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, 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 April 30, 1995, the Company had 8,104,533 shares of common
stock outstanding.
<PAGE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995
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 7
Signatures 8
Index of Exhibits 9
Exhibit 10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
March 31, December 31,
1995 1994
--------------------------
<S> <C> <C>
(Unaudited)
Assets:
Cash and cash equivalents $17,427 $22,764
Cash and short-term
investments segregated for
regulatory purposes 368,000 338,000
Receivable from customers 638,505 710,647
Receivable from brokers and
dealers 168,433 207,512
Securities purchased under
agreements to resell 447,654 198,561
Trading securities owned,
at market 347,353 319,222
Equipment, leasehold improvements
and buildings, net 30,836 30,082
Other receivables 61,458 78,787
Deferred income taxes 29,001 29,001
Other assets 14,485 18,035
---------- ----------
$2,123,152 $1,952,611
========== ==========
Liabilities and Shareholders' Equity:
Liabilities:
Short-term borrowings $84,058 $150,193
Drafts payable 29,509 35,021
Payable to customers 862,328 868,541
Payable to brokers and dealers 208,324 212,954
Securities sold under repurchase
agreements 367,931 173,972
Trading securities sold, but not
yet purchased, at market 198,244 116,883
Accrued compensation 45,419 68,755
Other accrued expenses and
accounts payable 72,590 77,344
Accrued income taxes 9,467 6,505
Subordinated and other debt 45,270 47,023
---------- ----------
1,923,140 1,757,191
---------- ----------
Shareholders' equity:
Common stock 1,011 1,005
Additional paid-in capital 74,238 73,924
Retained earnings 124,763 120,491
---------- ----------
200,012 195,420
---------- ----------
$2,123,152 $1,952,611
========== ==========
<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 March 31,
1995 1994
----------------------------
<S> <C> <C>
Revenues:
Principal transactions $44,137 $35,789
Commissions 33,339 39,128
Investment banking and underwriting 17,888 27,878
Interest 25,299 15,255
Asset management 5,715 4,077
Correspondent clearing 2,579 3,181
Other 5,071 5,763
-------- --------
Total revenues 134,028 131,071
Interest expense (15,187) (7,392)
-------- --------
Net revenues 118,841 123,679
-------- --------
Expenses excluding interest:
Compensation and benefits 77,896 78,724
Communications 10,052 8,550
Occupancy and equipment rental 7,981 6,698
Travel and promotional 4,343 4,226
Floor brokerage and clearing fees 2,471 2,245
Other 7,372 7,176
-------- --------
Total expenses excluding interest 110,115 107,619
-------- --------
Earnings:
Earnings before income taxes 8,726 16,060
Income tax expense (3,163) (5,889)
-------- --------
Net earnings $5,563 $10,171
======== ========
Earnings per common and common
equivalent share:
Primary and fully diluted $.67 $1.20
======== ========
<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>
Three Months Ended March 31,
1995 1994
----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $5,563 $10,171
Adjustments to reconcile earnings
to cash provided (used) by
operating activities:
Depreciation and amortization 2,610 1,778
Deferred income taxes (539) (1,222)
Other non-cash items 1,800 2,434
Cash and short-term investments
segregated for regulatory purposes (30,000) 55,000
Net receivable from/payable to
brokers and dealers 34,449 (63,040)
Securities purchased under agreements
to resell (249,093) (51,657)
Net trading securities owned and
trading securities sold, but not
yet purchased 53,230 35,185
Short-term borrowings and drafts
payable of securities companies (56,647) 12,006
Net payable to customers 65,929 (8,650)
Securities sold under repurchase
agreements 193,959 60,049
Accrued compensation (23,336) (38,596)
Other 17,554 (3,123)
------- -------
Cash provided by operating activities 15,479 10,335
------- -------
Cash flows from financing activities:
Proceeds from:
Issuance of common stock 320 291
Subordinated and other debt -- 237
Payments for:
Revolving credit agreement, net (15,000) --
Subordinated and other debt (1,753) (574)
Dividends on common stock (1,291) (651)
------- -------
Cash (used) by financing activities (17,724) (697)
------- -------
Cash flows from investing activities:
Proceeds from investment dividends
and sales 25 481
Payments for equipment, leasehold
improvements and other (3,117) (3,271)
------- -------
Cash (used) for investing activities (3,092) (2,790)
------- -------
Increase/(decrease) in cash and
cash equivalents (5,337) 6,848
Cash and cash equivalents:
At beginning of period 22,764 14,047
------- -------
At end of period $17,427 $20,895
======= =======
Income tax payments totaled $187,000 and $2,615,000 and interest
payments totaled $13,984,000 and $7,664,000 during the three
months ended March 31, 1995 and 1994, 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, 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 period ended March 31, 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.
<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) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
Summary
Consolidated net earnings declined $4.6 million and net
revenues declined $4.8 million during the first quarter of 1995
compared to the first quarter of 1994, when the Company's Retail
and Corporate Capital business lines posted record results. First
quarter 1995 earnings comparisons were negatively impacted by the
effects of operating expense increases associated with the
significant growth during 1994 in the number of operating offices
locations and investment executives. Furthermore, the relative
stability of interest rates in the United States during the
entire first quarter of 1995 resulted in an improved trading
environment for all securities, particularly fixed income
products, compared to the latter part of the first quarter of
1994 (when the Federal Reserve Board engineered the first of a
series of 1994 interest rate increases). Finally, net interest
income continued to be a strong contributor to consolidated
earnings for the first quarter of 1995 due to favorable spreads
on customer balances achieved during the quarter and the increase
in average margin loan balances compared to prior quarters.
Results of Operations:
<TABLE>
<CAPTION>
Three Months Ended March 31,
(Unaudited, in thousands) 1995 1994
----------------------------
<S> <C> <C>
Net revenues:
Dain Bosworth Incorporated $76,388 $80,641
Rauscher Pierce Refsnes, Inc. 41,799 42,378
Corporate, other and eliminations 654 660
-------- --------
$118,841 $123,679
======== ========
Earnings (Loss) before income taxes:
Dain Bosworth Incorporated $5,685 $11,412
Rauscher Pierce Refsnes, Inc. 3,349 5,058
Corporate, other and eliminations (308) (410)
-------- --------
$8,726 $16,060
======== ========
</TABLE>
Principal transactions revenue increased $8.3 million or 23
percent during the first quarter of 1995 over the first quarter
of 1994 due to improved fixed income trading results associated
with comparatively more stable bond market conditions, and
increased fixed income product sales due to an increase in the
size of Dain Bosworth's fixed income salesforce resulting from
its 1994 fourth quarter acquisition of Clayton Brown Holding
Company. The increase in fixed income product sales by the
retail sales forces was primarily driven by increased demand from
retail customers due to comparatively higher yields offered by
these products over alternative investments.
The $5.8 million or 15 percent decline in commission
revenues was principally the result of decreased sales of mutual
funds. The decline was partially offset by a 11 percent increase
in the average number of retail investment executives and a 7
percent increase in the New York Stock Exchange's average daily
trading volume and higher securities prices.
Investment banking and underwriting revenues declined $10.0
million or 36 percent during the quarter over the prior year.
The decline is primarily the result of higher interest rates in
1995 relative to first quarter 1994. These interest rate
increases have significantly increased the costs of raising
capital for Dain Bosworth's and Rauscher Pierce Refsnes'
underwriting clients, thereby reducing the demand for such
municipal and corporate underwritings.
Net interest income increased $2.2 million or 29 percent
during the first quarter over prior year levels due to increased
margin loan balances, which resulted largely from the 11 percent
increase in the average number of retail investment executives.
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 $1.6 million or 40
percent over the 1994 first quarter from higher levels of assets
under management at IFG Asset Management Services, Inc. as well
as increased assets in managed account programs at Dain Bosworth
and Rauscher Pierce Refsnes.
Revenues from correspondent clearing services declined $.6
million or 19 percent from the prior year due primarily to the
loss of a significant RPR Clearing Services correspondent during
the second half of 1994.
During the 1995 first quarter, compensation and benefits
expense decreased $.8 million or 1 percent primarily from
reduced commissions, incentive compensation and related benefits
expenses due to lower operating revenues and earnings.
Offsetting those expense reductions were increased costs
associated with the 11 percent increase in the average number of
employees, as well as increased expenses related to the
recruitment of revenue-producing employees.
Expenses other than compensation and benefits increased $3.3
million or 12 percent over the 1994 first quarter largely as the
result of head count-driven increases in communications and
market data services and increased occupancy costs related to the
larger number of operating office locations.
In light of the difficult market conditions in which the
Company is currently operating, management has taken steps to
selectively pare expenses and reduce spending, generally in areas
not related to revenue production. Nonetheless, management
anticipates operating expenses will be somewhat higher during the
remainder of 1995 compared to 1994 due to the effects of
significant growth investments made during the last three
quarters of 1994. Management also anticipates delaying, where
possible, most future growth initiatives until the market
environment in which the Company operates improves.
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
March 31, 1995, net capital was $50.8 million at Regional
Operations Group, which was 7.7 percent of aggregate debit
balances and $17.6 million in excess of the 5 percent
requirement. At March 31, 1995 Dain Bosworth and Rauscher
Pierce Refsnes had net capital of $30.8 million and $21.6
million, respectively, in excess of the $1 million requirement.
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.
No additional shares were purchased during the quarter ended
March 31, 1995.
During the second quarter of 1995, the Company intends to
obtain a revolving credit agreement to replace its $15 million
facility that expires June 30, 1995.
<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 March 31, 1995.
<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: May 15, 1995 By Daniel J. Reuss
------------------ ------------------------
Daniel J. Reuss
Senior Vice President
and Treasurer
(Principal Financial Officer)
By Angela M. Chicoine
------------------------
Angela M. Chicoine
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX OF EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED MARCH 31, 1995
Exhibit 11 - Computation of Net Earnings Per Share
Filed herewith.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from
Inter-Regional Financial Group, Inc.'s March 31, 1995 Form 10-Q and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 385,427
<RECEIVABLES> 868,696
<SECURITIES-RESALE> 447,654
<SECURITIES-BORROWED> 0<F1>
<INSTRUMENTS-OWNED> 347,353
<PP&E> 30,836
<TOTAL-ASSETS> 2,123,152
<SHORT-TERM> 84,058
<PAYABLES> 1,172,751
<REPOS-SOLD> 367,931
<SECURITIES-LOANED> 0<F2>
<INSTRUMENTS-SOLD> 198,244
<LONG-TERM> 45,270
<COMMON> 1,011
0
0
<OTHER-SE> 199,001
<TOTAL-LIABILITY-AND-EQUITY> 2,123,152
<TRADING-REVENUE> 44,137
<INTEREST-DIVIDENDS> 25,299
<COMMISSIONS> 33,339
<INVESTMENT-BANKING-REVENUES> 17,888
<FEE-REVENUE> 5,715<F3>
<INTEREST-EXPENSE> 15,187
<COMPENSATION> 77,896
<INCOME-PRETAX> 8,726
<INCOME-PRE-EXTRAORDINARY> 5,563
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,563
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
<FN>
<F1>Included in Receivables
<F2>Included in Payables
<F3>Includes fees from Asset Management only
</FN>
</TABLE>
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 March 31,
1995 1994
----------------------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net earnings $ 5,563 $10,171
======= =======
Average number of common and common
equivalent shares outstanding:
Average common shares outstanding 8,058 8,149
Incentive stock options 218 356
------- -------
8,276 8,505
======= =======
Primary earnings per share $ .67 $ 1.20
======= =======
EARNINGS PER SHARE ASSUMING
FULL DILUTION:
Net earnings $ 5,563 $10,171
======= =======
Average number of common and common
equivalent shares outstanding:
Average common shares outstanding 8,058 8,149
Incentive stock options 239 356
------- -------
8,297 8,505
======= =======
Fully diluted earnings per share: $ .67 $ 1.20
======= =======
</TABLE>
