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 quarter ended September 30, 1995
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8186
Inter-Regional Financial Group, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1228350
(State or other jurisdiction (IRS Employer
of incorporation of organization) Identification
Number)
Dain Bosworth Plaza, 60 South Sixth Street
Minneapolis, Minnesota 55402-4422
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 371-7750
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
As of October 31, 1995, the Company had 8,067,681 shares of
common stock outstanding.
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995
INDEX
Page
I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
Signatures
Index of Exhibits
Exhibits
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1995 1994
(Unaudited)
----------------------------
Assets:
Cash and cash equivalents $20,020 $22,764
Cash and short-term investments
segregated for regulatory purposes 459,000 338,000
Receivable from customers 703,934 710,647
Receivable from brokers and dealers 224,970 207,512
Securities purchased under
agreements to resell 300,196 198,561
Trading securities owned, at market 412,089 319,222
Equipment, leasehold improvements and
buildings, net 30,943 30,082
Other receivables 67,921 78,787
Deferred income taxes 29,001 29,001
Other assets 15,787 18,035
------ ------
$2,263,861 $1,952,611
========= =========
Liabilities and Shareholders' Equity:
Liabilities:
Short-term borrowings $181,537 $150,193
Drafts payable 38,929 35,021
Payable to customers 935,474 868,541
Payable to brokers and dealers 241,377 212,954
Securities sold under repurchase
agreements 268,951 173,972
Trading securities sold, but not yet
purchased, at market 184,988 116,883
Accrued compensation 76,785 68,755
Other accrued expenses and accounts
payable 71,863 77,344
Accrued income taxes 6,747 6,505
Subordinated and other debt 42,697 47,023
------ ------
2,049,348 1,757,191
--------- ---------
Shareholders' equity:
Common stock 1,008 1,005
Additional paid-in capital 74,575 73,924
Retained earnings 138,930 120,491
------- -------
214,513 195,420
------- -------
$2,263,861 $1,952,611
========= =========
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per-share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
--------------------------------------
Revenues:
Principal transactions $44,608 $34,347 $135,084 $101,193
Commissions 44,869 30,725 118,542 101,051
Investment banking and
underwriting 23,059 20,107 59,935 72,353
Interest 28,622 19,958 81,031 52,224
Asset management 7,285 5,180 19,384 13,684
Correspondent clearing 3,525 3,137 9,048 9,080
Other 8,196 4,718 18,382 17,256
----- ----- ------ ------
Total revenues 160,164 118,172 441,406 366,841
Interest expense (17,058) (10,307) (49,086) (25,840)
------- ------- ------- -------
Net revenues 143,106 107,865 392,320 341,001
------- ------- ------- -------
Expenses excluding interest:
Compensation and benefits 91,956 68,398 253,342 216,466
Communications 10,127 9,335 30,039 27,021
Occupancy and equipment
rental 8,186 7,042 24,341 20,514
Travel and promotional 4,890 4,727 14,188 13,803
Floor brokerage and
clearing fees 2,713 2,360 7,734 7,057
Other 8,268 6,662 23,437 21,092
----- ----- ------ ------
Total expenses excluding
interest 126,140 98,524 353,081 305,953
------- ------ ------- -------
Earnings:
Earnings before income
taxes 16,966 9,341 39,239 35,048
Income tax expense (6,150) (3,496) (14,224) (13,118)
------ ------ ------- -------
Net earnings $10,816 $5,845 $25,015 $21,930
====== ===== ====== ======
Earnings per common and
common equivalent share:
Primary $1.29 $.71 $3.00 $2,61
==== === ==== ====
Fully diluted $1.28 $.70 $2.95 $2.61
==== === ==== ====
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended September 30,
1995 1994
-------------------------------
Cash flows from operating
activities:
Net earnings $25,015 $21,930
Adjustments to reconcile earnings
to cash provided (used) by
operating activities:
Depreciation and amortization 6,725 5,860
Deferred income taxes (1,005) (2,868)
Other non-cash items 6,558 5,448
Cash and short-term investments
segregated for regulatory purposes (121,000) 218,495
Net payable to brokers and dealers 10,965 (54,386)
Securities purchased under
agreements to resell (101,635) (270,621)
Net trading securities owned and
trading securities sold, but not
yet purchased (24,762) 62,708
Short-term borrowings and drafts
payable of securities companies 50,252 (11,238)
Net payable to customers 73,646 (143,503)
Securities sold under repurchase
agreements 94,979 175,515
Accrued compensation 8,030 (26,574)
Other 929 (9,986)
--- ------
Cash provided by operating activities 28,697 46,599
------ ------
Cash flows from financing activities:
Proceeds from:
Issuance of common stock 643 409
Subordinated and other debt -- 17,237
Payments for:
Revolving credit agreement, net (15,000) --
Subordinated and other debt (4,326) (1,767)
Dividends on common stock (3,882) (3,250)
Purchase of common stock (2,705) (3,265)
------ ------
Cash provided (used) by financing
activities (25,270) 9,364
------- -----
Cash flows from investing activities:
Proceeds from investment dividends
and sales 1,776 641
Payments for equipment, leasehold
improvements and other (7,947) (9,733)
------ ------
Cash (used) for investing activities (6,171) (9,092)
------ ------
Increase/(decrease) in cash and cash
equivalents (2,744) 46,871
Cash and cash equivalents:
At beginning of period 22,764 14,047
------ ------
At end of period $20,020 $60,918
====== ======
<FN>
Income tax payments totaled $13,967,000 and $19,619,000 and
interest payments totaled $47,620,000 and $25,092,000 during the
nine months ended September 30, 1995 and 1994, respectively.
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Condensed Consolidated Financial Statements
The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with the
instructions for Form 10-Q and do not include all the
information and footnotes required by generally accepted
accounting principles for complete financial statements and
should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1994. In
the opinion of management, all adjustments necessary for a
fair presentation of such interim consolidated financial
statements have been included. All such adjustments are of a
normal recurring nature. The results of operations for the
three-month and nine-month periods ended September 30, 1995,
are not necessarily indicative of results expected for
subsequent periods.
Certain prior year amounts in the financial statements have
been reclassified to conform to the 1995 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with Item 7
(Management's Discussion and Analysis) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
Summary
Consolidated net earnings increased 85 percent to $10.8
million and net revenues increased 33 percent to $143.1 million
during the 1995 third quarter over the same quarter of 1994 as
the Company's revenues grew faster than expenses. The Company's
Retail business lines posted record revenues during the 1995
third quarter and the Company's Corporate Capital and Fixed
Income business lines posted revenues 38 and 33 percent higher,
respectively, than the third quarter of 1994. Consolidated net
earnings increased $3.1 million, or 14 percent, while net
revenues increased $51.3 million, or 15 percent, for the first
nine months of 1995 versus the same period of 1994.
Earnings comparisons for the 1995 third quarter and year-to-
date period ended September 30, 1995, were positively impacted by
two primary factors : (1) the relative stability in interest
rates in the United States during the 1995 period versus 1994
(the Federal Reserve Board initiated the first of a series of
interest rate increases during the latter portion of the 1994
first quarter) and (2) the investments that the Company made in
growing its primary businesses during 1994 that enabled the
Company to capitalize on the second and third quarter 1995
resurgence of stock and bond markets. Earnings comparisons for
the quarter and year-to-date periods were negatively impacted by:
(1) the effects of operating expense increases associated with
the significant growth during 1994 in the number of office
locations and investment executives and (2) increased
compensation and benefits expenses due to higher levels of
revenue and profit-based incentive compensation expense.
Finally, net interest income continued to be a strong contributor
to consolidated earnings for the quarter and nine-month periods
due to favorable spreads on customer balances and an increase in
average margin loan balances compared to 1994.
Results of Operations:
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
--------------------------------------
Net revenues:
Dain Bosworth Incorporated $93,045 $67,603 $256,336 $216,247
Rauscher Pierce Refsnes,
Inc. 49,020 39,261 133,805 122,353
Corporate, other and
eliminations 1,041 1,001 2,179 2,401
----- ----- ----- -----
$143,106 $107,865 $392,320 $341,001
======= ======= ======= =======
Earnings (Loss) before
income taxes:
Dain Bosworth Incorporated $13,501 $6,708 $29,355 $24,004
Rauscher Pierce Refsnes,
Inc. 5,320 3,137 12,740 12,632
Corporate, other and
eliminations (1,855) (504) (2,856) (1,588)
------ ---- ------ ------
$16,966 $9,341 $39,239 $35,048
====== ===== ====== ======
Principal transaction revenues increased $10.3 million, or
30 percent, during 1995 third quarter versus the third quarter of
1994 due primarily to improved over-the-counter equity and
taxable fixed income trading results. On a year-to-date basis
the largest component of the increase was improved revenues in
taxable fixed income trading with smaller improvements in trading
results for over-the-counter equity and tax-exempt fixed income
securities. The improved trading results for both the quarter
and year-to-date periods were primarily due to the increased
securities prices as well as increased trading volumes associated
with a larger institutional fixed income sales force and more
stable interest rate and financial market environments than were
present in 1994.
Commission revenues increased $14.1 million, or 46 percent, for
the quarter and $17.5 million, or 17 percent, for the nine month
period as a result of increased agency sales of over-the-counter
equity and listed equity securities by larger retail and
institutional sales forces. Such sales forces were approximately
4 percent larger for the quarter and 8 percent larger year-to-
date than the comparable 1994 periods. Also contributing to the
increases were higher New York Stock Exchange average daily
trading volumes and higher securities prices. While commission
revenues generated from sales of mutual fund securities were
slightly higher in the third quarter of 1995 than the third
quarter of 1994, they were slightly lower on a year-to-date
basis.
Investment banking and underwriting revenues increased $3.0
million, or 15 percent, in the third quarter and declined $12.4
million, or 17 percent, in the nine months ended September 30,
1995, versus the comparable periods of 1994. The increase in
revenues for the quarter was primarily the result of increased
fees and underwriting revenues earned from municipalites and
other state and local governmental entities as well as increased
underwriting activity from corporate clients. The decrease over
the nine-month period is primarily due to first-half 1995
declines in corporate underwriting transactions and fees and
fewer syndicate participations. These declines were partially
offset by increases in fees and underwriting revenues earned from
municipalities and other state and local governmental entities.
Net interest income increased $1.9 million, or 21 percent,
for the quarter and $5.6 million, or 21 percent, for the first
three quarters of 1995 over prior year levels due primarily to
increased margin loan balances, which resulted largely from
increases in the average number of retail investment executives
(3 percent for the quarter and 7 percent year-to-date), increased
individual investor activity by a larger number of Dain Bosworth
and Rauscher Pierce Refsnes customers and increased securities
lending and borrowing activities. Partially offsetting these
positive factors impacting net interest income was additional
interest expense incurred due to $27 million of subordinated,
long-term debt entered into by Dain Bosworth and Rauscher Pierce
Refsnes in September and October of 1994. As long as favorable
interest rate spreads are maintained and the level of interest-
bearing accounts remains stable, the Company expects net interest
income to continue to be a significant component of its earnings.
The Company continues to examine alternative cash management
products and services that it may offer to customers with credit
balances in their accounts. Management believes that
implementation of new cash management products and services would
not have a material effect on net earnings.
Asset management revenues increased $2.1 million, or 41
percent, for the quarter and $5.7 million, or 42 percent, for the
year-to-date period over prior year levels from higher levels of
assets in managed account programs at Dain Bosworth and Rauscher
Pierce Refsnes, as well higher levels of assets under management
at IFG Asset Management Services, Inc.
Approximately $1.6 million of the $3.5 million, or 74
percent increase in other revenues for the quarter was the result
of gains related to the sale of securities previously obtained as
part of compensation for underwriting activity. The remainder
of the increase for the quarter, as well as the majority of the
increase for the year-to-date period, relates principally to
increased service, IRA and other fees charged to Dain Bosworth
and Rauscher Pierce Refsnes customers.
Compensation and benefits expense increased $23.6 million,
or 34 percent, during the 1995 third quarter and $36.9 million,
or 17 percent, for the first three quarters of 1995 over the
comparable 1994 periods. The increases for the quarter and 9-
month periods, respectively, are due primarily to increased
commissions paid to revenue-producing employees generating higher
levels of operating revenues, increased incentive compensation
accruals due to higher levels of year-to-date earnings, increased
transition pay resulting from the recruitment of significant
numbers of investment executives during 1994 and a 3-percent
increase and 6-percent increase, respectively, in the average
number of employees. Adjustments to incentive compensation
accruals at the parent company based on increased levels of
consolidated earnings are the principal reasons for the increases
in the size of the "corporate and other" pretax loss for both
the quarter and year-to-date periods.
Expenses other than compensation and benefits increased $4.1
million, or 13 percent, for the quarter and $10.3 million, or 11
percent, year-to-date largely as a result of head count and
volume-driven increases in communications and market data
services, increased occupancy costs related to the larger number
and expansion of existing operating office locations and
increased legal expenses.
During the 1995 first half, management took steps to selectively
pare expenses and reduce or defer spending in light of the market
uncertainty in the first half of the year. Nonetheless,
management anticipates operating expenses will be somewhat higher
during the remainder of 1995 compared to 1994, in part due to the
effects of significant growth investments made during the last
three quarters of 1994. While the environment in which the
Company operates improved during the 1995 second and third
quarters, management anticipates exercising continued selectivity
regarding investments in the 1995 fourth quarter and also
anticipates continued efforts to control expenses throughout the
organization.
LIQUIDITY AND CAPITAL RESOURCES
As described in Note K to the Consolidated Financial
Statements of the Company's 1994 Annual Report on Form 10-K,
Regional Operations Group, Dain Bosworth and Rauscher Pierce
Refsnes must comply with certain regulations of the Securities
and Exchange Commission and the New York Stock Exchange, Inc.,
measuring capitalization and liquidity. All three broker-dealers
continue to operate above minimum net capital standards. At
September 30, 1995, net capital was $59.7 million at Regional
Operations Group, which was 8.0 percent of aggregate debit
balances and $22.3 million in excess of the 5-percent
requirement. At September 30, 1995, Dain Bosworth and Rauscher
Pierce Refsnes had net capital of $42.5 million and $16.4
million, respectively, in excess of the $1 million requirement.
During the second quarter of 1995, the Company entered into
a $15 million revolving credit facility to replace its $15
million facility that was set to expire on June 30, 1995. The
new facility expires on June 30, 1997. As was the case with the
expiring facility, the new agreement will be used for advances to
subsidiaries and general corporate purposes.
The Company anticipates entering into a seven-year operating
lease during the fourth quarter of 1995 to finance various
leaseholds and furnishings for the new Dallas headquarters space
Rauscher Pierce Refsnes began to occupy September 1, 1995. The
total commitment for the lease is expected to be between $4 and
$5 million.
In April 1994 the Company's Board of Directors authorized a
plan to repurchase up to 400,000 shares of the Company's common
stock. Purchases of the common stock will be made from time to
time at prevailing market prices in the open market, by block
purchases, or in privately negotiated transactions. The
repurchased shares will be used for the Company's employee stock
option and other benefit plans, or for other corporate purposes.
Through December 31, 1994, the Company had repurchased 162,500
shares in accordance with this program at a cost of $3.6 million.
During the first three quarters of 1995, 90,300 shares were
repurchased at a cost of approximately $2.8 million.
On October 31, 1995, the Company's Board of Directors
declared a three-for-two stock split to be effected in the form
of a 50-percent stock dividend payable on December 20, 1995, to
shareholders of record at the close of business on December 6,
1995. The Company believes that this action will help broaden
public interest in and improve trading liquidity of the Company's
stock. After the stock dividend, there will be approximately
12.1 million of the Company's shares outstanding. As part of
this action, the Company's Board of Directors increased the
numbers of shares authorized to be repurchased from 400,000 to
600,000. Approximately 219,000 shares (on a post-split basis)
remained to be repurchased under the share-repurchase program as
of October 31, 1995.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 - Agreement between registrant and
David A. Smith.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
One report on Form 8-K was filed during the quarter ended
September 30, 1995.
Item reported:
Item 5 - Other Events - (Press release regarding resignation
of David A. Smith as director and executive officer of registrant
and as Chairman, President and Chief Executive Officer of
Rauscher Pierce Refsnes, Inc., a subsidiary of registrant).
Date of Report - September 27, 1995.
Financial Statements Filed - None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTER-REGIONAL FINANCIAL GROUP, INC.
Registrant
Date: November 10, 1995 By Louis C. Fornetti
---------------------
Louis C. Fornetti
Executive Vice President,
Chief Financial Officer and
Treasurer
By Angela M. Chicoine
---------------------
Angela M. Chicoine
Vice President and Controller
(Principal Accounting Officer)
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1995
Exhibit 10.1 - Agreement between registrant and David A. Smith.
Filed herewith.
Exhibit 11 - Computation of Net Earnings Per Share
Filed herewith.
Exhibit 27 - Financial Data Schedule
Filed herewith.