-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I/WH3Vcgk0aCde/qfK4Qo2irYv9Ju3rU20mUgWjDpJ0gldQBvgTWXlqlO0778gdF 8u6FHJMkR5gPxk+AEdXiOg== 0000885273-96-000003.txt : 19960617 0000885273-96-000003.hdr.sgml : 19960617 ACCESSION NUMBER: 0000885273-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960329 FILED AS OF DATE: 19960509 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BHC FINANCIAL INC CENTRAL INDEX KEY: 0000885273 STANDARD INDUSTRIAL CLASSIFICATION: 6211 IRS NUMBER: 232264646 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20185 FILM NUMBER: 96558504 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2156363000 10-Q 1 BHC FINANCIAL, INC. FORM 10-Q, 3-29-96 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File No. 0-20185 BHC FINANCIAL, INC. (Exact name of registrant as specified in its charter) Delaware 23-2264646 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) TWELVE HUNDRED ONE COMMERCE SQUARE 2005 MARKET STREET PHILADELPHIA, PENNSYLVANIA 19103-3212 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (215) 636-3000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares of the Registrant's common stock, par value $.001 per share, outstanding as of May 8, 1996 was 6,543,877. 2 BHC FINANCIAL, INC. AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED March 29, 1996
PART I FINANCIAL INFORMATION Page Item 1. Financial Statements: Consolidated Statements of Financial Condition 3 as of March 29, 1996 (unaudited) and December 31, 1995 Consolidated Statements of Income (unaudited) 4 for the quarters ended March 29, 1996 and March 31, 1995 Consolidated Statements of Cash Flows (unaudited) 5 for the quarters ended March 29, 1996 and March 31, 1995 Notes to Consolidated Financial Statements 6 (unaudited) Item 2. Management's Discussion and Analysis of Financial 8 Condition and Results of Operations PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12
3 FINANCIAL STATEMENTS BHC FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except par values)
March 29, December 31, 1996 1995 ---------- ----------- (Unaudited) ASSETS Cash and cash equivalents.............................$ 24,551 $ 21,517 Cash and securities segregated under federal regulations.......................................... 2,330 2,312 Receivable from brokers or dealers and clearing organizations........................................ 133,392 196,321 Receivable from customers............................. 369,648 377,535 Securities owned, at market value..................... 17,067 11,502 Furniture, equipment, capitalized leases and leasehold improvements, net.................................... 4,921 4,714 Intangible assets, net................................ 4,697 4,799 Other assets.......................................... 12,228 15,302 ------- ------- Total assets..........................................$568,834 $634,002 ======= ======= LIABILITIES Short-term bank loans payable......................... - $ 41,900 Payable to brokers or dealers and clearing organizations........................................$145,086 190,810 Payable to customers (including free credit balances of $251,484, and $230,243 respectively).............. 293,216 270,761 Securities sold, but not yet purchased,at market value 2,315 1,420 Accrued expenses and other liabilities................ 41,411 43,803 ------- ------- Total liabilities..................................... 482,028 548,694 ------- ------- Commitments and Contingencies......................... STOCKHOLDERS' EQUITY Preferred stock, par value $.001,authorized 10,000.... shares; none outstanding............................. Nonvoting common stock, par value $.001, authorized 3,000 shares; none outstanding....................... Voting common stock, par value $.001, authorized 30,000 shares; issued 7,579 shares................... 8 8 Additional paid-in capital............................ 39,582 39,582 Retained earnings..................................... 56,846 52,091 Treasury Stock, at cost - 820 shares and 582 shares, respectively......................................... (9,630) (6,373) ------- ------- Total stockholders' equity............................ 86,806 85,308 ------- ------- Total liabilities and stockholders' equity............$568,834 $634,002 ======= =======
The accompanying notes are an integral part of the unaudited consolidated financial statements. BHC FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)
Quarters ended ------------------------- MARCH 29, MARCH 31, 1996 1995 ----------- ----------- Revenues: Clearing and execution fees...................... $8,865 $7,309 Margin interest.................................. 6,266 6,449 Other interest................................... 1,275 793 Commissions...................................... 2,581 1,216 Other............................................ 4,989 3,232 ------ ------ Total revenues.................................. 23,976 18,999 Interest expense................................ 3,627 4,176 ------ ------ Net revenues.................................... 20,349 14,823 ------ ------ Expenses, excluding interest: Employees' compensation and benefits............. 5,809 4,798 Floor brokerage and clearing..................... 1,662 1,271 Communications................................... 907 513 Occupancy and equipment.......................... 1,587 1,515 Other............................................ 2,156 2,052 ------ ------ Total expenses, excluding interest.............. 12,121 10,149 ------ ------ Income before income taxes........................ 8,228 4,674 Provision for income taxes........................ 3,256 1,772 ------ ------ Net income........................................ $4,972 $2,902 ===== ===== Earnings per share $ 0.70 $ 0.40 ===== ===== Weighted average shares outstanding 7,104 7,244 ===== =====
The accompanying notes are an integral part of the unaudited consolidated financial statements. 5 BHC FINANCIAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Quarters ended ------------------------- MARCH 29, MARCH 31, 1996 1995 ----------- ---------- Cash flows from operating activities: Net income ...................................... $4,972 $2,902 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................... 497 669 (Increase) decrease in operating assets: Cash and securities segregated under federal regulations.................................... (18) (14) Receivable from brokers or dealers and clearing organizations.................................. 62,929 (134,675) Receivable from customers....................... 7,887 (13,396) Securities owned................................ (5,565) 420 Other assets.................................... 3,074 2,912 Increase (decrease) in operating liabilities: Payable to brokers or dealers and clearing organizations.................................. (45,724) 141,999 Payable to customers............................ 22,455 9,550 Securities sold, but not yet purchased.......... 895 (1,489) Accrued expenses and other liabilities.......... (2,392) 10,335 ------- ------ Cash provided by operating activities........... 49,010 19,213 ------- ------ Cash flows from financing activities: Payments on short term loans, net.................(41,900) (2,100) Principal payments under capital lease obligations - (292) Dividends paid.................................... (210) (144) Payments for purchases of common stock for treasury(3,280) (1,229) Proceeds from issuance of stock options........... 16 - ------ ------ Cash used in financing activities.................(45,374) (3,765) ------ ------ Cash flows from investing activities: Purchases of furniture, equipment and leasehold improvements..................................... (602) (355) ------ ------ Cash used in investing activities................ (602) (355) ------ ------ Increase in cash and cash equivalents............. 3,034 15,093 Cash and cash equivalents, beginning of period.... 21,517 34,538 ------ ------ Cash and cash equivalents, end of period..........$24,551 $49,631 ====== ====== Supplementary Information: Cash paid for interest $5,929 $5,350 ====== ====== Cash paid for income taxes $ 307 $52 ====== ======
The accompanying notes are an integral part of the unaudited consolidated financial statements. BHC FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands) 1. Summary of Significant Accounting Policies: The accompanying consolidated financial statements include the accounts of BHC Financial, Inc. (the "Parent") and its wholly-owned subsidiaries (collectively the "Company"), the most significant of which are BHC Securities, Inc.("BHC"), TradeStar Investments, Inc. ("TradeStar"), BHCM Inc. ("BHCM") and netVest, Inc. ("netVest"). All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements were prepared in accordance with generally accepted accounting principles which require the use of management's estimates. The Company prepares its interim consolidated financial statements as of the last Friday of the period. The consolidated financial statements for the quarters ended March 29, 1996 and March 31, 1995 are unaudited, and should be read in conjunction with the consolidated financial statements and notes thereto for the year-ended December 31, 1995 included in the Company's Annual Report to Stockholders. In the opinion of management, the interim consolidated financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation of the information set forth therein. The results of operations for the quarter ended March 29, 1996 are not necessarily indicative of the operating results to be expected for the full year or any other period. BHC, TradeStar and BHCM are registered broker-dealers in securities under the Securities Exchange Act of 1934, as amended (the "1934 Act"). BHC provides integrated support and processing services to securities brokerage affiliates of banks and other financial institutions and TradeStar provides discount retail brokerage services and markets BHC's processing and support services to community banks. BHCM, a third party marketer, sells investment products including fixed and variable annuities and insurance. netVest provides telephone and PC inquiry, trading and quote services. Earnings per share is computed based on the weighted average number of shares outstanding and the effect of common stock equivalents if dilutive. Total revenues include related party revenues of $4,417, and $2,963, respectively; and interest expense includes related party interest expense of $1,719, and $1,062, respectively for the quarters ended March 29, 1996 and March 31, 1995. 2. Net Capital Requirements: BHC is subject to the Securities and Exchange Commission's ("SEC") Uniform Net Capital Rule (Rule 15c3-1 under the 1934 Act) which requires the maintenance of minimum net capital. At March 29, 1996, BHC had net capital of $64,951, or approximately 17% of aggregate debit balances, which was $57,417 in excess of its minimum net capital requirement of $7,534. BHC FINANCIAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) 3. Litigation and Claims: On January 21, 1994, BHC received notice that a purported holder of a brokerage account with a BHC client filed a complaint in the Supreme Court of the State of New York which alleges that BHC received, in violation of New York statutory and common law, cash payments from market makers in certain securities (referred to as payment for order flow) in return for BHC executing customer orders with such market makers. In the complaint, the plaintiff seeks injunctive relief and damages, a return of cash payments for order flow, in addition to clearing and execution fees earned by BHC from January 1, 1990, certification of this matter as a class action, punitive damages, and costs and attorneys' fees in an unspecified amount. Payment for order flow is common practice within the securities industry. BHC removed this to the United States District Court for the Southern District of New York, and the federal court on December 18, 1995, dismissed the complaint for failure to state a claim upon which relief can be granted. The plaintiff has appealed the dismissal. In the opinion of management, the ultimate liability, if any, resulting from this matter will have no material effect on the Company's consolidated financial position. The materiality of this matter on the Company's future operating results depends on the level of future results of operations, as well as on the timing and amount of the ultimate outcome. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL The Company's principal source of revenue is derived from providing processing and support services to securities brokerage affiliates of banks and other financial institutions and broker dealers. In addition, increased revenue is derived from commissions generated by the Company's retail brokerage subsidiary, TradeStar Investments, Inc. The Company's revenues are directly affected by trading volume and the level of interest rates charged on margin debit balances. The results of operations for the quarter ended March 29, 1996 are not necessarily indicative of the operating results to be expected for the full year or any other period. RESULTS OF OPERATIONS Business conditions related to the provision of processing and support services to the securities brokerage affiliates of banks and other financial institutions and broker dealers were favorable in the first quarter of 1996 compared to the first quarter of 1995. Lower interest rates in the first quarter of 1996 when compared to the first quarter of 1995 have resulted in increased stock and mutual fund activity. 9 The information in the tables below should be considered when reading the discussion and analysis of operating results:
Percent Change For the Quarters Ended Increase March 29, 1996 March 31, 1995 (Decrease) -------------- -------------- ------------- Total transactions processed (in thousands) 565.0 369.9 53 % Daily average transactions processed 8,968 5,871 53 % Transaction days in quarter 63 63 - % Average margin debit balances (in thousands) $332,206 $323,961 3 % Average broker call rate 7.11% 7.55%
First Quarter 1996 Compared to First Quarter 1995 For the first quarter of 1996, net revenues increased $5,526,000, or 37%, over the first quarter of 1995. The increase was a result of increases in clearing and execution fees, commissions, net interest income and other interest income and other income ancillary to the securities brokerage industry. Clearing and execution fees increased $1,556,000 to $8,865,000, a 21% increase, which was due to a 53% increase in transactions processed offset by a 21% decrease in the average price per ticket. Generally in periods where daily transaction volumes are increasing, clearing and execution revenue will increase, while clearing and execution revenue per ticket will decline. This is due to BHC's volume discount program which rewards clients for high transaction volumes by reducing the charge per transaction when various volume levels are achieved. Net interest income (margin interest and other interest less interest expense) increased $848,000 to $3,914,000 in the first quarter of 1996 when compared to the same period last year. Margin interest decreased $183,000 due to the decrease in the average broker call rate of 44 basis points. Offsetting this drop in interest rates was an increase of $8.2 million in average margin balances outstanding which averaged $332.2 million at March 29, 1996 and $324.0 million at March 31, 1995. This increase in average balances was despite the loss of a single margin account of $30 million in the second quarter of 1995 as a result of management's determination that the account was unduly concentrated. Other interest income of $1,275,000 in the first quarter of 1996 increased $482,000, or 61% over the first quarter of 1995. The increase was due to increased securities lending business where BHC acts as both the borrower and the lender and makes a spread on the transaction. A decrease in the average Federal Funds rate of approximately 45 basis points led to a decrease in the Company's cost of borrowing, which resulted in interest expense decreasing $549,000, or 13%. Commissions on retail sales from TradeStar increased $1,365,000, or 112%, in the first quarter of 1996 compared to 1995. This was the result of transaction volume which was up 89% in the first quarter of 1996 when compared to the first quarter of 1995. Customer accounts purchased in the third quarter of 1995 represented 54% of the increase and the remainder of the increase was due to growth in retail activity. In the first quarter of 1996, other income increased $1,757,000, or 54%, over 1995. The increase was due to increases in the payments for order flow on some listed and some over-the-counter transactions, administrative fees related to money market and mutual fund transactions, revenues generated by netVest Inc.'s VoiceQuote product, and other fees ancillary to the processing of securities transactions. Expenses, excluding interest, increased by 19% in the first quarter of 1996 compared to the same period in 1995, primarily related to increases in employees' compensation and benefits, floor brokerage and clearing charges and communication costs. Employees' compensation and benefits increased $1,011,000, or 21%, in the first quarter of 1996 when compared to the first quarter of 1995. This increase was primarily due to the effect of staff additions related to the business units acquired in the third quarter of 1995 and normal and recurring salary adjustments as well as to increased bonus rates based on the performance of the Company in the first quarter of 1996. The number of average full time employees increased 14% (including business units acquired) over the first quarter of 1995. The increase in floor brokerage and clearing charges of $391,000, or 31%, in the first quarter of 1996 when compared to the first quarter of 1995, was related to the increase in transactions processed. Although these costs vary somewhat directly with transactions processed, they represented approximately 19% and 17% of clearing and execution fees for the first quarters of 1996 and 1995, respectively. Occupancy and equipment costs increased $72,000, or 5%, in the first quarter of 1996 when compared to the first quarter of 1996, due in part to increased variable costs related to mutual fund processing. Communications expenses increased $394,000, or 77%, in the first quarter of 1996 when compared to the first quarter of 1995, due in part to the costs associated with the PC and telephone inquiry, trading and quote services offered through netVest, Inc., which was acquired in the third quarter of 1995 and increased quote costs related to the Banquote product which provides low cost quote services to BHC's Clients. Other operating expenses increased $104,000, or 5%, in the first quarter of 1996 when compared to the first quarter of 1995. The primary reason for the increase was increased promotional expenses and state franchise taxes. The provision for income taxes increased $1,484,000 and the effective rate was 40% for the first quarter of 1996 and 38% for the first quarter of 1995. The increase in the effective tax rate was due to a reduction in state tax exempt income. LIQUIDITY AND CAPITAL RESOURCES At March 29, 1996, 96% of assets consisted of cash, assets readily convertible into cash, and assets collateralized by marketable securities. Stockholders' equity was $86.8 million at March 29, 1996, up $1.5 million, or 2%, from December 31, 1995, which was due to the first quarter's earnings, offset by the repurchase of shares of the Company's common stock and dividends declared. The Company has credit arrangements totaling $215,000,000 with several banks. These demand loans, which are used to finance receivables in customers' margin accounts, bear interest at the respective bank's overnight borrowing rate and are collateralized by securities held in customers' margin accounts and the Company's cash equivalents. At March 29, 1996, the Company had no borrowings under these arrangements. In the opinion of management, the Company's existing credit arrangements will be adequate to meet the Company's short-term operating capital needs. On April 17, 1996, the Company's Board of Directors declared a $.03 per share dividend payable May 15, 1996 to stockholders of record on May 1, 1996, resulting in a payment of approximately $196,000. The Company's Board of Directors previously authorized the repurchase, from time to time, of up to 1,099,000 of the Company's common stock in the open market, of which 828,000 have been repurchased as of March 29, 1996. BHC is subject to the requirements of the SEC and the NYSE, relating to liquidity, minimum net capital levels and the use of customer funds and securities. BHC has always operated in excess of the applicable minimum net capital requirements. See Note 2 of Notes to Unaudited Consolidated Financial Statements. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None (b) Reports on Form 8-K: Date of Report Item -------------- ------- March 13, 1996 5 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BHC FINANCIAL, INC. DATE:May 8, 1996 BY: /s/WILLIAM T. SPANE, JR. ------------------------ William T. Spane Chairman of the Board Chief Executive Officer and President (Principal Executive Officer) DATE:May 8, 1996 BY: /s/ LAWRENCE E. DONATO ------------------------- Lawrence E. Donato Senior Vice President Chief Financial Officer and Treasurer (Principal Financial Officer) DATE:May 8, 1996 BY: /s/ RICHARD M. BARE ------------------------- Controller 13 Exhibit Index Exhibit No. Description - - ----------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
BD This schedule contains summary financial information extracted from BHC Financial's first quarter 1996 unaudited consolidated financial statements and is qualified in its entirety by reference to such unaudited consolidated financial statements. 1000 3-MOS DEC-31-1996 JAN-01-1996 MAR-29-1996 24551 377589 1334 124117 17067 4921 568834 0 345428 1326 132959 2315 0 0 0 8 86798 568834 140 7541 2581 0 13714 3627 5809 8228 8228 0 0 4972 .70 .70
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