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 June 30, 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 July 31, 1996, the Company had 12,158,563 shares of common
stock outstanding.
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996
INDEX
Page
----
I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets.......................... 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 1. Legal Proceedings................................... 8
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K.................... 12
Signatures.......................................... 13
Index of Exhibits................................... 14
Exhibits............................................ 15
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
1996 1995
------------------------
(Unaudited)
Assets:
Cash and cash equivalents.............. $37,728 $26,167
Cash and short-term investments
segregated for regulatory purposes.... 337,000 411,000
Receivable from customers.............. 825,705 763,793
Receivable from brokers and dealers.... 185,414 257,717
Securities purchased under agreements
to resell............................. 144,803 80,233
Trading securities owned, at market.... 286,116 322,892
Equipment, leasehold improvements and
buildings, at cost, net............... 32,468 31,108
Other receivables...................... 85,496 80,838
Deferred income taxes.................. 32,795 31,993
Other assets........................... 15,123 16,167
--------- ---------
$1,982,648 $2,021,908
========= =========
Liabilities and Shareholders' Equity:
Liabilities:
Short-term borrowings.................. $102,857 $97,000
Drafts payable......................... 39,236 50,431
Payable to customers................... 936,877 982,098
Payable to brokers and dealers......... 232,587 254,542
Securities sold under repurchase
agreements............................ 51,563 120,808
Trading securities sold, but not yet
purchased, at market.................. 161,712 61,050
Accrued compensation................... 81,158 95,988
Other accrued expenses and accounts
payable............................... 87,131 84,973
Accrued income taxes................... 5,764 11,114
Subordinated and other debt............ 33,803 41,410
--------- ---------
1,732,688 1,799,414
--------- ---------
Shareholders' equity:
Common stock........................... 1,524 1,508
Additional paid-in capital............. 79,113 76,623
Retained earnings...................... 169,323 144,363
--------- ---------
249,960 222,494
--------- ---------
$1,982,648 $2,021,908
========= =========
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per-share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------------------- --------------------
Revenues:
Commissions............ $58,325 $42,756 $113,185 $78,926
Principal transactions. 42,449 46,339 88,927 90,476
Investment banking and
underwriting.......... 23,876 18,988 50,018 36,876
Interest............... 26,026 27,110 52,956 52,409
Asset management....... 8,476 6,384 16,580 12,099
Correspondent clearing. 4,678 2,944 8,507 5,523
Other.................. 3,746 2,693 8,182 4,933
------- ------- ------- -------
Total revenues......... 167,576 147,214 338,355 281,242
Interest expense........ (13,733) (16,841) (28,478) (32,028)
------- ------- ------- -------
Net revenues............ 153,843 130,373 309,877 249,214
------- ------- ------- -------
Expenses Excluding Interest:
Compensation and
benefits.............. 95,751 83,490 192,863 161,386
Communications......... 10,781 9,860 20,865 19,912
Occupancy and equipment 8,739 8,174 17,328 16,155
Travel and promotional. 6,596 4,955 11,392 9,298
Floor brokerage and
clearing fees......... 2,687 2,550 5,304 5,021
Other.................. 9,335 7,797 18,882 15,169
------- ------- ------- -------
Total expenses excluding
interest............... 133,889 116,826 266,634 226,941
------- ------- ------- -------
Earnings:
Earnings before income
taxes................. 19,954 13,547 43,243 22,273
Income tax expense..... (6,926) (4,911) (15,135) (8,074)
------- ------- ------- -------
Net earnings............ $13,028 $8,636 $28,108 $14,199
======= ======= ======= =======
Earnings per common
and common equivalent
share:
Primary................ $1.03 $0.69 $2.23 $1.14
======= ======= ======= =======
Fully diluted.......... $1.03 $0.69 $2.21 $1.13
======= ======= ======= =======
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended June 30,
1996 1995
--------------------------
Cash flows from operating activities:
Net earnings........................... $28,108 $14,199
Adjustments to reconcile earnings to
cash provided (used) by operating
activities:
Depreciation and amortization........ 4,585 4,395
Deferred income taxes................ (802) (1,078)
Other non-cash items................. 4,276 4,132
Cash and short-term investments
segregated for regulatory purposes.. 74,000 (83,000)
Net receivable from/payable to
brokers and dealers................. 50,348 16,802
Securities purchased under
agreements to resell................ (64,570) (64,968)
Net trading securities owned and
trading securities sold, but not yet
purchased.......................... 137,438 (28,005)
Short-term borrowings and drafts
payable of securities companies..... (5,338) 13,537
Net payable to customers............. (107,133) 87,099
Securities sold under repurchase
agreements.......................... (69,245) 58,262
Accrued compensation................. (14,830) (8,386)
Other................................ (9,701) 7,565
------- -------
Cash provided by operating activities... 27,136 20,554
------- -------
Cash flows from financing activities:
Proceeds from:
Issuance of common stock.............. 947 625
Payments for:
Subordinated and other debt........... (7,607) (3,040)
Dividends on common stock............. (3,148) (2,588)
Revolving credit agreement, net....... - (15,000)
Purchase of common stock.............. - (783)
------- -------
Cash (used) by financing activities..... (9,808) (20,786)
------- -------
Cash flows from investing activities:
Proceeds from investment dividends
and sales............................. 97 174
Payments for equipment, leasehold
improvements and other................ (5,864) (6,698)
------- -------
Cash (used) for investing activities.... (5,767) (6,524)
------- -------
Increase/(decrease) in cash and
cash equivalents....................... 11,561 (6,756)
Cash and cash equivalents:
At beginning of period................ 26,167 22,764
------- -------
At end of period...................... $37,728 $16,008
======= =======
<FN>
Income tax payments totaled $21,228,000 and $7,697,000 and
interest payments totaled $26,202,000 and $30,781,000 during the
six months ended June 30, 1996 and 1995, respectively.
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 and six-month
periods ended June 30, 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 increased $4.4 million and net
revenues increased $23.5 million during the 1996 second quarter
over the same quarter of 1995. The Company's private client
group business lines posted record results during the 1996 second
quarter and the Company's combined equity capital markets
business lines posted results 25 percent higher than the second
quarter of 1995. The Company, along with the rest of the
securities industry, benefited from relatively strong equity
markets. Fixed income markets, however, remained difficult due
to uncertainty caused by rising interest rates. Consolidated net
earnings increased $13.9 million while net revenues increased
$60.7 million during the first six months of 1996 versus the same
period of 1995.
Results of Operations:
Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited, in thousands) 1996 1995 1996 1995
-------------------- ------------------
Net Revenues:
Dain Bosworth
Incorporated.......... $98,193 $86,903 $201,505 $163,291
Rauscher Pierce
Refsnes, Inc.......... 54,504 42,986 106,287 84,785
Corporate, other and
eliminations.......... 1,146 484 2,085 1,138
------- ------- ------- -------
$153,843 $130,373 $309,877 $249,214
======= ======= ======= =======
Earnings (Loss) before
income taxes:
Dain Bosworth
Incorporated.......... $13,250 $10,169 $30,409 $15,854
Rauscher Pierce
Refsnes, Inc.......... 9,173 4,071 15,704 7,420
Corporate, other and
eliminations (2,469) (693) (2,870) (1,001)
------- ------- ------- -------
$19,954 $13,547 $43,243 $22,273
======= ======= ======= =======
Commission revenues increased $15.6 million, or 36 percent,
from the 1995 second quarter and $34.3 million, or 43 percent,
from 1995 first half as a result of increased sales to individual
and institutional investors of (1) over-the-counter equity
securities sold on an agency basis; (2) mutual funds; (3)
insurance and annuity products; and (4) listed equity securities
to individual and institutional investors. Contributing to the
revenue increases were 20 percent and 24 percent increases,
respectively, in the New York Stock Exchange's average daily
trading volumes for the quarter and year-to-date over the
comparable 1995 periods as well as general increases in
securities prices.
Revenues from principal transactions declined $3.9 million,
or 8 percent, and $1.5 million, or 2 percent, during the second
quarter and first half, respectively, from the comparable 1995
periods. The revenue declines were primarily due to poorer
trading results in taxable and tax-exempt securities. Such fixed
income trading revenue decreases were precipitated by the
development of an increasing interest rate environment during the
1996 second quarter. Principal transactions revenue declines for
both the quarter and year-to-date periods were partially offset
by increases in trading revenues from over-the-counter equity
securities.
Investment banking and underwriting revenues increased $4.9
million, or 26 percent, in the second quarter due primarily to
increased underwriting activity for the Company's corporate
clients, as well as increases in syndicate participation
revenues. In the first half of 1996, investment banking and
underwriting revenues increased $13.1 million, or 36 percent,
resulting from higher levels of corporate underwriting and
mergers and acquisitions services, as well as increased syndicate
participation revenues.
Net interest income increased $2.0 million, or 20 percent,
and $4.1 million, or 20 percent, for the quarter and year-to-
date, respectively, due principally to increases in customer
margin and credit balances and wider interest rate spreads. Late
in the second quarter, the Company began offering new cash
management products to certain segments of its customers.
However, significant customer credit balances did not transfer to
Company-sponsored money market funds until the third quarter.
Management anticipates the transfer of approximately $250 million
in customer credits during the third quarter and 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
contributor to earnings (see also "Liquidity and Capital
Resources" below).
Asset management revenues increased $2.1 million, or 33
percent, for the quarter and $4.5 million, or 37 percent, for the
first half from higher levels of assets in fee-based managed
account programs at Dain Bosworth and Rauscher Pierce Refsnes, as
well as a 26 percent increase in assets under management at IFG
Asset Management Services, Inc.
Revenues from correspondent clearing rose $1.7 million, or
49 percent, and $3.0 million, or 54 percent, for the quarter and
first half, respectively, as the Company benefited from increased
trade volumes for correspondent brokerage firms served by RPR
Correspondent Services, as well as an increase in the number of
correspondents.
Compensation and benefits expense increased $12.3 million,
or 15 percent, during the 1996 second quarter and $31.5 million,
or 20 percent, during the 1996 first half versus the comparable
periods of 1995. The increase for the quarter and first half is
due primarily to increased commissions paid to revenue-producing
employees generating higher levels of operating revenues and
increased incentive compensation accruals due to higher levels of
earnings as well as general salary increases.
Expenses other than compensation and benefits increased
$4.8 million, or 14 percent, over the second quarter of 1995 as a
result of: (1) increased communications costs stemming from the
1996 rollout of improved investment executive workstations; (2)
increased travel and promotional costs associated with the
generation of new business; and (3) increased litigation-related
expenses. For the year-to-date period, expenses other than
compensation and benefits increased $8.2 million, or 13 percent,
over 1995 as a result of: (1) increased litigation-related
expenses; (2) increased communications costs stemming from the
1996 rollout of improved investment executive workstations; and
(3) increased travel and promotional costs stemming from the
generation of new business.
LIQUIDITY AND CAPITAL RESOURCES
Late in the 1996 second quarter, the Company began offering
new cash management products to certain segments of its customers
that will likely result in the transfer of significant customer
credit balances to Company-sponsored money market funds during
the third quarter. Management anticipates the transfer of
approximately $250 million in customer credits during the third
quarter. Additionally, the Company also expects a significant
increase in customer margin receivables early in the third
quarter. Management expects the Company's short-term borrowings
to increase as a result of these developments, though it believes
that its remaining financing sources are sufficient to finance
ongoing operations.
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 June
30, 1996, net capital was $59.2 million at Regional Operations
Group, which was 6.7 percent of aggregate debit balances and
$15.1 million in excess of the 5-percent requirement. At June
30, 1996, Dain Bosworth and Rauscher Pierce Refsnes had net
capital of $46.9 million and $30.1 million, respectively, in
excess of the $1 million requirement.
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 April 1994 the Company's Board of Directors authorized a
plan to repurchase up to 600,000 shares of the Company's common
stock. Through July 31, 1996 the Company had repurchased the
entire 600,000 shares in accordance with this program at a cost
of $11.8 million.
On August 7, 1996, the Company's Board of Directors
approved a 100,000 share extension of the common stock repurchase
plan. 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and/or its subsidiaries, Dain Bosworth and
Rauscher Pierce Refsnes, are defendants in various civil actions
and arbitrations incidental to their businesses involving alleged
violations of federal and state securities laws and other laws.
Some of these actions, including the actions described in more
detail below, claim substantial damages. Some of the actions
have also been brought on behalf of purported classes of
plaintiffs and relate to underwritings of securities.
Midwest Life Insurance Litigation
The Company and Dain Bosworth have been named as
defendants in ten actions brought by insurance guaranty
associations and certain individuals in connection with
losses suffered under single premium deferred annuities
issued by the Midwest Life Insurance Company ("MWL"), a
former subsidiary acquired by the Company in 1980 and sold
by it in early 1986. Rauscher Pierce Refsnes has also been
named as a defendant in one of such actions. Such annuities
were primarily sold through the private client sales force
of Dain Bosworth and, to a limited extent, Rauscher Pierce
Refsnes. MWL, which was sold two times subsequent to its
sale by the Company in 1986 and was relocated from Nebraska
to Louisiana by the final owners, Southshore Holding Corp.,
was declared insolvent and ordered liquidated by the State
of Louisiana in August 1991. Generally, MWL policyholders
have been reimbursed for their losses up to $100,000 per
holder by the state guaranty funds. The plaintiffs (or real
parties in interest) in these cases are certain individual
policyholders and/or the Life and Health Guaranty
Associations of each of Colorado, Iowa, Minnesota, Montana,
Nebraska, North Dakota, Oregon, South Dakota, Washington and
Wyoming, which claim to have succeeded to the rights of
policyholders they reimbursed for MWL losses. Plaintiffs in
the aggregate seek to recover in excess of $64 million in
compensatory damages, as well as punitive damages, interest,
costs, attorneys' fees and other relief.
The first of these actions, Karsian, et al. v. Inter-
Regional Financial Group, Inc., Dain Bosworth Incorporated
and Rauscher Pierce Refsnes, Inc., is pending in the United
States District Court for the District of Colorado and was
initially brought in August 1993 as a purported class
action. The court has since held, however, that there are
no proper class claims. The plaintiffs in this action seek
approximately $10.7 million in compensatory damages and
allege common law fraud, breach of fiduciary duty,
negligence and negligent misrepresentation, civil
conspiracy, RICO claims, breach of contract, and claims
under the Investment Advisors Act of 1940 and various state
laws. The RICO, breach of contract, and Investment Advisors
Act claims were dismissed by the trial court along with the
class claims in July 1995.
The other nine actions, which were brought in April and
May 1995, allege similar claims to the Colorado action. In
certain states, the plaintiffs also allege intentional
infliction of economic harm, interference with contractual
relations and/or aiding and abetting the breaches of duty by
the final sets of owners of MWL. The actions are captioned
and pending as follows, and the plaintiffs in each action
seek the amount of compensatory damages indicated in
parentheses:
Iowa Life and Health Insurance Guaranty Ass'n v. Inter-
Regional Financial Group, Inc. and Dain Bosworth
Incorporated (Iowa Dist. Ct., Polk County) ($5.7 million)
C. Randolph, L. Schnobrich, V. Troumbly, P. Dumke, E. Davis
and Minnesota Life and Health Insurance Guaranty Ass'n v.
Inter-Regional Financial Group, Inc. and Dain Bosworth
Incorporated (Hennepin County Dist. Ct.) ($32.2 million)
Montana Life and Health Insurance Guaranty Ass'n v. Inter-
Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (Montana First Judicial Court, Lewis & Clark
County) ($3.4 million)
Nebraska Life and Health Insurance Guaranty Ass'n v. Inter-
Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (Nebraska Dist. Ct., Lancaster County) ($2.8
million)
North Dakota Life and Health Insurance Guaranty Ass'n v.
Inter-Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (District Court, Cass County, North Dakota)
($2.1 million)
Oregon Life and Health Insurance Guaranty Ass'n v. Inter-
Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (Oregon Circuit Court of Multnomah County)
($.5 million)
South Dakota Life and Health Insurance Guaranty Ass'n v.
Inter-Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (South Dakota Second Judicial Circuit,
Minnehaha County) ($1.7 million)
Washington Life and Health Insurance Guaranty Ass'n v.
Inter-Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (Washington Superior Court for King County)
($2.1 million)
Wyoming Life and Health Insurance Guaranty Ass'n v. Inter-
Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (Wyoming District Court for Laramie County)
($2.7 million)
The Company, Dain Bosworth and Rauscher Pierce Refsnes
believe that they have substantial and meritorious defenses
available, and they are defending themselves vigorously in
these actions.
The Resolution Trust Corporation
Rauscher Pierce Refsnes and Robert H. Brown, Jr.,
Rauscher Pierce Refsnes' executive vice president of equity
capital markets, have been named as defendants in an action
captioned Resolution Trust Corporation, as receiver for
Western Savings & Loan Association, F.A. vs. Express America
Holdings Corporation; Smith Barney Harris Upham & Co.;
Rauscher Pierce Refsnes, Inc., et al. This action was bro
ught in the U.S. District Court in Phoenix, Arizona in
December 1995 by The Resolution Trust Corporation (the
"RTC") and arises out of the RTC's sale through an auction
process conducted in the fall of 1990 of the stock of WESAV
Mortgage Corporation ("WESAV"), a subsidiary of Western
Savings & Loan Association, F.A. Rauscher Pierce Refsnes
acted as broker for the sale and Smith Barney Harris Upham &
Co. ("Smith Barney") acted as the RTC's financial advisor.
WESAV was eventually sold to First Western Partners, the
predecessor to Express America Holdings Corporation
("Express America"), in May 1991 for a gross acquisition
price of approximately $45 million, including the assumption
of approximately $19 million in liabilities. The RTC alleges
that Rauscher, as broker, improperly favored Express America
over other allegedly higher bidders, and that Rauscher and
Smith Barney committed fraud in connection with the auction
and sale, were negligent in their analysis and communication
of bids to the RTC, and breached their contracts with and
fiduciary duties to the RTC. In addition to the corporate
defendants and Mr. Brown, the RTC also named as defendants
in the action Express America's chief executive officer and
chief financial officer, the former chief executive officer
and former chief financial officer of WESAV, and certain
other individuals. It alleges such officers of Express
America and WESAV were guilty of mismanagement between the
conclusion of the auction process and closing of the sale.
The RTC seeks from all parties compensatory damages in
excess of $20 million and punitive damages of $60 million,
along with interest, costs and other relief. Effective
January 1, 1996 the RTC was merged into the Federal Deposit
Insurance Corporation, which became the plaintiff in this
action.
Rauscher Pierce Refsnes, Mr. Brown and the other
defendants have filed motions to dismiss these claims, and
oral arguments were heard on such motions in June 1996.
Rauscher Pierce Refsnes and Mr. Brown believe that they have
substantial and meritorious defenses available, and they are
defending themselves vigorously in this action.
Orange County v. RPR
Rauscher Pierce Refsnes has also been named in an
adversary proceeding commenced by the County of Orange ("the
County"), captioned County of Orange, a political
subdivision of the State of California v. Rauscher Pierce
Refsnes, Inc., a corporation and filed in the Chapter 9
proceeding entitled In re County of Orange, a political
subdivision of the State of California in the United States
Bankruptcy Court for the Central District of California.
The case was filed in June 1996 simultaneously with the
filing of adversary proceedings against Morgan Stanley &
Co., Inc., Student Loan Marketing Association ("Sallie
Mae"), LeBouef, Lamb, Greene & MacRae, and McGraw-Hill
Companies, Inc. d/b/a Standard & Poors. Previously, the
County had filed adversary proceedings against Merrill Lynch
& Co., Inc. and KPMG Peat Marwick. In each of these
proceedings, the County seeks at least $500 million in
losses allegedly incurred in the Orange County Investment
Pool ("OCIP"). The County has signed tolling agreements
with at least 15 other potential defendants in similar
adversary proceedings.
The County alleges that Rauscher was a financial
advisor on five note offerings by the County that took place
in June through August of 1994, including an offering of
$600 million in taxable one-year notes in July 1994. The
County alleges that by failing to apprise the County of the
risks involved in OCIP and in the County's 1994 note
offering program, and by failing to prevent the issuance of
allegedly inaccurate official statements, Rauscher became
liable for breach of contract, professional negligence,
breach of fiduciary duty and aiding and abetting breaches of
fiduciary duty committed by the County Treasurer and
Assistant Treasurer. Rauscher denies these allegations,
including the allegation that it was a "financial advisor"
in connection with these transactions. In each of the five
transactions in question, Rauscher was retained solely to
determine whether the underwriter's spread (including the
portion to be received by the financial and marketing
specialist) and proposed interest rate were appropriate.
Rauscher and other defendants in these adversary
proceedings have moved the federal district court to
withdraw its standing reference of these cases to the
bankruptcy court. Rauscher believes it has substantial and
meritorious defenses available and intends to defend itself
vigorously in this action.
While the outcome of any litigation is uncertain,
management, based in part upon consultation with legal
counsel as to certain of the actions pending against the
Company and/or its subsidiaries, believes that the
resolution of all such matters will not have a material
adverse effect on the consolidated financial condition or
results of operations of the Company as set forth in the
consolidated financial statements contained herein.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the regular Annual Meeting of Stockholders of the
Company held on May 1, 1996, the stockholders elected eight
directors, approved adoption of the IFG Stock Incentive Plan,
voted to increase the amount of authorized common stock and
ratified the appointment of KPMG Peat Marwick L.L.P. as the
registrant's independent auditors.
Voting results of each of those items were as follows:
Election of Directors:
For Withheld
--------- --------
J. C. Appel 8,971,258 92,541
J. E. Attwell 8,967,867 95,932
S. S. Boren 8,957,268 106,531
F. G. Fitz-Gerald 8,969,205 94,594
C. A. Rundell, Jr. 8,969,224 94,575
R. L. Ryan 8,976,581 87,218
A. R. Schulze, Jr. 8,973,706 90,093
I. Weiser 8,947,461 116,338
For Against Abstain
--------- --------- -------
Approval of IFG Stock
Incentive Plan 4,226,346 3,088,376 79,748
Approval of Amendment
to Increase Authorized
Common Stock 8,365,798 631,138 66,863
Ratification of Appointment
of Auditors 8,999,100 45,462 19,237
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-K
(a) Exhibit 11 - Computation of Net Earnings Per Share
(b) Reports on Form 8-K
Two reports on Form 8-K were filed during the quarter
ended June 30, 1996.
Items reported:
(1) Item 5 - Other Events (Press release regarding an
increase in registrant's quarterly cash dividend to 15
cents per share of common stock from 11 cents per
common share).
Date of Report - May 1, 1996
Financial Statements Filed - None
(2) Item 5 - Other Events (Press release regarding
registrant naming William A. Johnstone as CEO of
Rauscher Pierce Refsnes, Inc. and as an additional
member of the registrant's Board of Directors).
Date of Report - June 4, 1996
Financial Statements Filed - None
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.
Registrant
Date: August 13, 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 JUNE 30, 1996
Exhibit 11 Computation of Net Earnings Per Share