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, 1994
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, 1994, the Company had 8,044,308 shares of common
stock outstanding.
<PAGE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1994
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 6. Exhibits and Reports on Form 8-K...................... 8
Signatures............................................ 9
Index of Exhibits.....................................10
Exhibits..............................................11
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
September 30, December 31,
1994 1993
-------------------------------
(Unaudited)
<S> <C> <C>
Assets:
Cash and cash equivalents.............. $60,918 $ 14,047
Cash and short-term investments
segregated for regulatory purposes... 362,510 581,005
Receivable from customers.............. 626,478 531,636
Receivable from brokers and dealers.... 216,661 178,448
Securities purchased under agreements
to resell............................ 382,508 111,887
Trading securities owned, at market.... 282,042 271,378
Equipment, leasehold improvements and
buildings, net....................... 28,887 24,720
Other receivables...................... 51,982 40,744
Deferred income taxes.................. 18,995 18,995
Other assets........................... 11,188 13,162
--------- ---------
$2,042,169 $1,786,022
========= =========
Liabilities and Shareholders' Equity:
Liabilities:
Short-term borrowings.................. $181,539 $123,973
Drafts payable......................... 50,294 32,041
Payable to customers................... 817,483 866,144
Payable to brokers and dealers......... 234,421 250,594
Securities sold under repurchase
agreements........................... 259,493 83,978
Trading securities sold, but not yet
purchased, at market................. 145,590 72,218
Accrued compensation................... 56,884 83,458
Other accrued expenses and accounts
payable 61,831 63,776
Accrued income taxes................... 3,491 9,991
Subordinated and other debt............ 37,636 22,166
--------- ---------
1,848,662 1,608,339
--------- ---------
Shareholders' equity:
Common stock........................... 1,006 1,016
Additional paid-in capital............. 73,876 73,475
Retained earnings...................... 118,625 103,192
--------- ---------
193,507 177,683
--------- ---------
$2,042,169 $1,786,022
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per-share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Principal transactions...... $34,347 $36,590 $101,193 $103,670
Commissions................. 30,725 33,443 101,051 102,803
Investment banking and
underwriting.............. 20,107 36,597 72,353 93,371
Interest.................... 19,958 14,333 52,224 40,582
Asset management............ 5,180 3,280 13,684 9,190
Correspondent clearing...... 3,137 2,825 9,080 8,219
Other....................... 4,718 8,954 17,256 19,486
------- ------- ------- -------
Total revenues.................. 118,172 136,022 366,841 377,321
Interest expense................ (10,307) (7,449) (25,840) (21,758)
------- ------- ------- -------
Net revenues.................... 107,865 128,573 341,001 355,563
------- ------- ------- -------
Expenses excluding interest:
Compensation and benefits.... 68,398 76,661 216,466 218,771
Communications............... 9,335 7,622 27,021 22,212
Occupancy and equipment
rental..................... 7,042 6,161 20,514 18,149
Travel and promotional....... 4,727 3,969 13,803 10,703
Floor brokerage and clearing
fees 2,360 2,018 7,057 6,164
Other........................ 6,662 7,992 21,092 22,525
------- ------- ------- -------
Total expenses excluding
interest...................... 98,524 104,423 305,953 298,524
------- ------- ------- -------
Earnings:
Earnings before income taxes. 9,341 24,150 35,048 57,039
Income tax expense........... (3,496) (9,690) (13,118) (22,188)
------- ------- ------- -------
Net earnings.................... $5,845 $14,460 $21,930 $34,851
======= ======= ======= =======
Earnings per common and
common equivalent share:
Primary......................... $.71 $1.72 $2.61 $4.17
======= ======= ======= =======
Fully diluted................... $.70 $1.70 $2.61 $4.11
======= ======= ======= =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<CAPTION>
Nine Months Ended September 30,
1994 1993
-------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings........................... $21,930 $34,851
Adjustments to reconcile earnings to
cash provided (used) by operating
activities:
Depreciation and amortization...... 5,860 4,133
Deferred income taxes.............. (2,868) (3,969)
Other non-cash items............... 5,448 8,657
Cash and short-term investments
segregated for regulatory
purposes......................... 218,495 2,700
Net payable to brokers and dealers. (54,386) (1,500)
Securities purchased under
agreements to resell............. (270,621) (67,127)
Net trading securities owned and
trading securities sold, but not
yet purchased.................... 62,708 (144,780)
Other receivables.................. (11,238) (17,365)
Short-term borrowings and drafts
payable of securities companies.. 75,819 70,982
Net payable to customers........... (143,503) (51,341)
Securities sold under repurchase
agreements....................... 175,515 137,421
Accrued compensation............... (26,574) 6,357
Other.............................. (9,986) 8,336
------- -------
Cash provided (used) by operating
activities....................... 46,599 (12,645)
------- -------
Cash flows from financing activities:
Proceeds from:
Subordinated and other debt........ 17,237 6,096
Issuance of common stock........... 409 242
Payments for:
Purchase of common stock........... (3,265) __
Dividends on common stock.......... (3,250) (1,623)
Subordinated and other debt........ (1,767) (1,114)
Revolving credit agreement, net.... __ (5,450)
------- -------
Cash provided (used) by financing
activities......................... 9,364 (1,849)
------- -------
Cash flows from investing activities:
Proceeds from investment dividends
and sales............................ 641 1,589
Payments for equipment, leasehold
improvements and other............... (9,733) (8,637)
------- -------
Cash (used) for investing activities... (9,092) (7,048)
------- -------
Increase (decrease) in cash and cash
equivalents.......................... 46,871 (21,542)
Cash and cash equivalents:
At beginning of period............. 14,047 34,461
_______ -------
At end of period................... $60,918 $12,919
======= =======
Income tax payments totaled $19,619,000 and $24,032,000 and
interest payments totaled $25,092,000 and $21,636,000 during the
nine months ended September 30, 1994 and 1993, respectively.
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
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, 1993. 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, 1994 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 1994 presentation.
B. Operating Lease Commitments
The Company and its subsidiaries lease office space, furniture,
communications and data processing equipment under several
noncancelable leases. Most office space leases are subject to
escalation and provide for the payment of real estate taxes,
insurance and other expenses of occupancy, in addition to rent.
Aggregate minimum rental commitments as of October 31, 1994 are
as follows: 1995 - $17.1 million; 1996 - $15.3 million; 1997 -
$13.7 million; 1998 - $12.0 million; 1999 - $9.2 million;
thereafter 56.2 million.
C. Subordinated and Other Debt
In September 1994, Dain Bosworth and Rauscher Pierce Refsnes,
respectively, entered into $10 million and $7 million four-year
subordinated bank loans. Proceeds of the loans qualify as
regulatory capital and will be used to fund growth initiatives.
The loans require monthly, interest-only payments throughout the
four-year term, with equal quarterly principal payments during
years two through four.
In October 1994, Dain Bosworth entered into an additional $10
million four-year subordinated bank loan as part of the
financing for an acquisition. Proceeds of the loan qualify as
regulatory capital. The loan requires monthly interest only
payments throughout the four-year term, with equal quarterly
principal payments during years two through four.
<PAGE>
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) contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
Summary
Consolidated net revenues (revenues less interest expense)
decreased $20.7 million in the 1994 third quarter over the
comparable 1993 period. Decreases in second and third quarter net
revenues over the comparable 1993 periods more than offset
increases recorded during the 1994 first quarter, resulting in a
year-to-date decrease of $14.6 million over the prior year. The
industry-wide downturn, triggered by rising interest rates late in
the 1994 first quarter, continued into the second and third
quarters and resulted in weaker financial markets, lower securities
prices, reduced levels of municipal and corporate underwritings and
general uncertainty on the part of investors. Also impacting
results of operations comparisons for the quarter and year-to-date
periods ended September 30, 1994 and 1993 was a $5.2 million one-
time gain recorded in the third quarter of 1993 from the sale of
the Minneapolis Energy Center, a limited partnership in which Dain
Bosworth was the general partner. Net of expenses, this
transaction increased the Company's 1993 pretax earnings by $4.0
million, net earnings by $2.4 million and earnings per share by
$.29. In addition, continued investments made by the Company in
order to grow revenue-producing areas of the business had the
effect of reducing the Company's profit margins for the 1994 third
quarter and year-to-date periods.
Results of Operations:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Unaudited, in thousands) 1994 1993 1994 1993
------------------- -------------------
<S> <C> <C> <C> <C>
Net revenues:
Dain Bosworth Incorporated $67,603 $82,962 $216,247 $221,947
Rauscher Pierce Refsnes, Inc. 39,261 44,998 122,353 132,482
Corporate, other and
eliminations 1,001 613 2,401 1,134
------- ------- ------- -------
$107,865 $128,573 $341,001 $355,563
======= ======= ======= =======
Earnings (Loss) before income
taxes:
Dain Bosworth Incorporated $6,708 $17,478 $24,004 $37,984
Rauscher Pierce Refsnes, Inc. 3,137 7,306 12,632 21,556
Corporate, other and
eliminations (504) (634) (1,588) (2,501)
------- ------- ------- -------
$9,341 $24,150 $35,048 $57,039
======= ======= ======= =======
</TABLE>
Principal transaction revenues decreased $2.2 million during
the third quarter from the comparable prior year period due
primarily to less favorable fixed income trading results. Through
the first three quarters of 1994, principal transaction revenues
declined $2.5 million as improved equity trading revenues were more
than offset by lower taxable and tax-exempt fixed income trading
results at Dain Bosworth and Rauscher Pierce Refsnes that resulted
from difficult bond market conditions and reduced demand for fixed
income products in 1994.
Commission revenues declined $2.7 million during the 1994
third quarter and $1.8 million year-to-date, respectively, versus
the same periods of 1993 due principally to declines in sales of
over-the-counter agency and mutual fund securities to individual
and institutional investors. Both revenue decreases were partially
offset by increases in sales of listed securities. Additionally,
the extent of these revenue declines was mitigated by the effects
of 11-percent and 12-percent increases in the size of the Company's
sales forces for the quarter and year-to-date, respectively.
Investment banking and underwriting revenues declined $16.5
million from the 1993 third quarter and $21.0 million year-to-date
as increased fees earned from advising corporate clients in merger
and acquisition and private placement transactions were more than
offset by declines in underwriting revenues from lower levels of
corporate and municipal investment banking transactions due to less
favorable market conditions in which to raise capital.
Additionally, a significant portion of the decline from 1993 levels
resulted from expected reductions in revenues derived from
municipal refunding transactions.
Net interest income increased $2.8 million during the third
quarter and $7.6 million during the first nine months of 1994 over
comparable prior year levels chiefly as a result of continued
increases in margin debit balances and spreads, increased spreads
on customer credit balances and larger volumes of stock borrow and
stock loan transactions.
Asset management revenues increased $1.9 million for the
quarter and $4.5 year-to-date from the comparable 1993 periods due
primarily to increased assets in managed account programs at Dain
Bosworth and Rauscher Pierce Refsnes and, to a lesser extent,
higher money market fund balances managed by Insight Investment
Management.
Other revenues declined $4.2 million and $2.2 million for the
quarter and year-to-date periods, respectively, from 1993 primarily
due to a $5.2 million, one-time gain recorded in the third quarter
of 1993 from the sale of the Minneapolis Energy Center, a district
heating and cooling company, owned by a partnership in which Dain
Bosworth was the general partner. Net of expenses, this
transaction increased the Company's 1993 pretax earnings by $4.0
million, net earnings by $2.4 million and earnings per share by
$.29.
Compensation and benefits expense declined $8.3 million for
the quarter and $2.3 million year-to-date due largely to decreased
commissions, incentive compensation and related benefits that
declined in conjunction with decreased operating revenues. These
decreases were partially offset by higher costs related to 12-
percent and 11-percent increases, respectively, in the average
number of employees for the quarter and nine months over the
comparable periods of 1993.
Expenses other than compensation and benefits increased $2.4
million for the quarter and $9.7 million year-to-date due primarily
to increased usage of communications and market data and clearing
services, increased occupancy expenses resulting from higher real
estate taxes and operating costs at the Company's Minneapolis
headquarters and the addition of 13 operating office locations for
Dain Bosworth and Rauscher Pierce Refsnes over the 12-month period
ended September 30, 1994. A significant portion of the expense
increases for such items resulted from the aforementioned increases
in the number of employees and operating offices. In light of the
difficult financial market conditions in which the Company is
currently operating, management has taken steps to selectively pare
expenses and to reduce spending in areas not related to revenue
production.
In October 1994, Dain Bosworth completed the acquisition of
Chicago-based Clayton Brown Holding Company ("Clayton Brown"), a
privately held firm specializing in the origination, underwriting,
trading and sale of fixed income securities through its brokerage
subsidiary, Clayton Brown & Associates, Inc. The aggregate cash
purchase price was approximately $24 million, and was based on
Clayton Brown's book value at September 30, 1994, net of certain
adjustments. Management believes that the acquisition of Clayton
Brown, together with planned retail expansion in Illinois, gives
Dain Bosworth a platform on which to build a competitive presence
in the Chicago market. Dain Bosworth expects to retain Clayton
Brown's offices in New York and combine its existing office with
Clayton Brown's office in Chicago. Rauscher Pierce Refsnes will
retain Clayton Brown's Miami office. Management estimates that the
acquisition could have a 10 to 14 cent per share negative effect on
the Company's 1994 fourth quarter earnings.
LIQUIDITY AND CAPITAL RESOURCES
As described in Note K to the Consolidated Financial
Statements of the Company's 1993 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, 1994, net capital was $51.5 million at Regional
Operations Group, which was 7.5 percent of aggregate debit balances
and $17.1 million in excess of the 5 percent requirement. At
September 30, 1994, Dain Bosworth and Rauscher Pierce Refsnes had
net capital of $23.5 million and $23.4 million, respectively, in
excess of the $1 million requirement.
On April 27, 1994, the Company's Board of Directors announced
that it would double the regular quarterly cash dividend paid on
the Company's common stock from $.08 per share to $.16 per share
beginning with the dividend paid during the 1994 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. On the same date, 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 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 October 31, 1994, the Company
had repurchased 154,000 shares in accordance with this program at a
cost of $3.4 million.
In September 1994, Dain Bosworth and Rauscher Pierce Refsnes,
respectively, entered into $10 million and $7 million four-year
subordinated bank loans. The loans require monthly, interest-only
payments throughout the four-year term, with equal quarterly
principal payments during years two through four. Proceeds of the
loans qualify as regulatory capital and will be used to support
current and future growth in the number of operating office
locations and forgivable notes issued as part of the recruitment of
investment executives and other revenue producing employees.
In October 1994, Dain Bosworth entered into an additional $10
million four-year subordinated bank loan as part of the financing
for the acquisition of Clayton Brown. Proceeds of the loan qualify
as regulatory capital. The loan requires monthly, interest-only
payments throughout the four-year term, with equal quarterly
principal payments during years two through four.
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 - Computation of Net Earnings Per Share.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1994.
<PAGE>
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 14, 1994 By Daniel J. Reuss
-------------------- ------------------------
Daniel J. Reuss
Senior Vice President,
Controller and Treasurer
(Principal Financial &
Accounting Officer)
<PAGE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1994
Exhibit 11 - Computation of Net Earnings Per Share
Filed herewith.
<PAGE>
EXHIBIT 11
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC.
COMPUTATION OF NET EARNINGS PER SHARE
(Unaudited, amounts in thousands, except per-share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
------------------- -------------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net earnings............... $5,845 $14,460 $21,930 $34,851
====== ====== ====== ======
Average number of common
and common equivalent
shares outstanding:
Average common shares
outstanding............ 8,069 8,114 8,123 8,109
Incentive stock options. 203 300 272 255
------ ------ ------ ------
8,272 8,414 8,395 8,364
====== ====== ====== ======
Primary earnings per share. $.71 $1.72 $2.6 $4.17
====== ====== ====== ======
EARNINGS PER SHARE ASSUMING
FULL DILUTION:
Net earnings............... $5,845 $14,460 $21,930 $34,851
====== ====== ====== ======
Average number of common
and common equivalent
shares outstanding:
Average common shares
outstanding............. 8,069 8,114 8,123 8,109
Incentive stock options.. 238 378 272 374
------ ------ ------ ------
8,307 8,492 8,395 8,483
====== ====== ====== ======
Fully diluted earnings per
share..................... $.70 $1.70 $2.61 $4.11
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INTER-REGIONAL FINANCIAL GROUP, INC.'S SEPTEMBER 30, 1994 FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 423428
<RECEIVABLES> 895121
<SECURITIES-RESALE> 382508
<SECURITIES-BORROWED> 0<F1>
<INSTRUMENTS-OWNED> 282042
<PP&E> 28887
<TOTAL-ASSETS> 2042169
<SHORT-TERM> 231833
<PAYABLES> 1113735
<REPOS-SOLD> 259493
<SECURITIES-LOANED> 0<F2>
<INSTRUMENTS-SOLD> 145590
<LONG-TERM> 37636
<COMMON> 1006
0
0
<OTHER-SE> 192501
<TOTAL-LIABILITY-AND-EQUITY> 2042169
<TRADING-REVENUE> 101193
<INTEREST-DIVIDENDS> 52224
<COMMISSIONS> 101051
<INVESTMENT-BANKING-REVENUES> 72353
<FEE-REVENUE> 13684<F3>
<INTEREST-EXPENSE> 25840
<COMPENSATION> 216466
<INCOME-PRETAX> 35048
<INCOME-PRE-EXTRAORDINARY> 21930
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21930
<EPS-PRIMARY> 2.61
<EPS-DILUTED> 2.61
<FN>
<F1>INCLUDED IN RECEIVABLES
<F2>INCLUDED IN PAYABLES
<F3>INCLUDES FEES FROM ASSET MANAGEMENT ONLY
</FN>
</TABLE>
