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 March 31, 1996
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 April 30, 1996, the Company had 12,106,819 shares of common
stock outstanding.
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
Page
----
I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet......................... 1
Consolidated Statements of Operations.............. 2
Consolidated Statements of Cash Flows.............. 3
Notes to Consolidated Financial Statements......... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 5
II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K................... 7
Signatures......................................... 8
Index of Exhibits.................................. 9
Exhibits........................................... 10
I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
1996 1995
--------------------------
(Unaudited)
Assets:
Cash and cash equivalents $31,289 $26,167
Cash and short-term investments
segregated for regulatory purposes 456,000 411,000
Receivable from customers 766,283 763,793
Receivable from brokers and dealers 292,313 257,717
Securities purchased under
agreements to resell 224,695 80,233
Trading securities owned,
at market 339,259 322,892
Equipment, leasehold improvements
and buildings, net 30,363 31,108
Other receivables 67,435 80,838
Deferred income taxes 33,205 31,993
Other assets 15,944 16,167
--------- ---------
$2,256,786 $2,021,908
========= =========
Liabilities and Shareholders' Equity:
Liabilities:
Short-term borrowings $187,590 $97,000
Drafts payable 45,301 50,431
Payable to customers 980,827 982,098
Payable to brokers and dealers 310,935 254,542
Securities sold under repurchase
agreements 74,059 120,808
Trading securities sold, but not
yet purchased, at market 223,038 61,050
Accrued compensation 64,251 95,988
Other accrued expenses and accounts
payable 78,606 84,973
Accrued income taxes 16,883 11,114
Subordinated and other debt 37,138 41,410
--------- ---------
2,018,628 1,799,414
--------- ---------
Shareholders' equity:
Common stock 1,512 1,508
Additional paid-in capital 78,533 76,623
Retained earnings 158,113 144,363
--------- ---------
238,158 222,494
--------- ---------
$2,256,786 $2,021,908
========= =========
<FN>
See accompanying notes to consolidated financial statements.
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per-share amounts)
Three Months Ended March 31,
1996 1995
----------------------------
Revenues:
Commissions $54,860 $36,170
Principal transactions 46,478 44,137
Investment banking and underwriting 26,142 17,888
Interest 26,930 25,299
Asset management 8,104 5,715
Correspondent clearing 3,829 2,579
Other 4,436 2,240
------- -------
Total revenues 170,779 134,028
Interest expense (14,745) (15,187)
------- -------
Net revenues 156,034 118,841
------- -------
Expenses excluding interest:
Compensation and benefits 97,112 77,896
Communications 10,084 10,052
Occupancy and equipment rental 8,589 7,981
Travel and promotional 4,796 4,343
Floor brokerage and clearing fees 2,617 2,471
Other 9,547 7,372
------- -------
Total expenses excluding interest 132,745 110,115
------- -------
Earnings:
Earnings before income taxes 23,289 8,726
Income tax expense (8,209) (3,163)
------- -------
Net earnings $15,080 $5,563
======= =======
Earnings per common and common
equivalent share:
Primary and fully diluted $1.20 $.45
======= =======
Dividends per share $.11 $.10-2/3
======= =======
<FN>
See accompanying notes to consolidated financial statements.
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months ended March 31,
1996 1995
-----------------------------
Cash flows from operating activities:
Net earnings $15,080 $5,563
Adjustments to reconcile net
earnings to cash provided (used) by
operating activities:
Depreciation and amortization 2,205 2,610
Deferred income taxes (1,212) (539)
Other non-cash items 3,231 1,800
Cash and short-term investments
segregated for regulatory purposes (45,000) (30,000)
Net receivable from/payable to
brokers and dealers 21,797 34,449
Securities purchased under agreements
to resell (144,462) (249,093)
Net trading securities owned and
trading securities sold, but not
yet purchased 145,621 53,230
Short-term borrowings and drafts
payable of securities companies 85,460 (56,647)
Net payables to customers (3,761) 65,929
Securities sold under repurchase
agreements (46,749) 193,959
Accrued compensation (31,737) (23,336)
Other 13,224 17,554
------- -------
Cash provided by operating activities 13,697 15,479
------- -------
Cash flows from financing activities:
Proceeds from:
Issuance of common stock 355 320
Payments for:
Subordinated and other debt (4,272) (1,753)
Dividends on common stock (1,330) (1,291)
Revolving credit agreement, net - (15,000)
------- -------
Cash (used) by financing activities (5,247) (17,724)
------- -------
Cash flows from investing activities:
Proceeds from investment dividends
and sales 58 25
Payments for equipment, leasehold
improvements and other (3,386) (3,117)
------- -------
Cash (used) for investing activities (3,328) (3,092)
------- -------
Increase (decrease) in cash and cash
equivalents 5,122 (5,337)
Cash and cash equivalents:
At beginning of period 26,167 22,764
------- -------
At end of period $31,289 $17,427
======= =======
<FN>
Income tax payments totaled $3,653,000 and $187,000 and interest
payments totaled $13,049,000 and $13,984,000 during the three
months ended March 31, 1996 and 1995, respectively.
During the three months ended March 31, 1996, the Company had
non-cash financing activity of $1,559,000 associated with
crediting of common stock to Wealth Accumulation Plan
participants.
See accompanying notes to consolidated financial statements.
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, 1995. 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
period ended March 31, 1996, 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 1996 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, 1995.
Summary
Consolidated net earnings were $15.1 million in the 1996 first
quarter, a Company record and an increase of $9.5 million or 171
percent over the first quarter of 1995. Net revenues for the
quarter were also a Company record $156.0 million, up $37.2
million or 31 percent over the prior year quarter. The Company,
along with the rest of the securities industry, benefited from
the relative strength of financial markets that existed since the
second half of 1995. Compared with the first quarter of 1995,
the Company also benefited from a larger portion of its business
mix being comprised of higher margin corporate investment banking
activities as well as from increased productivity across nearly
all of its business lines that management believes resulted from:
(1) previous investments in the size and quality of its private
client sales forces; (2) refocusing of the Equity Capital Markets
Group within Dain Bosworth; and (3) cost-containment actions
taken within the Company's Fixed Income Groups.
Results of Operations:
Three Months ended March 31,
(Unaudited, in thousands) 1996 1995
----------------------------
Net Revenues:
Dain Bosworth Incorporated $103,312 $76,388
Rauscher Pierce Refsnes, Inc. 51,783 41,799
Corporate, other and eliminations 939 654
------- -------
$156,034 $118,841
======= =======
Earnings (Loss) before income taxes:
Dain Bosworth Incorporated $17,159 $5,685
Rauscher Pierce Refsnes, Inc. 6,531 3,349
Corporate, other and eliminations (401) (308)
------- -------
$23,289 $8,726
======= =======
Commission revenues increased 18.7 million or 52 percent during
the first quarter of 1996 over the first quarter of 1995 as a
result of higher sales of mutual funds, over-the-counter equity
securities sold on an agency basis and listed securities to
individual and institutional investors. Contributing to the
increase was a 28-percent increase in the New York Stock
Exchange's average daily trading volume and general increases in
securities prices.
The $2.3 million or 5 percent increase in principal transaction
revenues was primarily due to improved sales and trading results
in: (1) over-the-counter equity securities driven chiefly by
strong equity markets and increased demand for such securities by
the Company's individual and institutional customers; and (2)
taxable fixed income securities driven principally by
comparatively stronger taxable fixed income markets and increased
demand for corporate fixed income securities from the Company's
individual and institutional customers as a result of
comparatively higher yields offered by these products over
alternative investments.
Investment banking and underwriting revenues increased $8.3
million or 46 percent during the quarter over the prior year.
The increase was primarily the result of an increase in mergers
and acquisitions and underwriting services performed for the
Company's corporate clients.
Net interest income increased $2.1 million or 21 percent during
the first quarter over prior year levels as the positive effects
of increases in customer margin and credit balances were
partially offset by slight decreases in interest rate spreads
earned on such balances. During the 1996 second quarter, the
Company plans to begin offering new cash management products to
certain segments of its customers. Management believes that
implementation of new cash management products and services will
result in higher asset management revenues, but will be offset by
lower net interest income and, accordingly, is not initially
expected to have a material effect on net earnings. As long as
favorable interest rate spreads are maintained and the level of
interest-bearing accounts remains significant, the Company
expects net interest income to continue to be a significant
component of its earnings.
Asset management revenues increased $2.4 million or 42 percent
over the 1995 first quarter as a result of larger volumes of
assets in fee-based, managed account programs at Dain Bosworth
and Rauscher Pierce Refsnes, as well as a 46-percent increase in
assets under management at IFG Asset Management Services, Inc.
Revenues from correspondent clearing rose $1.3 million or 49
percent from the prior year as the average number of
correspondent brokerage firms served by RPR Correspondent
Services increased by 26 percent from the first quarter of 1995.
The Company also benefited from increased trade volumes from such
correspondents.
During the 1996 first quarter, compensation and benefits
expense increased $19.2 million or 25 percent primarily from
increased commissions, incentive compensation and related
benefits due to higher operating revenues and earnings as well as
general salary increases. Such increases were partially offset
by the effects of a 1-percent decline in the average number of
employees in the 1996 first quarter compared with the 1995 first
quarter.
Expenses other than compensation and benefits increased $3.4
million or 11 percent over the 1995 period principally due to:
(1) increased litigation-related expenses; (2) increased
occupancy costs related to the expansion and/or improvement of
numerous operating office locations during 1995; and (3) volume-
driven increases in clearing services and travel and promotional
costs associated with the generation of new business.
LIQUIDITY AND CAPITAL RESOURCES
As described in Note J to the Consolidated Financial Statements
of the Company's 1995 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 March 31,
1996, net capital was $55.0 million at Regional Operations Group,
which was 6.8 percent of aggregate debit balances and $14.6
million in excess of the 5-percent requirement. At March 31,
1996, Dain Bosworth and Rauscher Pierce Refsnes had net capital
of $40.8 million and $26.8 million, respectively, in excess of
their minimum requirements.
On May 1, 1996, the Company's Board of Directors announced that
it would increase the regular quarterly cash dividend paid on the
Company's common stock from $.11 per share to $.15 per share
beginning with the dividend to be paid in the 1996 second
quarter. The determination of future cash dividends, if any, to
be declared and paid will depend on the Company's future
financial condition, earnings and available funds.
In January 1996 the Company entered into a three-year, $4.6
million operating lease agreement to finance the acquisition of
state-of-the-art technology in the form of investment executive
workstations, which the Company believes will improve
productivity and client service of Dain Bosworth and Rauscher
Pierce Refsnes investment executives.
In April 1994 the Company's Board of Directors authorized a
plan to purchase up to 600,000 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 April 30, 1996, the Company had repurchased 541,000
shares in accordance with this program at a cost of $10.4
million.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits
Item
No. Item Method of Filing
---- ---- ----------------
4.1 Restated Certificate Incorporated by
of Incorporation of reference to Exhibit 4.1
the Company dated to the Company's
May 2, 1996, and by Registration Statement
amendment dated May on Form S-8 dated May 2,
2, 1996. 1996, File No. 33-03113.
4.2 Amended and Restated Incorporated by
Bylaws of the reference to Exhibit 4.2
Company, as amended to the Company's
through May 2, 1996. Registration Statement
on Form S-8 dated May 2,
1996, File No. 33-03113.
10 IFG 1996 Stock Filed herewith.
Incentive Plan.
11 Computation of Net Filed herewith.
Earnings Per Share.
27 Financial Data Filed herewith.
Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
SIGNATURES
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.
Date: May 14, 1996 By Louis C. Fornetti
-----------------------
Louis C. Fornetti
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By Daniel J. Reuss
----------------------
Daniel J. Reuss
Senior Vice President,
Corporate Controller
and Treasurer
(Principal Accounting Officer)
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1996
(a) Exhibits
Item
No. Item Method of Filing
---- ---- ----------------
4.1 Restated Certificate Incorporated by
of Incorporation of reference to Exhibit 4.1
the Company dated to the Company's
May 2, 1996, and by Registration Statement
amendment dated May on Form S-8 dated May 2,
2, 1996. 1996, File No. 33-03113.
4.2 Amended and Restated Incorporated by
Bylaws of the reference to Exhibit 4.2
Company, as amended to the Company's
through May 2, 1996. Registration Statement
on Form S-8 dated May 2,
1996, File No. 33-03113.
10 IFG 1996 Stock Filed herewith.
Incentive Plan.
11 Computation of Net Filed herewith.
Earnings Per Share.
27 Financial Data Filed herewith.
Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1996.