
1998 1997
REVENUES:
Trading profits $ 1,386,274 $ 835,326
Management fees and commissions 1,004,105 270,178
Investment banking 448,454 -
Dividends 45,446 37,164
Interest and other 9,570 10,249
Total revenues 2,893,849 1,152,917
EXPENSES:
Brokers' commission 799,713 193,231
Salaries, benefits and payroll taxes 294,257 123,569
Professional fees 110,581 106,846
Interest 15,488 20,805
General and administrative 212,353 158,229
Total expenses 1,432,392 602,680
INCOME BEFORE TAXES 1,461,457 550,237
PROVISION FOR INCOME TAXES 500,000 -
INCOME BEFORE EQUITY IN NET EARNINGS
OF AFFILIATED COMPANY 961,457 550,237
Equity in net earnings of Banc Stock Exchange of 27,740 11,080
NET INCOME $ 989,197 $ 561,317
BASIC EARNINGS PER SHARE $ 0.12 $ 0.07
DILUTED EARNINGS PER SHARE $ 0.11 $ 0.07
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 THREE MONTHS ENDED MAY 31, 1998
(UNAUDITED)
Treasury Retained
Class A Class C Stock Earnings Total
Balance 2/28/98 $9,120,368 - ($385,403) $4,149,919 $12,884,884
Exercise of stock
options 1,426 1,426
Net income - - - 989,197 989,197
Balance 5/31/98 $9,121,794 - ($385,403) $5,139,116 $13,875,507
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 THREE MONTHS ENDED MAY 31, 1998 and 1997
(UNAUDITED)
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 989,197 $ 561,317
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 22,244 17,624
Deferred taxes 490,000 -
Equity in undistributed earnings of Banc Stock
Exchange of America (27,740) (11,080)
Unrealized gain (1,132,315) (423,884)
(Increase) decrease in certain assets-
Trading profits, net (1,211,742) (344,795)
Accounts receivable clients (513,265) -
Other accounts receivable 10,778 (34,820)
Other assets (52,028) (10,720)
Increase (decrease) in certain liabilities-
Margin accounts payable to broker-dealers 1,175,391 165,893
Unearned commissions 49,450 34,560
Accounts payable to broker-dealers and other 233,526 10,036
Accrued expenses and other (412,788) (61,067)
Net cash used in operating activities (379,292) (96,936)
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections of notes receivable 825 9,138
Issuance of notes receivable (3,815) (4,304)
Collection of dividends receivable 25,000 -
Purchase of property and equipment (12,850) (10,623)
Net cash provided by (used in) investing
activities: 9,160 (5,789)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 1,426 -
Advances from affiliates 69,840 61,454
Advances to affiliates (123,700) (83,970)
Net cash used in financing activities (52,434) (22,516)
NET DECREASE IN CASH (422,566) (125,241)
CASH, BEGINNING OF PERIOD 471,756 160,426
CASH, END OF PERIOD $ 49,190 $ 35,185
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
1998 1997
Cash paid during the period for:
Interest $15,488 $20,805
The accompanying notes are an integral part of these consolidated
financial statements.
THE BANC STOCK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998
(1) ORGANIZATION AND NATURE OF BUSINESS
The Banc Stock Group, Inc. (the Company) is a Florida corporation
incorporated in April, 1990. 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 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 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 Quarter Ended May 31, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic Earnings $989,197 8,419,283 $ .12
Effect of Dilutive Securities:
Assumed exercise of:
Stock Options 599,394 (.01)
Warrants 141,959 (.00)
Diluted Earnings $989,197 9,160,636 $ .11
Stock options to purchase 3,000 shares at an exercise price of
$16.875 per share were not included in the computation of diluted
earnings per share for the quarter ended May 31, 1998 because the
options' exercise prices were greater than the average market
price of the common stock.
For the Quarter Ended May 31, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic Earnings $ 561,317 8,411,717 $ .07
Diluted Earnings $ 561,317 8,411,717 $ .07
For the quarter ended May 31, 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 are
carried at fair value or amounts approximating fair value.
Assets, including 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.
(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
Buckeye Bancstocks holds 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 May 31, 1998 consist of bank
stocks at market value, as follows:
Traded on national securities markets $11,357,397
Not traded on national securities
markets, but with readily ascertainable
market value 4,331,816
Total marketable equity securities $15,689,213
As of May 31, 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 May 31, 1998 were
$193,900 at fair value with a cost of $185,948.
(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
7.8% at May 31, 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 $11,425,000 at May 31, 1998.
(6) RELATED PARTY TRANSACTIONS
Securities Transactions
The Company purchases from and sells securities to BSA at the
prevailing market price at the time of the transaction. However,
during the quarters ended May 31, 1998 and 1997 no purchases were
made from, nor sales made 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
$46,991 and $24,457 for the quarters ended May 31, 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 provision for income taxes for the quarter ended May 31, 1998
is composed of the following:
Current income taxes $ 10,000
Deferred income taxes 490,000
Provision for income taxes $ 500,000
Deferred tax assets and liabilities consist of the following at
May 31, 1998:
Deferred tax benefit of NOL carryforward $ 260,000
Deferred tax liabilities on unrealized gains
on securities owned (2,000,000)
Deferred taxes $(1,740,000)
(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 ended February 28, 1998.
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 Banc Stock Group 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 an expense
of $600,000 under the Plan for the year ended February 28, 1998
and provided $115,000 for the quarter ended May 31, 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
2,500,000 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 March 2, 1998, 1,500 options which vest immediately
and 1,500 options which vest over five years, were granted under
this plan to newly hired employees with ten year terms and
exercise prices of $16.875.
Effective May 12, 1998, 117,505 options which vest immediately
and 137,505 options which vest over five years, were granted
under this plan to employees and independent contractors with ten
year terms and exercise prices of $14.75.
Effective May 12, 1998, 70,000 warrants which vest immediately
were granted to directors and an officer with ten year terms and
exercise prices of $14.75.
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:
Quarter Ended
May 31, 1998 May 31, 1997
Net income (loss) As reported $ 989,197 $ 561,317
Pro forma ($1,154,471) $ 209,731
Basic earnings per share
As reported $ 0.12 $ 0.07
Pro forma ($ 0.14) $ 0.02
Diluted earnings per share
As reported $ 0.11 $ 0.07
Pro forma ($ 0.13) $ 0.02
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 1999, the average
expected volatility is 52%, and the average assumed risk-free
interest rate is 5.88%. 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 May 31, 1998 and changes during the quarter
is presented below:
Options Warrants
Exercise Exercise
Shares Price Shares Price
Outstanding March 1, 1998 721,500 $ 2.782 170,000 $ 2.588
Granted 261,510 $14.775 70,000 $14.750
Exercised (671) $ 2.125
Forfeited (800) $ 2.125
Outstanding May 31, 1998 981,539 $ 5.980 240,000 $ 6.135
Exercisable May 31, 1998 652,334 $ 5.032 240,000 $ 6.135
Weighted-average fair value
of options and warrants
granted during the quarter,
computed in accordance
with FAS 123 $10.383 $10.363
The following table summarizes information about fixed stock
options and warrants outstanding at May 31, 1998:
Options Warrants
Number outstanding 981,539 240,000
Weighted-average remaining
contractual life in years 8.39 8.48
Weighted-average exercise price $5.980 $6.135
Number exercisable 652,334 240,000
(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 $729,113 as of May 31, 1998, which was in excess of
its required minimum net capital of $100,000. The ratio of
aggregate indebtedness to net capital was 1.25 to 1 as of May 31,
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.
The Company's NASD broker-dealer subsidiary provides investment
management services to an agency of the State of Ohio. In
conjunction with these services the subsidiary has agreed to
indemnify the agency against losses resulting from violation of
the investment management agreement or violation of fiduciary
duties under applicable law.
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 May 31, 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 quarter ended May 31, 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 concentration, 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 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
Quarter Ended May 31, 1998, Compared to the Quarter Ended May 31,
1997
Revenues for the quarter ended May 31, 1998 increased to
$2,893,849 compared to $1,152,917 for the quarter ended May 31,
1997, an increase of 151%. This increase results primarily from
increases in revenue from trading profits, management fees and
commissions and investment banking.
Revenues from trading profits were $1,386,274 for the quarter
ended May 31, 1998 compared to $835,326 for the quarter ended May
31, 1997, an increase of 66%. This represents an annual rate of
return on the average portfolio of 38% for the quarter ended May
31, 1998 compared to 34% for the quarter ended May 31, 1997 due
primarily to increases in market values.
The Company generated management fees and commission revenue of
$1,004,105 for the quarter ended May 31, 1998 compared to
$270,178 for the quarter ended May 31, 1997, an increase of 272%.
The increase is primarily attributable to management fees
generated by Banc Stock Financial Services, Inc. (BSFS), the
Company's NASD broker-dealer subsidiary. 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. BSFS has continued to make a concerted effort to
increase its level of business activity, especially portfolio
management services.
On March 11, 1998, the Company formed a specialized investment
banking division dedicated to the expansion of independent
community banks. During the quarter ended May 31, 1998 the
Company generated revenue of approximately $440,000 from
investment banking activities. There was no comparable revenue
for the quarter ended May 31, 1997.
Operating expenses for the quarter ended May 31, 1998, increased
to $1,432,392 compared to $602,680 for the quarter ended May 31,
1997, an increase of 138%. Brokers' commission expenses
increased to $799,713 for the quarter ended May 31, 1998 compared
to $193,231 for the quarter ended May 31, 1997, an increase of
314%. This increase results from commission expenses related to
investment banking activities and the management fees and
commission revenue discussed above. Salaries, benefits, and
payroll taxes increased to $294,257 for the quarter ended May 31,
1998 compared to $123,569 for the quarter ended May 31, 1997, an
increase of 138%. This increase was generated by accruals under
the Company's Incentive Compensation Plan. General and
administrative expenses increased to $212,353 for the quarter
ended May 31, 1998 compared to $158,229 for the quarter ended May
31, 1997, an increase of 34%. This increase is primarily the
result of costs incurred to establish the Company's world wide
web site on the Internet, additional insurance coverage and fees
paid to Directors.
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 $27,740 for the quarter
ended May 31, 1998 compared to $11,080 for the quarter ended May
31, 1997. BSA began operations 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 May 31, 1998, the Company had working capital of
approximately $12,000,000 compared to approximately $9,000,000 as
of May 31, 1997. Working capital includes cash, securities owned
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.
The Company's NASD broker-dealer subsidiary provides investment
management services to an agency of the State of Ohio. In
conjunction with these services, the subsidiary has agreed to
indemnify the agency against losses resulting from violation of
the investment management agreement or violation of fiduciary
duties under applicable law.
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 May 31, 1998, the Company had no short security positions.
Short security positions do not expose the Company to credit risk
since the counterparty is not obligated to perform.
At May 31, 1998, the Company had not written any option contracts.
Short option positions do not expose the Company to credit risk
since the counterparty is not obligated to perform.
The Company did not own any options as of May 31, 1998. The
Company did not experience any credit losses due to the failure
of any counterparties to perform during the quarter ended May 31,
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 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 decreased $422,566 during the quarter ended
May 31, 1998. Net cash used in operating activities was
$379,292. The primary use of this cash flow was to acquire
securities in the trading portfolio and the result of unrealized
gains which are included in net income but do not provide cash.
These uses of cash flow were offset by operating activities,
primarily an increase in margin accounts payable to broker-dealers.
Investing activities provided $9,160 of cash during the quarter
ended May 31, 1998, with the primary source being the collection
of dividends receivable.
Financing activities used $52,434 of cash during the quarter
ended May 31, 1998, primarily to make advances to affiliates.
Historically, the operations of the Company have been funded by
returns on investments, raising of capital, and limited bank
financing. 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 carried
forward, the Mark-to-Market Rules currently are not expected to
have a significant impact on operations. However, after the net
operating loss carried forward, currently available to the
Company, is fully utilized, these Rules could have a materially
adverse impact on the Company's cash flow.
THE BANC STOCK GROUP, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of
Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
a) Furnish the exhibits required by
Item 601 of Regulation S-B - None
b) Reports on Form 8-K - None
SIGNATURES
In accordance with the requirements 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.
(Registrant)
Date July 14, 1998 /S/ Michael E.Guirlinger
Michael E. Guirlinger
President, Treasurer and Chief
Executive Officer
Date July 14, 1998 /S/ Jeffrey C. Barton
Jeffrey C. Barton
Chief Financial Officer
Financial Data Schedule
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND> 0
<RESTATED>
<CIK> 0000909108
<NAME> 0
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<PERIOD-START> MAR-01-1998
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> MAY-31-1998
<EXCHANGE-RATE> 1
<CASH> 49,190
<RECEIVABLES> 784,879
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 15,986,113
<PP&E> 191,358
<TOTAL-ASSETS> 18,290,206
<SHORT-TERM> 0
<PAYABLES> 1,735,524
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 0
0
0
<COMMON> 8,736,391
<OTHER-SE> 5,139,116
[TOTAL-LIABILITIES-AND-EQUITY] 18,290,206
<TRADING-REVENUE> 1,386,274
<INTEREST-DIVIDENDS> 55,016
<COMMISSIONS> 228,254
<INVESTMENT-BANKING-REVENUES> 448,454
<FEE-REVENUE> 775,851
<INTEREST-EXPENSE> 15,488
<COMPENSATION> 294,257
<INCOME-PRETAX> 1,461,457
<INCOME-PRE-EXTRAORDINARY> 1,461,457
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 989,197
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
