SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 of (IRS Employer
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $.125 New York Stock
per share Exchange, Inc.
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
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (Section 229.405 of this
chapter) is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ X]
As of February 28, 1995, 8,066,508 shares of common stock were
outstanding, and the aggregate market value of the common shares
(based upon the closing price at February 28, 1995, on the New
York Stock Exchange) of Inter-Regional Financial Group, Inc.,
held by non-affiliates was approximately $118,089,187.
Documents Incorporated by Reference
Portions of the Proxy Statement of Registrant to be
filed within 120 days of December 31, 1994 are
incorporated in Part III of this report.
<PAGE>
PART I
ITEM 1. BUSINESS:
(a) General Development of Business.
Inter-Regional Financial Group, Inc. (the "Company") is a holding
company, formed in 1973 and based in Minneapolis, Minnesota. The
Company offers regional securities broker-dealer and investment
banking services through its wholly owned subsidiaries, Dain
Bosworth Incorporated ("Dain Bosworth"), headquartered in
Minneapolis, Minnesota, and Rauscher Pierce Refsnes, Inc.
("Rauscher Pierce Refsnes"), headquartered in Dallas, Texas. The
Company's largest subsidiary, Dain Bosworth, serves the Midwest,
Rocky Mountain and Pacific Northwest regions of the United
States. In October 1994, Dain Bosworth acquired Chicago-based
Clayton Brown Holding Company ("Clayton Brown"), a privately held
firm specializing in the sale, trading and origination of fixed
income securities through its wholly owned brokerage subsidiary,
Clayton Brown & Associates, Inc. Such acquisition together with
retail employees hired in 1994 provides the Company with a base
for expansion in the Illinois market. At December 31, 1994, Dain
Bosworth had 1,916 employees located in 18 states. Rauscher
Pierce Refsnes primarily serves the Southwest region of the
United States. At December 31, 1994, Rauscher Pierce Refsnes had
1,058 employees located in eight states. Each of Dain Bosworth
and Rauscher Pierce Refsnes, as well as 130 correspondent
brokerage firms serviced through Rauscher Pierce Refsnes' RPR
Clearing Services unit ("RPR Clearing Services"), based in St.
Louis, Missouri, clears and settles all securities trades on a
fully disclosed basis through Regional Operations Group, Inc.
("ROG"), a third wholly owned subsidiary and registered broker-
dealer based in Minneapolis. ROG, which also provides data
processing and information services to IFG and its subsidiaries,
had 308 employees at December 31, 1994. IFG Asset Management
Services, Inc. ("AMS"), formerly known as Insight Investment
Management, Inc., the Company's wholly owned money management
subsidiary, manages a series of mutual funds, Great Hall
Investment Funds, and also provides fixed income portfolio
management services through its Insight Investment Management
("Insight Management") division. AMS, which was formed in
January 1995, has also begun to develop services to support the
sale by Dain Bosworth and Rauscher Pierce Refsnes investment
executives of externally managed mutual funds and cash management
products. The Company is a Delaware corporation with its
executive offices located at Dain Bosworth Plaza, 60 South Sixth
Street, Minneapolis, Minnesota 55402-4422. Its telephone number
is (612) 371-7750.
(b) Financial Information About Industry Segments
The Company, through its principal subsidiaries, operates in a
single segment, the securities broker-dealer and investment
banking business.
The following table lists the Company's revenues by source for
the last three years. Because these classes of services use the
same distribution personnel and facilities and the same support
services, it is impractical to identify the cost, expenses and
profitability of each class of service.
<PAGE>
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
REVENUES BY SOURCE
(Dollars in thousands)
<CAPTION>
Year Ended December 31,
1994 1993 1992
------------ ------------ -----------
Amount % Amount % Amount %
------ --- ------ --- ------ ---
<C> <C> <C> <C> <C> <C> <C>
Principal
Transactions:
Corporate
securities $86,825 17.5% $87,498 17.1% $74,091 16.9%
Municipal
obligations 26,343 5.3 23,324 4.6 21,352 4.9
Government
obligations and
other 25,959 5.2 28,482 5.5 30,696 7.0
------- ---- ------- ---- ------- ----
Total 139,127 28.0 139,304 27.2 126,139 28.8
------- ---- ------- ---- ------- ----
Commissions:
Listed securities 68,037 13.7 71,768 14.0 65,048 14.8
Mutual funds 41,717 8.4 45,913 9.0 36,862 8.4
Over-the-counter
securities 16,033 3.2 16,408 3.2 11,706 2.7
Options 4,434 0.9 3,919 0.8 3,542 0.8
Commodities and
other 1,422 0.3 1,280 0.2 1,596 0.4
------- ---- ------- ---- ------- ----
Total 131,643 26.5 139,288 27.2 118,754 27.1
------- ---- ------- ---- ------- ----
Investment Banking
and Underwriting:
Corporate 44,775 9.0 57,911 11.3 40,665 9.3
Municipal 34,346 6.9 60,770 11.9 55,852 12.8
Other 17,590 3.6 10,922 2.1 8,427 1.9
------- ---- ------- ---- ------- ----
Total 96,711 19.5 129,603 25.3 104,944 24.0
------- ---- ------- ---- ------- ----
Interest:
Customer margin
accounts 37,307 7.5 23,375 4.6 19,787 4.5
Trading inventories
and other 20,477 4.1 15,319 3.0 13,856 3.1
Deposits and short-
term investments 17,386 3.5 16,173 3.1 21,834 5.0
------- ---- ------- ---- ------- ----
Total 75,170 15.1 54,867 10.7 55,477 12.6
------- ---- ------- ---- ------- ----
Asset Management:
Individual and
institutional
accounts 11,349 2.3 6,483 1.3 4,244 1.0
Money market funds 7,115 1.4 5,915 1.1 4,986 1.1
Other mutual funds 489 0.1 419 0.1 221 0.1
------- ---- ------- ---- ------- ----
Total 18,953 3.8 12,817 2.5 9,451 2.2
------- ---- ------- ---- ------- ----
Correspondent
Clearing 11,590 2.4 11,499 2.3 9,627 2.2
Other 23,095 4.7 24,237 4.8 13,869 3.1
Total revenues $496,289 100.0% $511,615 100.0% $438,261 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
<PAGE>
(c) Narrative Description of Business
Securities Business
General. The securities broker-dealer and investment banking
activities of the Company are conducted through Dain Bosworth and
Rauscher Pierce Refsnes. Both Dain Bosworth and Rauscher Pierce
Refsnes deal in securities of and are market-makers for entities
based throughout the United States. In general, research and
investment banking activities are concentrated on entities based
in their respective regions. At December 31, 1994, Dain Bosworth
had 854 retail sales representatives and 87 institutional sales
representatives in 67 offices located in 18 states and Rauscher
Pierce Refsnes had 324 retail sales representatives and 49
institutional sales representatives in 28 offices located in
seven states. Both firms are member firms of the New York Stock
Exchange ("NYSE") and are registered in the NASDAQ system as
market makers. At December 31, 1994, Dain Bosworth was
registered as a market maker for 412 companies and Rauscher
Pierce Refsnes was registered as a market maker for 270
companies.
Dain Bosworth's and Rauscher Pierce Refsnes' operating results
are sensitive to many factors outside the control of the Company,
including volatility of securities prices and interest rates,
trading volume of securities, income and capital gains tax
legislation and demand for investment banking services. Economic
conditions in the regions in which Dain Bosworth and Rauscher
Pierce Refsnes operate also affect operating results.
Principal Transactions. Dain Bosworth and Rauscher Pierce
Refsnes are dealers in corporate, tax-exempt and governmental
fixed income securities and corporate equity securities and may
recognize profits or losses on transactions in, or fluctuations
in the value of, such securities held in inventory. These
inventories require the commitment of substantial capital and
expose the companies to the risk of a loss if market prices of
the securities held in inventory decrease. General market
conditions, interest rates and the financial prospects for
issuers of such securities may affect the market price of
securities held in inventory. Internal guidelines intended to
limit the size and risk of inventories maintained have been
established and are periodically reviewed.
Commission Business. As securities brokers, Dain Bosworth and
Rauscher Pierce Refsnes act as agents in the purchase and sale of
securities, options, commodities and futures contracts traded on
various securities and commodities exchanges or in the over-the-
counter ("OTC") market. Dain Bosworth and Rauscher Pierce
Refsnes charge a brokerage commission when acting as agent for
the purchaser or seller of a security. If the security is listed
on an exchange, the transaction is generally effected through
Dain Bosworth's or Rauscher Pierce Refsnes' own floor broker or a
floor broker who is unaffiliated with either of them. If the
security is traded in the OTC market, transactions are generally
effected with a market maker in the security. In addition, Dain
Bosworth and Rauscher Pierce Refsnes also earn commissions from
transactions involving various other financial products including
mutual funds. Dain Bosworth's and Rauscher Pierce Refsnes'
commission business is derived primarily from individual
investors. However, commission revenues from institutional
investors have increased in recent years and both companies are
investing resources to develop more fully their institutional
businesses.
Investment Banking Activities. Dain Bosworth and Rauscher Pierce
Refsnes earn investment banking revenues by assisting clients in
planning to meet their financial needs and advising them on the
most advantageous means of raising capital. Such plans are
sometimes implemented by managing or co-managing public offerings
of securities or by arranging private placements of securities
with institutional or individual investors. The syndicate
departments coordinate the distribution of managed and co-managed
corporate equity underwritings, accept invitations to participate
in competitive or negotiated underwritings managed by other
investment banking firms, and allocate and merchandise Dain
Bosworth's and Rauscher Pierce Refsnes' selling allotments to
their branch office systems, to institutional clients and to
other broker-dealers. Both companies are also among the leaders
in their respective regions in the origination, syndication and
distribution of securities of municipalities, state and local
agencies, health care organizations and financial institutions.
Participation in underwritings can expose the companies to
material risk since the possibility exists that securities they
have committed to purchase cannot be sold at the initial offering
price. Federal and state securities laws and regulations also
affect the activities of underwriters and impose substantial
potential liabilities for violations in connection with sales of
securities by underwriters to the public. In addition to public
offerings and private placements, Dain Bosworth and Rauscher
Pierce Refsnes provide other consulting services, including
providing valuations of securities and companies, arranging and
evaluating mergers and acquisitions and advising clients with
respect to financing plans and related matters.
Customer Financing. A significant portion of Dain Bosworth's and
Rauscher Pierce Refsnes' profitability is derived from net
interest income, the major portion of which relates to customer
balances. Customer transactions are effected on either a cash or
margin basis. Purchases on a cash basis require full payment by
the designated settlement date, generally the fifth business day
following the transaction date. (Beginning in June 1995, most
securities will settle on the third business day following the
transaction date.) ROG carries all customer balances of each of
Dain Bosworth, Rauscher Pierce Refsnes and the correspondent
introducing firms serviced by RPRCS and allocates interest income
and expense related to customers, as well as uncollectible
amounts due from customers, back to Dain Bosworth and Rauscher
Pierce Refsnes and, through Rauscher Pierce Refsnes, to such
correspondent introducing firms. Both Dain Bosworth and Rauscher
Pierce Refsnes are at risk in the event a customer fails to
settle a trade and the value of the securities declines
subsequent to the transaction date. When a purchase is made on a
margin basis, Dain Bosworth or Rauscher Pierce Refsnes, through
ROG, extends credit to the customer for a portion of the purchase
price. The amount of the loan is subject to margin regulations
of the Federal Reserve Board, the NYSE and the internal policies
of Dain Bosworth, Rauscher Pierce Refsnes and ROG, which are
generally more stringent than applicable regulations. In
permitting customers to purchase on margin, Dain Bosworth and
Rauscher Pierce Refsnes, through ROG, take the risk that a market
decline could reduce the value of the collateral securing the
margin loan below the amount of the customer's indebtedness and
that the customer might be unable to repay the indebtedness.
Interest is charged at a floating rate based on amounts borrowed
by customers to finance purchases on margin. The rate charged is
dependent on the average net debit balance in the customer's
accounts, the activity level in the accounts and the applicable
cost of funds.
Customers will at times accumulate credit balances in their
accounts. Such balances result from payment of dividends,
interest or principal on securities held for such customers, from
funds received in connection with sales of a customer's
securities and from cash deposits made by customers pending
investment. Pending investment of such funds or reimbursement
upon the customer's request, ROG pays interest on those credit
balances on behalf of Dain Bosworth and Rauscher Pierce Refsnes.
ROG uses available credit balances to lend funds to Dain Bosworth
and Rauscher Pierce Refsnes customers purchasing securities on
margin. Excess customer credit balances are invested in short-
term securities in accordance with applicable regulations and are
segregated for the exclusive benefit of customers. Both Dain
Bosworth and Rauscher Pierce Refsnes generate net interest income
through ROG from the positive interest rate spread between the
rate earned from margin lending and alternative short-term
investments and the rate paid on customer credit balances.
Dain Bosworth, Rauscher Pierce Refsnes and ROG are members of the
Securities Investor Protection Corporation ("SIPC"), which
insures customer accounts up to specified limits in the event of
liquidation. Additionally, all three firms maintain insurance
coverage in order to insure customer accounts to specified
amounts in excess of SIPC coverage.
Security Repurchase Activities. Dain Bosworth and Rauscher
Pierce Refsnes act as principals in the purchase and sale to
their customers of securities of the United States Government and
its agencies, including repurchase agreements in such securities
and certain other money market instruments. Dain Bosworth and
Rauscher Pierce Refsnes may match purchases and sales of these
securities. Dain Bosworth and Rauscher Pierce Refsnes are at
risk to the extent that they do not properly match the contracts
or their customers are unable to meet their obligations,
especially during periods of rapidly changing interest rates and
fluctuations in market conditions. All positions are
collateralized. Dain Bosworth and Rauscher Pierce Refsnes
generally take physical possession of securities purchased under
agreements to resell. Such agreements provide Dain Bosworth and
Rauscher Pierce Refsnes with the right to maintain the
relationship between the market value of the collateral and the
receivable. Typically, these contracts are entered into only
with clients of substantial size and credit-worthiness. Dain
Bosworth and Rauscher Pierce Refsnes also periodically utilize
securities sold under repurchase agreements as a means of
financing portions of their trading inventories and facilitating
hedging transactions.
Securities Lending and Borrowing Activities. Securities brokers
and dealers, including ROG, borrow securities from and lend
securities to other brokers and dealers to facilitate clearance
and delivery of securities that have been sold when customers
fail to deliver securities prior to settlement date. ROG also
will act as a conduit by arranging securities lending
transactions between brokers wishing to lend securities and those
wishing to borrow the same securities. When such transactions
occur, the lending broker provides excess customer margin
securities to the borrowing broker in return for a cash deposit
that is generally equivalent to 102 percent of the market value
of the securities loaned. Both the lending and borrowing brokers
have the right to mark the securities to market in order to
maintain the relationship between the market value of the
securities loaned and the cash collateral deposited. When the
securities are no longer needed by the borrowing firm, they are
returned to the lending broker, which returns the cash deposit
held, plus interest, to the borrowing broker. When engaging in
such securities lending and borrowing activities, ROG collects
cash deposits from brokers that collateralize the securities
loaned, invests the cash deposit and profits from the spread
between the interest rate paid to the borrowing broker on the
cash deposit and the rate earned by ROG. In all securities
lending transactions, ROG is at risk to the extent that it does
not maintain the relationship between the market value of
securities loaned and the value of the cash deposit held. ROG is
also at risk to the extent that securities it borrows decline in
value and the loaning broker fails to return ROG's cash deposit.
Research Activities. Both Dain Bosworth and Rauscher Pierce
Refsnes have research departments which provide analysis,
investment recommendations and market information with an
emphasis on companies located in their respective regions. At
December 31, 1994, Dain Bosworth had 16 securities analysts and
Rauscher Pierce Refsnes had 11. Both companies also purchase
certain research products from independent research organizations
to supplement their internal research activities.
Regulation. The securities industry is subject to comprehensive
regulation by federal and state governments, the various
securities and commodities exchanges and other self-regulatory
bodies. The regulations cover all aspects of the securities
business including sales methods, registration and distribution
of securities, trade practices among broker-dealers, transactions
with affiliates, conflicts of interest, uses and safekeeping of
customers' funds and securities, capital levels of securities
firms, record keeping and the conduct of employees. Violations
of these rules and regulations can result in censure, fines,
suspensions, revocation of the right to do business and private
rights of action for damages. Dain Bosworth, Rauscher Pierce
Refsnes, ROG and AMS believe they have operated in compliance
with applicable rules and regulations in all material respects.
Uniform Net Capital Rule. As broker-dealers and member firms of
the NYSE, Dain Bosworth, Rauscher Pierce Refsnes and ROG are
subject to the Uniform Net Capital Rule (the "Rule") promulgated
by the Securities and Exchange Commission (the "Commission").
The Rule is designed to measure the general financial integrity
and liquidity of a broker-dealer and the minimum net capital
deemed necessary to meet the broker-dealer's continuing
commitments to its customers. The Rule provides for two methods
of computing net capital. ROG, which carries all of the customer
accounts of Dain Bosworth, Rauscher Pierce Refsnes and the
correspondent firms serviced through RPR Clearing Services,
currently uses what is generally referred to as the alternative
method. Minimum net capital is defined under this method to be
equal to 2 percent of customer debit balances, as defined. The
NYSE may also require a member organization to reduce its
business if net capital is less than 4 percent of such aggregate
debit items and may prohibit a member firm from expanding its
business and declaring cash dividends if its net capital is less
than 5 percent of such aggregate debit items. In computing net
capital, various adjustments are made to exclude assets which are
not readily convertible into cash and to provide a conservative
valuation of other assets such as a company's trading securities.
Failure to maintain the required net capital may subject a firm
to suspension or expulsion by the NYSE, the Commission and other
regulatory bodies and may ultimately require its liquidation.
Dain Bosworth and Rauscher Pierce Refsnes, which do not carry
customer accounts, must maintain minimum net capital of $1
million each. At all times, Dain Bosworth, Rauscher Pierce
Refsnes and ROG have maintained their net capital above the
required levels. See Note K to "Consolidated Financial
Statements."
Money Management
AMS was formed in January 1995 as a new financial services
organization supporting all mutual fund and cash management
products sold by Dain Bosworth and Rauscher Pierce Refsnes as
well as mutual fund vendor relations. In addition, AMS, a
registered investment advisor, will continue to conduct the
portfolio management business of Insight Investment Management,
now a division of AMS, including the provision of fixed income
portfolio management services to Great Hall Investments Funds,
Inc., ("Great Hall") and to individual and institutional clients.
Great Hall is an open-end management investment company that
currently offers shares in five series, each of which is, in
essence, a separate mutual fund. Three of the Great Hall series
are "money market" funds and the remaining two series invest
primarily in longer-term municipal securities. Although Insight
Management's expertise has historically been in the tax-exempt
fixed-income area, AMS plans to develop and expand the division's
taxable fixed income management capabilities and to market such
expanded services primarily to institutional investors.
Since 1993 AMS has also introduced and sponsored four series of
Great Hall Value Ten Trusts, unit investment trusts offering
units in a portfolio of "blue chip" equity securities, and two
series of Great Hall Equity Trusts, one focusing on stocks of
issuers located within the Rocky Mountain region of the U.S. and
the other focusing on common and preferred stocks of utility
companies. AMS has no current plans to sponsor additional unit
investment trusts.
Clearing and Other Services
In April 1993 ROG began clearing and settling trades on a fully
disclosed basis for Dain Bosworth, Rauscher Pierce Refsnes and
the correspondent introducing firms previously clearing through
them. RPR Clearing Services, a division of Rauscher Pierce
Refsnes, is in the business of marketing correspondent clearing
services provided by ROG. As of December 31, 1994, ROG provided
clearing services to 130 correspondent introducing firms
introduced through RPR Clearing Services and one correspondent
introducing firm introduced through Dain Bosworth. ROG also
provides data processing services to the Company and its
subsidiaries. Correspondent firms introduced through RPR
Clearing Services or otherwise and cleared through ROG are
charged fees based on their use of services.
Real Estate Services
Prior to its dissolution in 1994, Minneapolis-based Dain
Corporation provided real estate investment and portfolio
management services. Prior to 1989, Dain Corporation sold
participation interests in the partnerships to individual and
institutional investors primarily through the sales
representatives of Dain Bosworth, Rauscher Pierce Refsnes and
other financial services firms. However, as a result of federal
tax reform, depressed market values and extremely tight credit
conditions that dramatically affected the real estate industry,
Dain Corporation raised its last capital for new property
syndications in 1988. Since that time Dain Corporation focused
its resources on managing the portfolio of properties owned by
partnerships in which it served as general partner and on selling
partnership properties as it deemed appropriate, subject to the
approval of the limited partners. During 1994 Dain Corporation
sold the remaining properties owned by partnerships in which it
served as general partner and is now inactive.
Competition
Dain Bosworth, Rauscher Pierce Refsnes and AMS encounter intense
competition in their businesses and compete directly with
numerous firms, many of which have substantially greater capital
and other resources. Such subsidiaries also encounter
competition from banks, insurance companies and financial
institutions in many elements of their businesses. Legislative
proposals currently under consideration would permit banks to
offer additional services which have traditionally been provided
only by securities and money management firms. Additionally,
competition among securities firms and other competitors for
successful sales representatives, securities traders and
investment bankers is intense and continuous.
Dain Bosworth and Rauscher Pierce Refsnes compete with other
securities firms and with banks, insurance companies and other
financial institutions principally on the basis of service,
product selection, location and reputation in local markets.
Dain Bosworth and Rauscher Pierce Refsnes operate at a price
disadvantage to discount brokerage firms that do not offer
equivalent services.
RPR Clearing Services competes for the business of correspondent
introducing brokers on the basis of service, product selection,
reputation and price.
AMS' Insight Management division competes with other fixed income
portfolio managers principally on the basis of portfolio
performance, price and convenience.
Employees
At December 31, 1994, the Company had approximately 3,340 full-
time employees. Of these, 1,916 were employed by Dain Bosworth,
1,058 were employed by Rauscher Pierce Refsnes, 308 were employed
by ROG and the rest were employed in other activities. None of
the Company's employees is represented by a collective bargaining
unit.
ITEM 2. PROPERTIES:
The headquarters and administrative offices of the Company, Dain
Bosworth, AMS and ROG are located in three buildings in downtown
Minneapolis, Minnesota, including the Dain Bosworth Plaza. The
Company began occupying space in the new Dain Bosworth Plaza
under a long-term operating lease in January 1992. The Company's
office space in a second building remains under a long-term lease
commitment and was renovated in 1992 to facilitate the
consolidation of the Company's clearance and settlement functions
into ROG (see "Clearing and Other Services"). Additional space
in a third building in Minneapolis was obtained in 1994 by ROG
under an operating lease to facilitate growth. Rauscher Pierce
Refsnes leases office space in Dallas, Texas that is used as its
corporate headquarters. During 1994 Rauscher Pierce Refsnes
entered into a long-term operating lease for new headquarters
space in Dallas, Texas which it will occupy commencing during the
1995 third quarter. Both Dain Bosworth and Rauscher Pierce
Refsnes have extensive branch office systems which lease space in
various locations throughout their regions. As a result of its
acquisition of Clayton Brown in October 1992, Dain Bosworth also
has a long-term lease commitment for Clayton Brown's former
headquarters in Chicago. The Company believes that its
facilities are suitable and adequate to meet its needs and that
such facilities have sufficient productive capacity and are
appropriately utilized.
Further information about the lease obligations of the Company is
provided in Note I to the "Consolidated Financial Statements."
ITEM 3. LEGAL PROCEEDINGS:
Dain Bosworth and Rauscher Pierce Refsnes are defendants in
numerous civil actions and arbitrations incidental to their
business involving alleged violations of federal and state
securities laws and other laws. Some of these actions, including
certain actions against Rauscher Pierce Refsnes described in more
detail in previous filings and below, have been brought on behalf
of purported classes of plaintiffs claiming substantial damages
relating to underwritings of securities.
On September 26, 1994, a Settlement Agreement was entered into by
certain settling plaintiffs and settling defendants in connection
with the multi-district proceeding, In Re Taxable Bond Securities
Litigation (MDL 863), in which Rauscher Pierce Refsnes is named
as a defendant. As described in detail in previous filings, this
action resulted from Rauscher Pierce Refsnes' participation in
the underwriting syndicates for seven taxable municipal bond
offerings for an aggregate of $1.55 billion. Rauscher Pierce
Refsnes underwrote an aggregate of $57.8 million of such bonds
and served as a co-manager of one $200 million bond offering.
Rauscher Pierce's portion of the underwriting syndicates'
contribution to the settlement fund was approximately $870,000.
Such funds are being held in escrow pending satisfaction of
certain requirements contained in the Settlement Agreement,
including, among others, a requirement that the United States
District Court for the Eastern District of Louisiana hold a
hearing and determine that the settlement should be approved as
fair, reasonable and adequate. In addition, the settlement may
be terminated if the aggregate amount of the claims of members of
the plaintiff class who elect not to participate in the
settlement exceeds certain specified limits. Rauscher Pierce
Refsnes believes that it has substantial and meritorious defenses
to the claims raised by the plaintiffs. If the settlement is not
consummated or is consummated but the plaintiffs in any of the
actions in which Rauscher Pierce is a defendant elect to not to
participate in the settlement, Rauscher Pierce will vigorously
defend itself against such actions.
Rauscher Pierce Refsnes is one of 13 broker-dealer defendants
named in a purported class action, Smith, et al. v. Merrill Lynch
& Co., Inc., et al. (SA CV-94-1063-LIIM), pending in the United
States District Court for the Central District of California.
The case arises out of the issuance of debt securities by Orange
County, California ("the County") and participants in the Orange
County Investment Pool ("the Pool Participants") between July
1992 and December 1994 ("the class period"). The County and the
Orange County Investment Pool each commenced Chapter 9 bankruptcy
proceedings on December 6, 1994. Several class action complaints
against Merrill Lynch and certain other defendants were filed
shortly thereafter; the cases were subsequently consolidated and
amended to name additional brokerage firm defendants, including
Rauscher Pierce Refsnes. Rauscher Pierce Refsnes was first
served with the amended consolidated complaint on March 7, 1995.
The named plaintiffs allegedly purchased securities in numerous
issues over the class period, two of which involved Rauscher
Pierce Refsnes: a $299.7 million one-year tax and revenue
anticipation note issue by a group of school districts in the
name of the County in July 1994, in which Rauscher Pierce Refsnes
was the financial advisor, and a $119.2 million long-term special
tax bond issue by a community facilities district in July 1992 in
which Rauscher Pierce Refsnes served as a co-managing underwriter
along with two other brokerage firms. Plaintiffs purport also to
represent purchasers of other securities issued by the County or
Pool Participants during the class period, including securities
issued in additional transactions in which Rauscher Pierce
Refsnes was an underwriter or financial advisor. Plaintiffs
allege violations of federal and state securities laws. They
seek an unspecified amount of compensatory damages, rescission
and other relief. Rauscher Pierce Refsnes believes that it has
substantial and meritorious defenses available and plans 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 Dain Bosworth and Rauscher Pierce
Refsnes, believes that the resolution of all such matters will
not have a material adverse effect on the Company's consolidated
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matters were submitted to a vote of security holders during
the fourth quarter ended December 31, 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following officers have been designated by the Board of
Directors of the Company as its current "executive officers" for
SEC reporting purposes. All officers are generally elected
annually at the Board meeting held in conjunction with the
Company's Annual Stockholders meeting and hold such offices until
the following year, subject to their earlier death, resignation
or removal.
Principal Occupation and
Business Experience
Name Age for the Past Five
Years
- ----- --- -----------------------
John C. Appel 46 President and Chief Operating
Officer, Dain Bosworth Incorporated
since February 1994; Executive Vice
President and Chief Financial
Officer, Dain Bosworth
Incorporated, April 1990 to
February 1994; Executive Vice
President, IFG since April 1990;
Senior Vice President, IFG, from
May 1986 to April 1990; Chief
Financial Officer, IFG, from May
1986 to February 1994. Member IFG
Executive Committee.
Angela M. Chicoine 32 Controller, IFG, since March 1995.
Vice President and Director of
Corporate Audit, IFG, since June
1993. Field Audit Manager,
Honeywell Inc., from January 1992
to June 1993. Audit Manager,
Coopers & Lybrand from June 1989 to
January 1992.
Jerry W. Hayes 49 President and Chief Executive
Officer, Regional Operations Group,
Inc. since May 1992. Senior Vice
President of Dain Bosworth
Incorporated, from May 1992 to
November 1992; Senior Vice
President, Marquette Bank,
Minneapolis from December 1989 to
April 1992. Member of IFG
Executive Committee.
Richard D. McFarland 65 Chairman of the Board, IFG since
June 1985; Chief Executive Officer,
IFG, from June 1985 to December
1989; President of IFG from January
1982 to June 1985. Mr. McFarland
has announced intention to retire
as Chairman of the Board effective
May 1995.
Mary M. Melbo 44 Executive Vice President - Human
Resources of IFG since January
1995. Executive Vice President -
Director of Human Resources of Dain
Bosworth Incorporated from February
1994 to January 1995. Senior Vice
President - Director of Human
Resources of Dain Bosworth
Incorporated from January 1991 to
February 1994. Vice President -
Human Resources, Commercial and
Investment Banking, First Bank
System, Inc. from September 1987 to
November 1990. Member of IFG
Executive Committee.
Daniel J. Reuss 39 Acting Chief Financial Officer,
IFG, since February 1994; Senior
Vice President, IFG since May 1991;
Vice President, IFG April 1987 to
May 1991; Treasurer, IFG since May
1989; Corporate Controller, IFG
February 1985 to March 1995.
Appointed Executive Vice President
and Chief Financial Officer, Dain
Bosworth effective January 1, 1995,
however, Mr. Reuss continues to
serve in his IFG role as Chief
Financial Officer and Treasurer on
an interim basis.
Carla J. Smith 37 Senior Vice President, IFG, since
May 1994; General Counsel and
Secretary, IFG, since January 1991;
Partner, Dorsey & Whitney, from
January 1989 to June 1990;
Associate, Dorsey & Whitney, from
May 1981 to December 1988.
David A. Smith 48 Chief Executive Officer, Rauscher
Pierce Refsnes since May 1983;
President, Rauscher Pierce Refsnes
since January 1985; Chairman of the
Board, Rauscher Pierce Refsnes
since January 1990; Executive Vice
President of IFG since May 1991.
Member of IFG Executive Committee.
J. Scott Spiker 39 President, IFG Asset Management
Services, Inc. and Chief Executive
Officer of its Insight Investment
Management division since January
1995. Senior Vice President and
Director of Strategic Planning and
Corporate Development, IFG from
February 1994 to December 1994;
Senior Vice President and Manager
Employee Benefit Services, Norwest
Bank Minnesota, N.A., June 1989 to
January 1994; Vice President,
Strategic Planning and
Acquisitions, Norwest Corporation,
December 1987 to June 1989. Member
of IFG Executive Committee.
Irving Weiser 47 Chief Executive Officer, IFG since
January 1990; President, IFG since
July 1985; Chief Executive Officer,
Dain Bosworth Incorporated since
April 1990; Chairman of the Board,
Dain Bosworth Incorporated since
April 1990; President, Dain
Bosworth Incorporated from April
1990 to February 1994. Member of
IFG Executive Committee.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS:
(a) Market Information.
The Company's common stock trades on the NYSE under the symbol
"IFG." The high and low sales prices per share of the Company's
common stock by quarter for the last two years were as follows:
<TABLE>
<CAPTION>
1994 1993
-------------------- --------------------
Quarter High Low High Low
-------------------- --------------------
<S> <C> <C> <C> <C>
First $32-5/8 $26-1/4 $22 $17-7/8
Second 27-3/4 22-1/4 22-1/2 19-3/8
Third 26-5/8 20 30-1/4 21-1/8
Fourth 24 22 34 26-1/2
</TABLE>
(b) Holders.
At February 28, 1995, there were approximately 5,700 shareholders
of the Company's common stock. The number of shareholders was
determined by adding the number of recordholders to the estimated
number of proxies to be sent to street name holders.
(c) Dividends.
Cash dividends per common share paid by the Company by quarter
for the last two years were as follows:
<TABLE>
<CAPTION>
Quarter 1994 1993
------- ---- ----
<S> <C> <C>
First $.08 $.04
Second .16 .08
Third .16 .08
Fourth .16 .08
</TABLE>
The determination of the amount of future cash dividends, if any,
to be declared and paid will depend on the Company's future
financial condition, earnings and available funds.
ITEM 6. SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in
thousands, ---------------------------------------------------
except per-share
amounts) 1994 1993 1992 1991 1990
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues: (A)
Dain Bosworth
Incorporated $290,753 $301,808 $255,324 $204,346 $157,805
Rauscher Pierce
Refsnes, Inc. 163,905 179,649 150,522 120,817 85,344
Corporate, other
and eliminations 2,693 1,503 62 (2,571) (3,505)
------- ------- ------- ------- -------
Total net
revenues $457,351 $482,960 $405,908 $322,592 $239,644
======= ======= ======= ======= =======
Total revenues $496,289 $511,615 $438,261 $378,274 $312,882
======= ======= ======= ======= =======
Earnings (Loss)
before income taxes
and extraordinary
items:
Dain Bosworth
Incorporated $27,961 $51,717 $38,912 $26,072 $6,912
Rauscher Pierce
Refsnes, Inc. 14,551 30,080 21,183 12,839 (782)
Corporate, other
and eliminations (2,717) (4,444) (6,404) (5,893) (4,524)
------- ------- ------- ------- -------
$39,795 $77,353 $53,691 $33,018 $1,606
======= ======= ======= ======= =======
Net earnings:
Before
extraordinary
items $25,453 $47,649 $34,523 $21,130 $1,325
Extraordinary
items, net __ __ __ 6,611 12,349
------- ------- ------- ------- -------
$25,453 $47,649 $34,523 $27,741 $13,674
======= ======= ======= ======= =======
Earnings before extraordinary
items, per common
and common
equivalent share:
Primary $3.04 $5.67 $4.03 $2.50 $.16
======= ======= ======= ======= =======
Fully diluted $3.04 $5.63 $3.91 $2.30 $.16
======= ======= ======= ======= =======
Total assets $1,952,611 $1,786,022 $1,270,945 $1,464,359 $1,367,791
========= ========= ========= ========= =========
Long-term
debt $47,023 $22,166 $16,364 $26,686 $45,166
======= ======= ======= ======= =======
Shareholders'
equity $195,420 $177,683 $131,953 $104,110 $76,234
======= ======= ======= ======= =======
Other
information:
Equity per
common share $24.30 $21.86 $16.33 $12.56 $9.18
Cash dividends
per common
share (B) $.56 $.28 $.12 $__ $__
Common shares
outstanding at
year-end, in
thousands 8,041 8,131 8,082 8,171 8,096
Pretax margin -
before
extraordinary
items, based on
net revenues 8.7% 16.0% 13.2% 10.2% .7%
Net return on
average equity -
before
extraordinary
items 13.5% 31.0% 28.9% 23.8% 2.4%
Net return on
average equity -
net earnings 13.5% 31.0% 28.9% 31.3% 20.1%
Long-term debt-
to-equity ratio 24.1% 12.5% 12.4% 25.6% 59.2%
Average number of
employees 3,133 2,806 2,591 2,391 2,390
Average number
of investment
executives 1,205 1,084 1,009 943 927
Operating office
locations at
year end 95 81 78 74 69
<FN>
(A) Net revenues equal total revenues less interest expense.
(B) 1992 dividends exclude a $.16 per share special dividend
paid in February 1992.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
Business Environment
The Company's subsidiaries are principally engaged in securities
brokerage, investment banking and trading as principals in equity
and fixed income securities. All of these activities are highly
competitive and sensitive to many factors outside the control of
the Company, including volatility of securities prices and
interest rates, trading volume of securities, economic conditions
in the regions in which the Company does business, income tax
legislation and demand for investment banking services. While
revenues are dependent upon the level of trading volume, which
may fluctuate significantly, a large portion of the Company's
expenses remain fixed. Consequently, net earnings can vary
significantly from period to period.
Three Years Ended December 31, 1994
Summary of Operating Results
Net earnings totaled $25.5 million in 1994, a decrease of $22.2
million or 47 percent from the record earnings achieved in 1993.
Net revenues (revenues less interest expense) for 1994 were
$457.4 million, $25.6 million or 5 percent less than in the
previous year. During 1994 the financial markets in which the
Company and its competitors operate deteriorated, chiefly as a
result of a series of interest rate increases that began late in
the first quarter. Six successive interest rate increases by the
Federal Reserve Board during the year led to lower and more
volatile securities prices, particularly in fixed income
securities, reduced levels of municipal and corporate
underwritings and general uncertainty on the part of investors.
Industry profitability declined in 1994, particularly at firms
with significant dependence upon the fixed income business. The
Company's broker-dealer subsidiaries have substantial fixed
income operations and, consequently, 1994 results were negatively
impacted by the volatility in the fixed income markets. During
the year the Company made significant investments in long-term
growth initiatives within its core businesses, including its
fixed income business. Management estimates that Dain Bosworth's
October 1994 acquisition of Clayton Brown had a negative impact
on the Company's 1994 fourth quarter and full-year net earnings
of approximately $800,000 or $.10 per share (see "Liquidity and
Capital Resources"). While this investment and others, including
growth in the retail sales forces, enhanced net revenues during
1994, such incremental revenues were more than offset by
increased expenses. The 1994 growth initiatives increased the
Company's future production capability, yet adversely affected
1994 profit margins.
During 1993 net earnings totaled $47.6 million, an increase of
$13.1 million or 38 percent over the prior year. Net earnings
and net revenues for 1993 represented the highest achieved in the
Company's history. The Company, along with the rest of the
securities industry, benefited in 1993 from continued strong
financial markets, low interest rates, high securities prices and
increased levels of municipal and corporate underwritings. As a
result of the favorable economic environment and, in management's
opinion, actions taken during the two to three years prior to
1993, the Company's core securities brokerage and investment
banking businesses within Dain Bosworth and Rauscher Pierce
Refsnes all posted record results for 1993.
Comparative Net Revenues and Expenses Summary. The following is
a summary of the year-to-year increases (decreases) in categories
of net revenues and operating expenses:
<TABLE>
<CAPTION>
1994 vs. 1993 1993 vs. 1992
---------------- ----------------
(Dollars in thousands) Amount % Amount %
---------------- ----------------
<S> <C> <C> <C> <C>
Net Revenues:
Principal transactions $(177) __% $13,165 10%
Commissions (7,645) (5) 20,534 17
Investment banking and
underwriting (32,892) (25) 24,659 23
Net interest 10,020 38 3,088 13
Asset management 6,136 48 3,366 36
Correspondent clearing 91 1 1,872 19
Other (1,142) (5) 10,368 75
------ --- ------ ---
(25,609) (5) 77,052 19
------ --- ------ ---
Expenses excluding
interest:
Compensation and
benefits 1,089 __ 39,747 16
Communications 6,298 20 4,685 18
Occupancy and equipment
rental 4,020 16 1,748 8
Travel and promotional 3,792 24 3,315 26
Floor brokerage and
clearing fees 1,011 12 1,125 15
Other (4,261) (13) 2,770 9
------ --- ------ ---
11,949 3 53,390 15
------ --- ------ ---
Earnings before income
taxes $(37,558) (49)% $23,662 44%
====== === ====== ===
</TABLE>
Principal Transactions
Principal transactions revenue declined less than 1 percent from
1993 to 1994. While over-the-counter equity and tax-exempt fixed
income trading revenues increased 6 percent over the prior year,
revenues from the trading of taxable fixed income products
declined 15 percent. With the presence of rising interest rates,
the 1994 trading environment for fixed income products, in
particular, was much more volatile and difficult than in 1993
resulting in reduced trading profits in 1994. However,
individual investor demand for and revenues from certain fixed
income products, particularly tax-exempt securities increased due
to comparatively larger Dain Bosworth and Rauscher Pierce Refsnes
sales forces, as well as comparatively higher yields offered by
such fixed income investments than in the prior year.
The 10-percent increase in revenues from principal transactions
in 1993 over 1992 was due primarily to higher transaction
volumes, declining interest rates and improved trading results in
over-the-counter equity and fixed income securities (both taxable
and tax-exempt).
Commissions
The $7.6 million or 5-percent decrease in commission revenues
from 1993 to 1994 was due principally to lower sales of mutual
fund and listed securities to individual and institutional
investors and lower securities prices. The decline was partially
offset by the effects of 11-percent increases in both the average
number of investment executives and the New York Stock Exchange
average daily trading volume.
Commission revenues increased 17 percent in 1993 over 1992, due
chiefly to higher sales of mutual funds and listed securities.
Contributing to the increase was a 7-percent rise in the average
number of investment executives, as well as a 30-percent increase
in the New York Stock Exchange's average daily trading volume and
higher securities prices.
Investment Banking and Underwriting
Investment banking and underwriting revenues declined $32.9
million or 25 percent in 1994 from the prior year as rising
interest rates 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. Revenues and pretax
profits derived from municipal refundings fell from approximately
$41 million and $13 million, respectively, in 1993 to $17 million
and $2 million, respectively, in 1994, as anticipated by the
Company. The effects of the decline in municipal refunding
transactions, however, were partially offset by increases at both
Dain Bosworth and Rauscher Pierce Refsnes in fee-based investment
banking revenues, most significantly mergers and acquisitions,
restructuring and private placement services performed for
corporate clients.
Investment banking and underwriting revenues increased 23 percent
from 1992 to 1993 as Dain Bosworth and Rauscher Pierce Refsnes
clients issued greater quantities of corporate and municipal
securities in order to take advantage of the then-favorable
market conditions for raising capital. During 1993 investment
banking revenues benefited from an increased number of initial
public offerings underwritten for corporate clients, as well as
the aforementioned volumes of municipal refundings.
Net Interest Income
The major sources of interest revenues and expenses for the past
three years are:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
(In thousands) 1994 1993 1992
--------------------------
<S> <C> <C> <C>
Revenues:
Customer margin accounts $37,307 $23,375 $19,787
Trading inventories and other 20,477 15,319 13,856
Deposits and short-term
investments 17,386 16,173 21,834
------ ------ ------
75,170 54,867 55,477
------ ------ ------
Expenses:
Customer funds on deposit 22,125 16,249 21,571
Short-term bank loans and other 14,946 10,850 8,955
Subordinated and other
long-term debt 1,867 1,556 1,827
------ ------ ------
38,938 28,655 32,353
------ ------ ------
Net interest income $36,232 $26,212 $23,124
====== ====== ======
</TABLE>
Short-term investments segregated for regulatory purposes and
margin loans to customers, both financed primarily by credit
balances in customer accounts, comprise the majority of the
Company's interest-earning assets. Fixed income trading
inventories, which are generally financed with short-term bank
borrowings or repurchase agreements, also generated significant
net interest income. The Company's net interest income is
dependent upon the level of customer balances and trading
inventories, as well as the spread between the rate it earns on
those assets compared with its cost of funds.
Net interest income accounted for 8 percent of the Company's net
revenues in 1994 versus 5 percent in 1993 and 6 percent in 1992.
The majority of the 1994 increase was due to a 35-percent rise in
margin loan balances, which resulted largely from the 11-percent
increase in the average number of investment executives. Also, a
portion of the increase was the result of increasing spreads on
all customer balances, as well as increases in stock borrow and
stock loan activities. See "Liquidity and Capital Resources."
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.
Average balances and interest rates for 1992 through 1994 are:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
(Dollars in thousands) 1994 1993 1992
---------------------------
<S> <C> <C> <C>
Interest revenues:
Margin loans to customers
Average balance $526,088 $388,398 $299,438
Average interest rate 7.1% 6.0% 6.6%
------- ------- -------
$37,307 $23,375 $19,787
======= ======= =======
Deposits and short-term investments
Average balance $409,648 $534,723 $597,669
Average interest rate 4.2% 3.0% 3.7%
------- ------- -------
$17,386 $16,173 $21,834
======= ======= =======
Interest expense:
Interest-bearing customer funds
on deposit
Average balance $679,305 $685,194 $701,765
Average interest rate 3.3% 2.4% 3.1%
------- ------- -------
$22,125 $16,249 $21,571
======= ======= =======
</TABLE>
Asset Management
Asset management revenues increased 48 percent in 1994 from 1993
and 36 percent from 1992 to 1993 as a result of 34-percent and
12-percent increases, respectively, in assets under management at
AMS, as well as increased revenues from larger volumes of assets
in fee-based, managed account programs at Dain Bosworth and
Rauscher Pierce Refsnes.
Correspondent Clearing
Correspondent clearing revenues increased less than 1 percent
from 1993 to 1994 as the positive effect of increased trade
volumes handled by RPR Clearing Services, the Rauscher Pierce
Refsnes unit that markets correspondent clearing services and
coordinates clearing for 130 correspondent brokerage firms, was
offset by the 1994 loss of a significant RPR Clearing Services
correspondent. Such revenues increased $1.9 million or 19
percent from 1992 to 1993 primarily as a result of increased
trade volumes and a 13-percent increase in the number of
correspondents handled by RPR Clearing Services.
Other Revenues
The 1994 decline and 1993 increase in other revenues was
primarily the result of a one-time gain in 1993 of approximately
$5.2 million 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. Partially offsetting the absence of this gain in 1994
were increased revenues from sales of insurance products and
fees earned from Individual Retirement Accounts and other types
of accounts.
Compensation and Benefits
Compensation and benefits expense is generally affected by the
level of operating revenues, earnings and the number of
employees. While the largely variable components of
compensation and benefits expense (commissions and incentive
compensation) were lower in 1994 than 1993 due to reduced
operating revenues and earnings, the fixed component increased
from the prior year due to a 12-percent increase in the average
number of employees, as well as increased expense from the
amortization of forgivable loans issued in the recruitment of
revenue-producing employees. The compensation and benefits
expense increase from 1992 to 1993 of 16 percent was comprised
primarily of commissions, incentive compensation and related
benefits that rose in conjunction with operating revenues and
earnings, as well as an 8-percent increase in the average number
of employees.
Other Expenses
During 1994 expenses other than compensation and benefits
increased $10.9 million or 10 percent largely as the result of
volume and headcount-driven increases in communications, market
data and clearing services; increased occupancy costs related to
the addition of 14 operating office locations and expansion of
several others during 1994, including the expansion of space in
the Company's Minneapolis headquarters; increased costs
associated with recruiting and the generation of new business;
and the acquisition of Clayton Brown (see "Liquidity and Capital
Resources").
During 1993 expenses other than compensation and benefits and
interest increased $13.6 million or 14 percent from 1992
principally as a result of volume-driven increases in the use of
communications, market data and clearing services; increased
travel costs associated with the generation of new business;
increased reserves; and increased occupancy expenses related to
higher real estate and operating costs at the Company's
Minneapolis headquarters, the net addition of nine operating
office locations and the expansion of several others.
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 in areas not related to revenue
production. Nonetheless, management anticipates operating
expenses to be somewhat higher in 1995 than in 1994 due to the
full-year effect of significant growth investments made during
1994. Management also anticipates delaying, where possible, most
future growth initiatives until the market environment in which
the Company operates improves.
Inflation
Since the Company's assets are primarily liquid in nature and
experience a high rate of turnover, they are not significantly
affected by inflation. However, the rate of inflation does affect
many of the Company's operating costs which may not be readily
recoverable through price increases on services offered by the
Company.
Liquidity and Capital Resources
The Company's assets are substantially liquid in nature and
consist mainly of cash or assets readily convertible into cash.
These assets are financed primarily by interest-bearing and non-
interest bearing customer credit balances, repurchase agreements,
other payables, short-term and subordinated bank borrowings and
equity capital. Changes in the amount of trading securities owned
by the Company, customer and broker receivables and securities
purchased under agreements to resell directly affect the amount
of the Company's financing requirements.
The Company has various sources of capital for operations and
growth. In addition to capital provided by earnings, Regional
Operations Group maintains uncommitted lines of credit from a
number of banks to finance transactions (principally trading and
underwriting positions of Dain Bosworth and Rauscher Pierce
Refsnes) when internally generated capital is not sufficient.
The majority of these uncommitted lines of credit are
collateralized by trading securities and customers' margin
securities. On February 28, 1995, approximately $220 million of a
total of $425 million in uncommitted lines of credit were unused.
Also, the Company has a $15 million, committed, unsecured
revolving credit facility that is used for advances to its
subsidiaries, irrevocable letters of credit and general corporate
purposes. On February 28, 1995, $15 million of this revolving
credit facility was unused.
Dain Bosworth and Rauscher Pierce Refsnes must comply with
certain regulations of the Securities and Exchange Commission
measuring capitalization and liquidity and restricting amounts of
capital that may be transferred to affiliates. Regional
Operations Group clears and settles trades for Dain Bosworth and
Rauscher Pierce Refsnes (including the accounts of RPR Clearing
Services). Regional Operations Group carries all customer
accounts, extends margin credit to customers, pays interest on
credit balances of customers and invests any excess customer
balances. As a result, Regional Operations Group is subject to
similar Securities and Exchange Commission regulations. During
1994 Dain Bosworth, Rauscher Pierce Refsnes and Regional
Operations Group all operated above the minimum net capital
standards. At December 31, 1994, regulatory net capital was
$48.4 million at Regional Operations Group, which was 6.5 percent
of aggregate debit balances and $11.2 million in excess of the 5-
percent requirement. Dain Bosworth's and Rauscher Pierce
Refsnes' net capital requirement is $1 million for each company
as neither firm carries customer balances. At December 31, 1994,
Dain Bosworth and Rauscher Pierce Refsnes had net capital of
$26.9 million and $20.1 million, respectively, in excess of the
$1 million requirement.
The Company paid a special cash dividend of $.16 per share on the
Company's common stock during the first quarter of 1992 and
regular quarterly cash dividends of $.04 per share thereafter
through the first quarter of 1993. In the second quarter of
1993, the regular quarterly dividend was increased to $.08 per
share and was subsequently increased to $.16 per share in the
second quarter of 1994. 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 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 February 28,
1995, the Company had repurchased 162,500 shares in accordance
with this program at a cost of $3.6 million.
Dain Bosworth and Rauscher Pierce Refsnes are dealers in
corporate, tax-exempt and governmental fixed income securities
which are carried in inventory primarily for distribution to Dain
Bosworth's and Rauscher Pierce Refsnes' retail and institutional
clients in order to meet those clients' needs. Periodically Dain
Bosworth and Rauscher Pierce Refsnes buy, sell or position in
trading inventories mortgage-derivative securities or structured
notes. Holdings of high-yield securities are not material. Each
of the Company's securities subsidiaries maintains comprehensive
risk management policies encompassing position limits, agings,
duration and credit. These policies are intended to limit the
size of and risk in the Company's trading inventories.
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 loans issued as part of the
recruitment of investment executives and other revenue-producing
employees.
In order to finance its October 1994 acquisition of Clayton Brown
for an aggregate cash purchase price of approximately $24
million, Dain Bosworth entered into an additional $10 million
four-year subordinated bank loan. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
As of December 31, 1994 and 1993, and for each of
the years in the three-year period ended December 31, 1994
and Supplementary Data
Page
----
Independent Auditors' Report 19
Consolidated Financial Statements:
Consolidated statements of operations 20
Consolidated balance sheets 21
Consolidated statements of shareholders' equity 22
Consolidated statements of cash flows 23
Notes to consolidated financial statements 24
Quarterly Financial Information 33
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Inter-Regional Financial Group, Inc.:
We have audited the accompanying consolidated balance sheets of
Inter-Regional Financial Group, Inc. and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated
statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31,
1994. In connection with our audits of the consolidated
financial statements, we have also audited the financial
statement schedule listed in the table of contents on page 38
hereof. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Inter-Regional Financial Group, Inc. and subsidiaries
as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with
generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 1, 1995, except as to
Note I which is as of March 7, 1995
<PAGE>
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)
<CAPTION>
Year ended December 31,
-----------------------------
1994 1993 1992
-----------------------------
<S> <C> <C> <C>
Revenues:
Principal transactions $139,127 $139,304 $126,139
Commissions 131,643 139,288 118,754
Investment banking and
underwriting 96,711 129,603 104,944
Interest 75,170 54,867 55,477
Asset management 18,953 12,917 9,451
Correspondent clearing 11,590 11,499 9,627
Other 23,095 24,237 13,869
------- ------- -------
Total revenues 496,289 511,615 438,261
------- ------- -------
Interest expense (38,938) (28,655) (32,353)
------- ------- -------
Net revenues 457,351 482,960 405,908
------- ------- -------
Expenses excluding interest:
Compensation and benefits 293,676 292,587 252,840
Communications 37,023 30,725 26,040
Occupancy and equipment rental 28,695 24,675 22,927
Travel and promotional 19,681 15,889 12,574
Floor brokerage and clearing
fees 9,623 8,612 7,487
Other 28,858 33,119 30,349
------- ------- -------
Total expenses excluding
interest 417,556 405,607 352,217
------- ------- -------
Earnings:
Earnings before income
taxes 39,795 77,353 53,691
Income tax expense (14,342) (29,704) (19,168)
------- ------- -------
Net earnings $25,453 $47,649 $34,523
======= ======= =======
Earnings per common and
common equivalent share:
Primary $3.04 $5.67 $4.03
======= ======= =======
Fully diluted $3.04 $5.63 $3.91
======= ======= =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
December 31,
---------------------
1994 1993
---------------------
<S> <C> <C>
Assets:
Cash and cash equivalents $22,764 $14,047
Cash and short-term investments
segregated for regulatory
purposes 338,000 581,005
Receivable from customers 710,647 531,636
Receivable from brokers and
dealers 207,512 178,448
Securities purchased under
agreements to resell 198,561 111,887
Trading securities owned 319,222 271,378
Equipment, leasehold improvements
and buildings, at cost, less
accumulated depreciation of
$19,707 and $14,086,
respectively 30,082 24,720
Other receivables 78,787 40,744
Deferred income taxes 29,001 18,995
Other assets 18,035 13,162
--------- ---------
$1,952,611 $1,786,022
========= =========
Liabilities and Shareholders'
Equity:
Liabilities: Short-term
borrowings $150,193 $123,973
Drafts payable 35,021 32,041
Payable to customers 868,541 866,144
Payable to brokers and dealers 212,954 250,594
Securities sold under
repurchase agreements 173,972 83,978
Trading securities sold, but not
yet purchased 116,883 72,218
Accrued compensation 68,755 83,458
Other accrued expenses and
accounts payable 77,344 63,776
Accrued income taxes 6,505 9,991
Subordinated and other debt 47,023 22,166
--------- ---------
1,757,191 1,608,339
--------- ---------
Shareholders' equity:
Common stock (issued and
outstanding, 8,041,158 and
8,130,602 shares,
respectively) 1,005 1,016
Additional paid-in capital 73,924 73,475
Retained earnings 120,491 103,192
--------- ---------
195,420 177,683
--------- ---------
$1,952,611 $1,786,022
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per-share amounts)
<CAPTION>
Total
Convertible Additional Share-
Preferred Stock Common Stock Paid-In Retained holders'
--------------- ------------
Shares Amount Shares Amount Capital Earnings Equity
-------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1991 97 $1,512 8,171 $1,021 $70,835 $30,742 $104,110
-- ----- ----- ----- ------ ------ -------
Net earnings __ __ __ __ __ 34,523 34,523
Common stock
issued upon
conversion of
preferred stock (92) (1,452) 125 16 1,436 __ __
Common stock
issued upon
exercise of
incentive stock
options __ __ 91 11 857 __ 868
Cash dividends on
preferred stock __ __ __ __ __ (52) (52)
Cash dividends on
common stock
($.28 per share) __ __ __ __ __ (2,313) (2,313)
Redemption of
preferred stock (5) (60) __ __ __ (18) (78)
Purchase and
retirement of
common stock
from Commercial
Credit Company __ __ (305) (38) __ (5,067) (5,105)
--- --- ----- ----- ------ ------- -------
Balances at
December 31, 1992 __ __ 8,082 1,010 73,128 57,815 131,953
--- --- ----- ----- ------ ------- -------
Net earnings __ __ __ __ __ 47,649 47,649
Common stock
issued upon
exercise of
incentive stock
options __ __ 49 6 347 __ 353
Cash dividends
on common stock
($.28 per share) __ __ __ __ __ (2,272) (2,272)
--- --- ----- ----- ------ ------- -------
Balances at
December 31, 1993 __ __ 8,131 1,016 73,475 103,192 177,683
--- --- ----- ----- ------ ------- -------
Net earnings __ __ __ __ __ 25,453 25,453
Repurchase of
common stock __ __ (163) (20) __ (3,618) (3,638)
Common stock
issued upon
exercise of
incentive stock
options __ __ 73 9 449 __ 458
Cash dividends on
common stock
($.56 per share) __ __ __ __ __ (4,536) (4,536)
--- --- ----- ----- ------ ------ -------
Balances at
December 31, 1994 __ $__ 8,041 $1,005 $73,924 $120,491 $195,420
=== === ===== ===== ====== ======= =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Year ended December 31,
-----------------------------
1994 1993 1992
-----------------------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $25,453 $47,649 $34,523
Adjustments to reconcile net
earnings to cash provided
(used) by operating activities,
net of effect of acquisition:
Depreciation and amortization 8,415 5,812 4,419
Deferred income taxes (5,302) (6,759) (5,028)
Other non-cash items 11,388 11,274 8,371
Cash and short-term
investments segregated for
regulatory purposes 244,005 (79,300) 101,293
Securities purchased under
agreements to resell (25,737) (71,304) 16,101
Net trading securities owned
and trading securities sold,
but not yet purchased 16,021 (92,182) 54,827
Other receivables (38,032) (12,027) (919)
Drafts payable and
short-term borrowings
of securities companies (13,147) 108,731 (23,669)
Net payable to customers (174,425) (59,456) (45,277)
Net payable to brokers and
dealers (99,114) 56,322 (65,725)
Securities sold under
repurchase agreements 89,994 56,863 (53,755)
Accrued compensation (14,884) 18,678 16,812
Other (12,582) 8,264 4,415
------- ------- -------
Cash provided (used) by
operating activities 12,053 (7,435) 46,388
------- ------- -------
Cash flows from financing
activities:
Proceeds from: Subordinated
and other debt 27,237 7,427 7,000
Revolving credit agreement,
net 15,000 __ __
Issuance of common stock 458 353 868
Payments for:
Dividends on common stock (4,536) (2,272) (2,313)
Purchase of common stock (3,638) __ (5,105)
Subordinated and other debt (2,380) (1,625) (20,274)
Revolving credit agreement,
net __ (5,450) (9,550)
Redemption of and dividends
on preferred stock __ __ (130)
------- ------- -------
Cash provided (used)
by financing activities 32,141 (1,567) (29,504)
------- ------- -------
Cash flows from investing
activities:
Proceeds from investment
dividends and sales 934 1,613 1,324
Payments for:
Acquisition, net of cash
acquired (23,367) __ __
Equipment, leasehold
improvements and other (13,044) (13,025) (5,687)
------- ------- -------
Cash (used) by investing
activities (35,477) (11,412) (4,363)
------- ------- -------
Increase (Decrease) in cash
and cash equivalents 8,717 (20,414) 12,521
Cash and cash equivalents:
At beginning of year 14,047 34,461 21,940
------- ------- -------
At end of year $22,764 $14,047 $34,461
======= ======= =======
<FN>
Cash income tax payments totaled $19,916,000 in 1994, $33,053,000
in 1993 and $21,001,000 in 1992. Cash interest payments totaled
$37,959,000, $28,494,000 and $32,766,000 in 1994, 1993 and 1992,
respectively.
During 1992 the Company entered into non-cash financing activity
of $1,452,000 associated with the conversion of preferred stock
to common stock. Non-cash financing activity of $2,952,000
occurred during 1992 as a result of the Company entering into
capital lease obligations for new furniture, fixtures and
equipment.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1993 and 1992
Inter-Regional Financial Group, Inc. and Subsidiaries
A. Summary of Significant Accounting Policies
Basis of Presentation: The consolidated financial statements
include the Company and its subsidiaries, all of which are wholly
owned. All material inter-company balances and transactions have
been eliminated in consolidation. Certain prior-year amounts in
the financial statements have been reclassified to conform to the
1994 presentation.
Cash and Cash Equivalents: Cash and cash equivalents include
cash on hand, cash in depository accounts with other financial
institutions and money market investments with original
maturities of 90 days or less.
Securities: Securities transactions and the related commission
revenues and expenses are recorded on settlement date, which is
not materially different than if transactions were recorded on
trade date.
Trading securities owned and trading securities sold, but not yet
purchased, are stated at market value. Unrealized gains and
losses on such securities are recognized currently in revenues.
Market value is determined by using public market quotations,
quote prices from dealers or recent market transactions,
depending upon the underlying security.
Repurchase Transactions: Securities purchased under agreements
to resell (reverse repurchase agreements) and securities sold
under repurchase agreements are accounted for as financing
transactions and are recorded at the contract amount at which the
securities will subsequently be resold or reacquired, plus
accrued interest.
Other Receivables: Included in other receivables are forgiveable
loans made to investment executives and other revenue-producing
employees, typically in connection with their recruitment. Such
forgiveable loans are amortized over the life of the loan, which
is generally three to five years, using the straight-line method.
Depreciation and Amortization: Equipment is depreciated using
the straight-line method over estimated useful lives of two to
eight years. Leasehold improvements are amortized over the lesser
of the estimated useful life of the improvement or the life of
the lease. Buildings are depreciated using the straight-line
method over an estimated useful life of 25 years.
Income Taxes: Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under this method, deferred tax liabilities
and assets and the resultant provision for income taxes are
determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are
expected to reverse. Financial statements for 1992 have not been
restated and the cumulative effect of the accounting change was
not material. (See note M.)
In 1992 the provision for income taxes was based on income and
expenses included in the accompanying consolidated statements of
operations. Differences between taxes so computed and taxes
payable under applicable statutes and regulations were classified
as deferred taxes arising from timing differences.
Fair Values of Financial Instruments: Substantially all of the
Company's financial assets and liabilities are carried at market
value or at amounts which, because of their short-term nature,
approximate current fair value. The Company's borrowings, if
recalculated based on current interest rates, would not differ
significantly from the amounts recorded at December 31, 1994.
Earnings Per Share: Primary earnings per share are based upon the
weighted average number of common shares outstanding and the
dilutive effect of common stock options and, in 1992, the assumed
conversion of the Series 10% and 12% convertible preferred stock.
Fully diluted earnings per share for 1992 reflect the additional
dilutive effect of the assumed conversion of convertible
subordinated debentures. The weighted average number of shares
used in the primary and fully diluted computations, respectively,
are: 1994 - 8,361,084 and 8,361,084; 1993 - 8,404,501 and
8,466,797; and 1992 - 8,573,507 and 8,960,560.
B. Acquisition
On October 7, 1994, the Company acquired all of the issued and
outstanding common stock of Clayton Brown Holding Company
(Clayton Brown), the holding company for Clayton Brown &
Associates, a registered broker-dealer in Chicago, Illinois,
specializing in fixed income securities, for a cost of $24.2
million, which approximated the net book value of Clayton Brown.
The transaction was accounted for under the purchase method of
accounting and, accordingly, the revenues and operating results
of Clayton Brown have been included in the consolidated statement
of operations for the period from October 7, 1994, through
December 31, 1994.
C. Receivable from and Payable to Customers
The amounts receivable from and payable to customers result from
cash and margin transactions. Securities owned by customers and
held as collateral for receivables and securities sold short by
customers are not reflected in the consolidated financial
statements. Included in payable to customers are customer funds
on deposit for reinvestment totaling $674 million and $709
million as of December 31, 1994 and 1993, respectively. The
Company pays interest on such funds at varying rates, the
weighted average of which was 4.9 percent at December 31, 1994.
D. Receivable from and Payable to Brokers and Dealers
<TABLE>
<CAPTION>
December 31,
-------------------
(In thousands) 1994 1993
-------------------
<S> <C> <C>
Receivable from brokers and dealers:
Deposits for securities borrowed $164,111 $138,906
Securities failed to deliver 42,922 35,094
Clearing organizations, correspondent
brokers and other 479 4,448
------- -------
$207,512 $178,448
======= =======
Payable to brokers and dealers:
Deposits for securities loaned $181,017 $193,312
Securities failed to receive 28,507 50,054
Clearing organizations, correspondent
brokers and other 3,430 7,228
------- -------
$212,954 $250,594
======= =======
</TABLE>
Securities failed to deliver and receive represent the contract
value of securities which have not been delivered or received
subsequent to settlement date. Securities borrowed and
securities loaned are recorded at the amount of cash collateral
advanced or received in connection with the transaction.
Securities borrowed transactions require the Company to deposit
cash or other collateral with the lender. With respect to
securities loaned, the Company receives cash or other collateral.
The initial collateral advanced or received has a market value
equal to or greater than the market value of the securities
borrowed or loaned. The Company monitors the market value of the
securities borrowed and loaned on a daily basis and requests
additional collateral or returns excess collateral, as
appropriate.
E. Trading Securities
The market values of trading security positions are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
-------------------
(In thousands) 1994 1993
-------------------
<S> <C> <C>
Owned:
Municipal securities $136,304 $85,131
Government securities 129,302 118,787
Corporate fixed income and other
securities 42,809 46,989
Equity securities 10,807 20,471
------- -------
$319,222 $271,378
======= =======
Sold, but not yet purchased:
Government and municipal securities $110,957 $67,007
Corporate and other securities 5,926 5,211
------- -------
$116,883 $72,218
======= =======
</TABLE>
F. Short-Term Borrowings
<TABLE>
<CAPTION>
December 31,
-------------------
(In thousands) 1994 1993
-------------------
<S> <C> <C>
Loans to the securities subsidiaries $135,193 $123,973
Revolving credit loan 15,000 __
------- -------
$150,193 $123,973
======= =======
</TABLE>
The loans to the securities subsidiaries consist of bank
borrowings on uncommitted lines of credit, the majority of which
are collateralized by trading securities owned and customers'
margin securities, and have a floating rate of interest
approximately .50 percent above the Federal Funds rate. The
market value of trading securities pledged as collateral at
December 31, 1994 was $140 million. At December 31, 1994,
approximately $290 million of additional credit was available
under uncommitted credit lines.
Revolving credit loan borrowings and irrevocable letters of
credit are available under a commitment totaling $15 million (100
percent of which was used as of December 31, 1994) which expires
June 30, 1995. Loans under this facility are unsecured and bear
interest at a floating rate of Federal Funds plus 1.125 percent.
The Company must maintain certain levels of net worth under the
agreement.
G. Subordinated and Other Debt
<TABLE>
<CAPTION>
December 31,
-------------------
(In thousands) 1994 1993
-------------------
<S> <C> <C>
Subordinated debt of securities
subsidiaries $35,000 $8,000
Other debt:
Capital lease obligations (Note I) 7,087 8,006
Other 4,936 6,160
------ ------
12,023 14,166
------ ------
$47,023 $22,166
====== ======
</TABLE>
During 1994 Dain Bosworth and Rauscher Pierce Refsnes entered
into a series of four-year subordinated bank loans totaling $27
million. Proceeds of the loans qualify as regulatory capital.
The loans require monthly, interest-only payments throughout the
four-year terms, with equal quarterly principal payments during
years two through four. The outstanding subordinated debt bears
a floating rate of interest of approximately 2.5 percent to 2.75
percent above the London Interbank Offered Rates. At December
31, 1994, the weighted average interest rate on all of the
Company's subordinated debt was 8.8 percent.
Other debt is used primarily to finance equipment and building
improvements, is payable in monthly or quarterly installments and
bears interest at floating rates which approximated 6.9 percent
at December 31, 1994. The Company must maintain certain levels
of net worth under one of the debt agreements.
Annual principal payments on subordinated bank loans and other
debt (excluding obligations under capital leases) during the next
five years are as follows: 1995-$4,255,000; 1996-$13,333,000;
1997-$12,977,000; 1998-$9,107,000; 1999-$54,000.
H. Shareholders' Equity
Common Stock: The common stock has a par value of $.125 per
share; 20,000,000 shares are authorized. During 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 are 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. During 1994 the Company
repurchased 162,500 shares in accordance with this program at a
cost of $3.6 million.
At December 31, 1994, 1,683,000 shares of the Company's common
stock were reserved for the 1986 Stock Option Plan, 106,000
shares were reserved for issuance to the IFG Stock Bonus Plan and
100,000 shares were reserved for issuance to the IFG Restricted
Stock Plan for Non-Employee Directors.
Dividends: The Company paid a special cash dividend of $.16 per
share during the first quarter of 1992 and regular quarterly cash
dividends of $.04 per share each quarter thereafter through the
first quarter of 1993. In the second quarter of 1993 the
regular quarterly dividend was increased to $.08 per share and
was subsequently increased to $.16 per share in the second
quarter of 1994. The determination of the amount of future cash
dividends, if any, to be declared and paid will depend on the
Company's future financial condition, earnings and available
funds.
Stock Options: The Company maintains a stock option plan, under
which key employees and outside directors may be granted options
to purchase common stock at not less than 100 percent of the fair
market value of the shares at the date of grant for incentive
stock options or 50 percent for non-qualified options. Options
generally become exercisable at rates of 20, 50 and 100 percent
as of two, three and four years, respectively, after the date of
grant and expire ten years from date of grant. Options granted to
outside directors become exercisable six months after grant date
and expire five years after grant date. At December 31, 1994,
814,000 shares of common stock were available for grant.
The following table summarizes the activity related to the
Company's stock option plan for each of the last three years:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
Options outstanding
at beginning
of year 693,500 493,900 476,968
Granted 268,000 271,900 132,500
Exercised (77,950) (50,600) (88,268)
Expired __ __ (2,000)
Canceled (14,550) (21,700) (25,300)
------- ------- -------
Options outstanding at
end of year 869,000 693,500 493,900
======= ======= =======
Options exercisable at
end of year 200,940 130,200 94,460
======= ======= =======
Price range of
outstanding options $6.50-$31.25 $6.50-$20.25 $6.50-$17.625
Price range of options
exercised $6.875-$17.625 $6.875-$8.50 $7.00-$13.25
</TABLE>
All outstanding options were granted at 100 percent of the fair
market value of the shares at the date of grant. The Company's
closing stock price on December 31, 1994, was $22.50.
I. Commitments and Contingent Liabilities
Leases: The Company and its subsidiaries lease office space,
furniture and 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 December 31, 1994, are
as follows:
<TABLE>
<CAPTION>
Capital Operating
(In thousands) leases leases
-------------------------
<S> <C> <C>
1995 $1,802 $19,212
1996 1,325 16,548
1997 1,176 14,924
1998 1,056 12,878
1999 940 10,049
Thereafter 7,836 65,185
------- -------
Total minimum lease payments $14,135 $138,796
=======
Less amount representing interest (7,048)
-------
Present value of minimum lease payments $7,087
=======
</TABLE>
Rental expense for operating leases was $22,414,000, $19,085,000
and $18,741,000, for the years ended December 31, 1994, 1993 and
1992, respectively. Included in net equipment, leasehold
improvements and buildings at December 31, 1994 and 1993, is
$5,037,000 and $5,952,000, respectively, for leases which have
been capitalized.
Litigation: The Company's securities subsidiaries are defendants
in numerous civil actions and arbitrations incidental to their
business involving alleged violations of federal and state
securities laws, and other laws. Some of these actions have been
brought on behalf of purported classes of plaintiffs claiming
substantial damages relating to underwritings of securities.
Rauscher Pierce Refsnes is one of 13 broker-dealer defendants
named in a purported class action arising out of the issuance of
debt securities by Orange County, California ("the County") and
participants in the Orange County Investment Pool ("the Pool
Participants") between July 1992 and December 1994 ("the class
period"). The County and the Orange County Investment Pool each
commenced Chapter 9 bankruptcy proceedings on December 6, 1994.
The named plaintiffs allegedly purchased securities in numerous
issues over the class period, two of which involved Rauscher
Pierce Refsnes: a $299.7 million one-year tax and revenue
anticipation note issue by a group of school districts in the
name of the County in July 1994, in which Rauscher Pierce Refsnes
was the financial advisor, and a $119.2 million long-term special
tax bond issue in July 1992 co-managed by Rauscher Pierce
Refsnes. Plaintiffs purport also to represent purchasers of
other securities issued by the County or Pool Participants during
the class period, including securities issued in additional
transactions in which Rauscher Pierce Refsnes was an underwriter
or financial advisor. Plaintiffs allege violations of federal
and state securities laws. They seek an unspecified amount of
compensatory damages, rescission and other relief. Rauscher
Pierce Refsnes believes that it has substantial and meritorious
defenses available and plans 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 these actions, believes that the resolution of these matters
will not have a material adverse effect on the Company's
consolidated financial condition.
J. Trading Activities and Financial Instruments with Off-Balance-
Sheet Risk
Dain Bosworth and Rauscher Pierce Refsnes are dealers in
corporate, tax-exempt and governmental fixed income securities
and corporate equity securities and may recognize profits or
losses on transactions in, or fluctuations in the value of, such
securities held in inventory. Internal guidelines intended to
limit the size and risk of inventories maintained have been
established and are periodically reviewed. These inventories are
positioned primarily for distribution to Dain Bosworth's and
Rauscher Pierce Refsnes' individual and institutional clients in
order to meet those clients' needs. Revenues from principal
transactions for the year ended December 31, 1994, originate from
the following:
<TABLE>
<CAPTION>
Year ended
(In thousands) December 31, 1994
------------------
<S> <C>
Equity securities $68,466
Municipal securities 26,343
Corporate fixed income securities 18,359
Government securities 17,351
Mortgage-backed and other securities 8,608
-------
$139,127
=======
</TABLE>
Dain Bosworth and Rauscher Pierce Refsnes sell securities not yet
purchased (short sales) for their own accounts primarily to hedge
their fixed income trading inventories. The establishment of
short positions exposes the Company to off-balance-sheet risk in
the event prices increase, as the Company may be obligated to
acquire the securities at prevailing market prices.
The Company may periodically hedge its fixed income trading
inventories with financial futures or interest-rate option
contracts. These contracts expose the Company to off-balance-
sheet risk in the event that the changes in interest rates do not
closely correlate with the change in the inventory price. At
December 31, 1994, the Company had open commitments under
financial futures contracts with a notional amount of $9.7
million. At December 31, 1994, the fair market value of these
financial futures and option contracts was not material. Also,
the average fair market value and trading revenues associated
with these contracts during 1994 was not material.
The Company does not enter into interest-rate swap agreements,
foreign currency contracts or other off-balance-sheet derivative
financial instruments.
In the normal course of business the Company's activities involve
the execution, settlement and financing of various securities
transactions. These activities may expose the Company to off-
balance-sheet credit and market risks in the event the customer
or counterparty is unable to fulfill its contractual obligations.
Such risks may be increased by volatile trading markets.
In the normal course of business the securities subsidiaries
enter into when-issued underwriting and purchase commitments.
Transactions relating to such commitments open at year end and
subsequently settled had no material effect on the consolidated
financial statements.
The Company seeks to control the risks associated with its
customer activities by requiring customers to maintain margin
collateral in compliance with various regulatory and internal
guidelines. The Company monitors required margin levels daily
and, pursuant to such guidelines, requires customers to deposit
additional collateral or to reduce positions when necessary.
Market declines could, however, reduce the value of collateral
below the amount loaned, plus accrued interest, before the
collateral could be sold.
A portion of the Company's customer activity involves the sale of
securities not yet purchased (short sales) and the writing of
option contracts. Such transactions may require the Company to
purchase or sell financial instruments at prevailing market
prices in order to fulfill the customer's obligations.
The Company lends money subject to reverse repurchase agreements.
All positions are collateralized, primarily with U.S. government
or U.S. government agency securities. The Company generally
takes physical possession of securities purchased under
agreements to resell. Such transactions may expose the Company to
risk in the event such borrowers do not repay the loans and the
value of collateral held is less than that of the underlying
receivable. These agreements provide the Company with the right
to maintain the relationship between market value of the
collateral and the receivable.
The Company may pledge firm or customer margin securities for
bank loans, repurchase agreements, securities loaned or to
satisfy margin deposits of clearing organizations. In the event
the counterparty is unable to return such securities pledged, the
Company may be exposed to the risks of acquiring the securities
at prevailing market prices or holding collateral possessing a
market value less than that of the related pledged securities.
The Company seeks to control these risks by monitoring the market
value of securities pledged and requiring adjustments of
collateral levels where necessary. At December 31, 1994, the
market value of such securities pledged approximated the
borrowings outstanding.
K. Regulatory Requirements
Dain Bosworth and Rauscher Pierce Refsnes are subject to the
Securities and Exchange Commission's Uniform Net Capital Rule.
Regional Operations Group, the Company's operations subsidiary,
clears and settles trades for Dain Bosworth and Rauscher Pierce
Refsnes (including the customers of RPR Clearing Services).
Regional Operations Group carries all customer accounts, extends
margin credit to customers, pays interest on credit balances of
customers and invests any excess customer balances. As a result,
Regional Operations Group is subject to the Uniform Net Capital
Rule whereby net capital of not less than 2 percent of aggregate
debit items must be maintained. The New York Stock Exchange,
Inc. also may require a member organization to reduce its
business if regulatory net capital is less than 4 percent of such
aggregate debit items, and may prohibit a member firm from
expanding its business and declaring cash dividends if its
regulatory net capital is less than 5 percent of such aggregate
debit items. At December 31, 1994, net capital was $48.4 million
at Regional Operations Group, which was 6.5 percent of aggregate
debit balances and $11.2 million in excess of the 5-percent
requirement. Dain Bosworth's and Rauscher Pierce Refsnes' net
capital requirement is $1 million for each company as neither
firm carries customer balances on its balance sheet. At December
31, 1994, Dain Bosworth and Rauscher Pierce Refsnes had net
capital of $26.9 million and $20.1 million, respectively, in
excess of the $1 million requirement.
Rule 15c3-3 of the Securities Exchange Act of 1934 specifies
certain conditions under which brokers and dealers carrying
customer accounts are required to maintain cash or qualified
securities in a special reserve account for the exclusive benefit
of customers. Amounts to be maintained are computed in
accordance with a formula defined in the Rule. At December 31,
1994, Regional Operations Group had $338.0 million segregated in
special reserve accounts. This amount consisted of qualified
securities purchased under agreements to resell and was
collateralized by U.S. government or government agency
securities.
L. Employee Benefit Plans
The Company and its participating subsidiaries have profit
sharing and stock bonus plans which cover substantially all full-
time employees who are at least 21 years of age and have been
employed for at least one year (six months beginning January 1,
1995).
Prior to January 1, 1995, participants could contribute on a
pretax basis up to 5 percent of eligible compensation to the
stock bonus plan and up to 10 percent to the profit sharing plan
subject to certain aggregate limitations. The Company and its
participating subsidiaries matched all participant contributions
to the stock bonus plan at a 50-percent rate. The Company also
matched participant contributions to the profit sharing plan at a
25-percent rate up to 5 percent of eligible compensation (less
any amounts contributed to the stock bonus plan). All matching
contributions were paid to the stock bonus plan. All stock bonus
plan contributions were used to purchase the common stock of the
Company. Company contributions to the profit sharing plan
equaled 3 percent of eligible compensation paid on a quarterly
basis plus a discretionary annual contribution determined by each
participating company's board of directors at year end.
Beginning January 1, 1995, participants may contribute on a
pretax basis up to 12 percent of eligible compensation to either
or both plans; the Company will match up to 5 percent of eligible
compensation at a 40-percent rate. Matching contributions will
be limited to $3,000 per employee annually and will continue to
be paid to the stock bonus plan. At the end of each calendar
year, a contribution to the profit sharing plan will be
determined by each participating company's board of directors.
The minimum contribution will be 3 percent of eligible
compensation.
The Company's policy is to fund currently profit sharing and
stock bonus plan costs. Earnings have been charged for
contributions, net of forfeitures, to the above plans as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
(In thousands) 1994 1993 1992
-----------------------------
<S> <C> <C> <C>
Profit sharing plan $11,489 $15,863 $14,023
Stock bonus plan 2,763 2,885 2,334
------ ------ ------
$14,252 $18,748 $16,357
====== ====== ======
</TABLE>
M. Income Taxes
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
(In thousands) 1994 1993 1992
-----------------------------
<S> <C> <C> <C>
Current:
Federal $16,526 $30,557 $19,786
State 3,118 5,906 4,410
Deferred:
Federal (4,287) (5,741) (4,330)
State (1,015) (1,018) (698)
------ ------ ------
$14,342 $29,704 $19,168
====== ====== ======
</TABLE>
A reconciliation of ordinary federal income taxes (based on rates
of 35 percent for 1994 and 1993 and 34 percent for 1992) with the
actual tax expense provided on earnings is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
(Dollars In thousands) 1994 1993 1992
-----------------------------
<S> <C> <C> <C>
Ordinary federal income tax
expense $13,928 $27,074 $18,255
State income taxes, net of
federal tax benefit 1,367 3,178 2,449
Tax-exempt interest, net of
related interest expense (863) (780) (584)
Other (90) 232 (952)
------ ------ ------
$14,342 $29,704 $19,168
====== ====== ======
Effective tax rate 36.0% 38.4% 35.7%
====== ====== ======
</TABLE>
Deferred income tax expenses/benefits resulted from differences
in the timing of revenue and expense recognition for financial
statement and tax reporting purposes in 1992. The sources and
tax effect of the changes in deferred taxes were:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(In thousands) 1992
-----------------------
<S> <C>
Accruals not currently deductible $(3,689)
Partnership investments (550)
Fixed assets (566)
Other (223)
------
$(5,028)
======
</TABLE>
The tax effects of temporary differences that give rise to the
deferred tax assets and deferred tax liabilities are:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
(In thousands) 1994 1993
-----------------------
<S> <C> <C>
Deferred tax assets:
Accruals not currently deductible $23,597 $18,567
Tax attributes acquired 3,612 __
Fixed assets 645 393
Other 1,369 1,771
------ ------
29,223 20,731
------ ------
Deferred tax liabilities:
Partnership investments (222) (1,736)
------ ------
$29,001 $18,995
====== ======
</TABLE>
The Company has determined that it is not required to establish a
valuation allowance for the deferred tax asset since it is more
likely than not that the deferred tax asset will be realized
principally through carryback to taxable income in prior years,
and future reversals of existing taxable temporary differences,
and, to a lesser extent, future taxable income. The Company's
conclusion that it is "more likely than not" that the deferred
tax asset will be realized is based on federal taxable income of
over $190 million in the carryback period, substantial state
taxable income in the carryback period, as well as prospects for
continued earnings.
<PAGE>
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC.
QUARTERLY FINANCIAL INFORMATION
(Unaudited, in thousands, except per-share amounts)
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------
<S> <C> <C> <C> <C>
1994
Net revenues $123,679 $109,457 $107,865 $116,350
======= ======= ======= =======
Earnings before income
taxes $16,060 $9,647 $9,341 $4,747
======= ======= ======= =======
Net earnings $10,171 $5,914 $5,845 $3,523
======= ======= ======= =======
Per share data:
Primary net earnings
per share $1.20 $.70 $.71 $.43
======= ======= ======= =======
Fully diluted net
earnings per share $1.20 $.70 $.70 $.43
======= ======= ======= =======
Dividends $.08 $.16 $.16 $.16
======= ======= ======= =======
1993
Net revenues $112,344 $114,646 $128,573 $127,397
======= ======= ======= =======
Earnings before income
taxes $16,347 $16,542 $24,150 $20,314
======= ======= ======= =======
Net earnings $10,135 $10,256 $14,460 $12,798
======= ======= ======= =======
Per share data:
Primary net earnings
per share $1.22 $1.23 $1.72 $1.51
======= ======= ======= =======
Fully diluted net
earnings per share $1.22 $1.23 $1.70 $1.51
======= ======= ======= =======
Dividends $.04 $.08 $.08 $.08
======= ======= ======= =======
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE:
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
See Part I, Item 4 of this Annual Report for information with
respect to executive officers of the Company. Other information
required in Item 10 will be contained in the Company's definitive
Proxy Statement to be filed pursuant to Regulation 14A within 120
days after the close of the fiscal year for which this Report is
filed and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION:
The information required in Item 11 will be contained in the
Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A within 120 days after the close of the fiscal year
for which this Report is filed and is incorporated herein by
reference, except that, pursuant to Item 402(a)(8) of Regulation
S-K, the information to be contained in the Company's definitive
Proxy Statement in response to paragraphs (k) and (l) of Item 402
is not incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT:
The information required in Item 12 will be contained in the
Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A within 120 days after the close of the fiscal year
for which this Report is filed and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The information required in Item 13 will be contained in the
Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A within 120 days after the close of the fiscal year
for which this Report is filed and is incorporated herein by
reference.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K:
(a) Documents filed as part of this Report:
Page
----
1. Financial statements:
Reference is made to the table of contents to financial
statements and financial statement schedule hereinafter
contained 38
2. Financial statement schedules:
Reference is made to the table of contents to
financial statements and financial statement schedule
hereinafter contained for all other financial statement
schedules 38
<PAGE>
3. Exhibits:
Item No. Item Method of Filing
- ------- ---- ----------------
3.1 Restated Certificate of Incorporated by reference
Incorporation of the to Exhibit 4.1 to the
Company. Company's Registration
Statement on Form S-8
dated March 14, 1995, File
No. 33-58069.
3.2 Amended and Restated Incorporated by reference
Bylaws of the Company. to Exhibit 4.2 to the
Company's Registration
Statement on Form S-8
dated March 14, 1995, File
No. 33-58069.
4.1 Credit Agreement dated Incorporated by reference
June 23, 1993. to Exhibit 4(a) to the
Company's Current Report
on Form 8-K dated July 15,
1993.
4.2 First Amendment to Incorporated by reference
Credit Agreement dated to Exhibit 4(a) to the
November 30, 1993. Company's Current Report
on Form 8-K dated February
11, 1994.
4.3 Second Amendment to Incorporated by reference
Credit Agreement dated to Exhibit 4(a) to the
June 27, 1994. Company's Current Report
on Form 10-Q dated June
30, 1994.
4.4 Third Amendment to Incorporated by reference
Credit Agreement dated to Exhibit 4(a) to the
September 30, 1994. Company's Current Report
on Form 8-K dated
September 26, 1994.
4.5 Term Loan Agreement Incorporated by reference
dated October 16, 1992. to Exhibit 4(e) to the
Company's Annual Report on
Form 10-K for the year
ended December 31, 1992.
4.6 First Amendment to Term Incorporated by reference
Loan Agreement dated to Exhibit 4(g) to the
March 12, 1993. Company's Annual Report on
Form 10-K for the year
ended December 31, 1992.
4.7 Second Amendment to Incorporated by reference
Term Loan Agreement dated to Exhibit 4(b) to the
June 23, 1993. Company's Current Report
on Form 8-K dated July 15,
1993.
4.8 Third Amendment to Term Incorporated by reference
Loan Agreement dated to Exhibit 4(b) to the
November 30, 1993. Company's Current Report
on Form 8-K dated February
11, 1994.
4.9 Fourth Amendment to Incorporated by reference
Term Loan Agreement dated to Exhibit 4 (b) to the
June 27, 1994. Company's Current Report
on Form 10-Q dated June
30, 1994.
4.10 Fifth Amendment to Incorporated by reference
Term-Loan Agreement dated to Exhibit 4 (b) to the
September 30, 1994. Company's Current Report
on Form 8-K dated
September 26, 1994.
10.1* 1986 Stock Option Incorporated by reference
Plan, as amended on to Exhibit 10(b) to the
April 24, 1987, May 9, Company's Current Report
1990, March 3, 1993 on Form 8-K dated July 15,
and April 27, 1993. 1993.
10.2 Form of Indemnity Incorporated by reference
Agreement with Directors to Exhibit 10(c) to the
and Officers of the Company. Company's Annual Report on
Form 10-K for the year
ended December 31, 1990.
10.3* Form of Non-Employee Incorporated by reference
Director Retirement to Exhibit 10(g) to the
Compensation Agreement. Company's Annual Report on
Form 10-K for the year
ended December 31, 1992.
10.4* IFG Executive Incorporated by reference
Deferred Compensation Plan to Exhibit 10(a) to the
dated March 31, 1993. Company's Current Report
on Form 8-K dated July 15,
1993.
10.5 Trust Agreement for Filed herewith.
IFG Executive Deferred
Compensation Plan dated
February 11, 1994.
11 Computation of net Filed herewith.
earnings per share.
22 List of subsidiaries. Filed herewith.
23 Independent Auditors' Filed herewith.
consent.
24 Power of attorney. Filed herewith.
27 Financial Data Schedule Filed herewith.
* Management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c)
of this report.
(b) One report on Form 8-K was filed during the fourth quarter of1994.
Items Reported
Item 5 - Other events (Dain Bosworth acquisition of Clayton Brown
Holding Company; tentative settlement of In Re Taxable Municipal
Bond Securities Litigation)
Item 7 - Financial Statement and Exhibits
Exhibit 4(a) Third Amendment to Credit Agreement dated September
30, 1994
Exhibit 4(b) Fifth Amendment to Term-Loan Agreement dated
September 30, 1994.
Date of earliest event reported - September 26, 1994.
Financial Statements Filed - None
REPORT FOR EMPLOYEE STOCK PURCHASE PLAN:
The financial statements required by Form 11-K with respect to
the Company's Stock Bonus Plan will be filed by amendment hereto
within 180 days of such plan's fiscal year end as permitted by
Rule 15d-21.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: Daniel J. Reuss
--------------------
Daniel J. Reuss
Senior Vice President
and Treasurer
Dated: March 23, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant in the capacities and on the dates
indicated:
Signature Title
- --------- -----
Irving Weiser President, Chief Executive Officer
- ------------------------- (Principal Execitive Officer)
Irving Weiser and Director
Daniel J. Reuss Senior Vice President, and
- ------------------------- Treasurer (Principal Financial
Daniel J. Reuss and Accounting Officer)
Susan S. Boren Director
- -------------------------
Susan S. Boren
F. Gregory Fitz-Gerald Director By Daniel J. Reuss
- ------------------------- ----------------
F. Gregory Fitz-Gerald Daniel J. Reuss
Pro Se and as
Attorney-in-Fact
Richard D. McFarland Chairman of Dated: March 23, 1995
- ------------------------- the Board
Richard D. McFarland and Director
Lawrence Perlman Director
- -------------------------
Lawrence Perlman
C.A. Rundell, Jr. Director
- -------------------------
C.A. Rundell, Jr.
Robert L. Ryan Director
- -------------------------
Robert L. Ryan
Arthur R. Schulze, Jr. Director
- -------------------------
Arthur R. Schulze, Jr.
David A. Smith Executive Vice President
- ------------------------- and Director
David A. Smith
<PAGE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
As of December 31, 1994 and 1993 and for each
of the years in the three-year period
ended December 31, 1994
TABLE OF CONTENTS
Page
----
Independent Auditors' Report 19
Consolidated Financial Statements:
Consolidated statements of operations 20
Consolidated balance sheets 21
Consolidated statements of shareholders' equity 22
Consolidated statements of cash flows 23
Notes to consolidated financial statements 24
Financial Statement Schedule:
Schedule III - Condensed financial information of
the registrant 39
Schedules not listed above have been omitted because they are
either not applicable or the required information has been
provided in the consolidated financial statements or notes
thereto.
<PAGE>
<TABLE>
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION
OF THE REGISTRANT
INTER-REGIONAL FINANCIAL GROUP, INC.
(Parent Company)
STATEMENTS OF OPERATIONS
(In thousands)
<CAPTION>
Year ended December 31,
---------------------------
1994 1993 1992
---------------------------
<S> <C> <C> <C>
Revenues:
Management fees $3,650 $3,114 $2,810
Facilities rental 1,056 1,055 1,059
Interest 1,126 291 678
------ ------ ------
5,832 4,460 4,547
------ ------ ------
Expenses:
Compensation and benefits 3,002 2,417 2,312
Interest 1,386 1,226 2,182
Other operating expenses 3,967 3,669 5,904
------ ------ ------
8,355 7,312 10,398
------ ------ ------
Loss before income taxes and
equity in subsidiaries'
earnings (2,523) (2,852) (5,851)
Income tax benefit 953 1,125 2,882
------ ------ ------
Loss before equity in
subsidiaries' earnings (1,570) (1,727) (2,969)
Equity in subsidiaries' earnings 27,023 49,376 37,492
------ ------ ------
Net earnings $25,453 $47,649 $34,523
====== ====== ======
<FN>
See accompanying notes to condensed financial information.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION
OF THE REGISTRANT __ (Continued)
INTER-REGIONAL FINANCIAL GROUP, INC.
(Parent Company)
BALANCE SHEETS
(In thousands)
<CAPTION>
December 31,
---------------------
1994 1993
---------------------
<S> <C> <C>
Assets:
Cash $875 $45
Advances to subsidiaries (eliminated in
consolidation) 34,035 25,120
Equipment, leasehold improvements and
building, at cost, less accumulated
depreciation of $8,484 and $5,291,
respectively 13,997 13,306
Investment in subsidiaries, at cost,
plus equity in undistributed earnings
(eliminated in consolidation) 254,512 227,627
Other assets 2,473 1,593
------- -------
$305,892 $267,691
======= =======
Liabilities and Shareholders' Equity:
Liabilities:
Short-term borrowings $15,000 $__
Advances from subsidiaries (eliminated
in consolidation) 62,220 59,068
Accounts payable and accrued expenses 21,721 17,307
Capital lease obligations and other debt 11,531 13,633
------- -------
110,472 90,008
------- -------
Shareholders' equity:
Common stock 1,005 1,016
Additional paid-in capital 73,924 73,475
Retained earnings 120,491 103,192
------- -------
195,420 177,683
------- -------
$305,892 $267,691
======= =======
<FN>
See accompanying notes to condensed financial information.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE III __ CONDENSED FINANCIAL INFORMATION
OF THE REGISTRANT __ (Continued)
INTER-REGIONAL FINANCIAL GROUP, INC.
(Parent Company)
STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Year ended December 31,
----------------------------
1994 1993 1992
----------------------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $25,453 $47,649 $34,523
Non-cash items included in earnings:
Equity in net earnings of
subsidiaries (27,023) (49,376) (37,492)
Depreciation and amortization 3,537 2,024 282
------ ------ ------
1,967 297 (2,687)
Change in operating assets and
liabilities 3,617 4,781 4,478
------ ------ ------
Cash provided by operating
activities 5,584 5,078 1,791
------ ------ ------
Cash flows from financing activities:
Proceeds from:
Revolving credit agreement, net 15,000 __ __
Issuance of common stock 458 353 868
Long-term debt 237 4,427 2,000
Advances from subsidiaries, net __ 39,393 24,247
Payments for:
Advances to subsidiaries, net (5,763) __ __
Dividends on common stock (4,536) (2,272) (2,313)
Purchases of common stock (3,638) __ (5,105)
Revolving credit agreement, net __ (5,450) (9,550)
Redemption of and dividends on
preferred stock __ __ (130)
Subordinated and other debt (2,340) (1,505) (19,696)
------ ------ ------
Cash provided (used) by financing
activities (582) 34,946 (9,679)
------ ------ ------
Cash flows from investing activities:
Dividends from subsidiaries 8,468 19,571 8,124
Investment in subsidiaries (8,300) (52,270) __
Purchases of fixed assets (4,340) (7,528) (484)
------ ------ ------
Cash provided (used) by investing
activities (4,172) (40,227) 7,640
------ ------ ------
Increase/(Decrease) in cash 830 (203) (248)
Cash at beginning of year 45 248 496
------ ------ ------
Cash at end of year $875 $45 $248
====== ====== ======
<FN>
See accompanying notes to condensed financial information.
</TABLE>
<PAGE>
SCHEDULE III __ CONDENSED FINANCIAL INFORMATION
OF THE REGISTRANT __ (Continued)
INTER-REGIONAL FINANCIAL GROUP, INC.
(Parent Company)
NOTES TO CONDENSED FINANCIAL INFORMATION
A. The condensed financial statements of Inter-Regional
Financial Group, Inc. (Parent Company), should be read in
conjunction with the consolidated financial statements of Inter-
Regional Financial Group, Inc., and the notes thereto beginning
on Page 20.
B. Investments in subsidiaries are carried at cost plus equity
in undistributed earnings. See Note K to consolidated financial
statements for information regarding net capital requirements of
the broker-dealer subsidiaries which could result in restriction
on the ability of the subsidiaries to transfer funds to the
parent in the form of loans, advances or cash dividends.
During 1993, the Parent Company received $52 million in loans
from two of its subsidiary broker-dealers, Dain Bosworth and
Rauscher Pierce Refsnes, in order to capitalize its third broker-
dealer, Regional Operations Group, Inc. During 1994 the Parent
received $8 million in loans from Dain Bosworth and Rauscher
Pierce Refsnes in order to add to Regional Operations Group's
capital. See Item 1(c) "Securities Business - Customer
Financing" and "Securities Business - Uniform Net Capital Rule."
C. Other Debt:
Other debt is used primarily to finance equipment and building
improvements and is payable in monthly and quarterly installments
and bears interest at floating rates which approximated 6.9
percent at December 31, 1994. The Parent Company must maintain
certain levels of net worth under one of the debt agreements.
Annual principal payments on other debt (excluding obligations
under capital leases) during the next five years are as follows:
1995 - $1,546,000; 1996 - $1,621,000; 1997 - $1,260,000; 1998 -
$17,000; 1999 - $-0-.
D. Commitments:
The Parent Company has guaranteed $27 million of four-year
subordinated bank debt incurred by Dain Bosworth and Rauscher
Pierce Refsnes in September and October 1994. See Note G to the
consolidated financial statements.
Aggregate minimum rental commitments as of December 31, 1994, are
as follows:
<TABLE>
<CAPTION>
(In thousands) Capital leases Operating leases
-------------- ----------------
<S> <C> <C>
1995 $1,802 $3,584
1996 1,325 3,710
1997 1,176 3,989
1998 1,056 3,911
1999 940 3,194
Thereafter 7,836 26,505
------ ------
14,135 $44,893
======
Less amount representing interest (7,048)
------
Present value of minimum lease
payments $7,087
======
</TABLE>
Exhibit 10.5
TRUST AGREEMENT
IFG EXECUTIVE DEFERRED COMPENSATION PLAN
First Effective February 11, 1994
TRUST AGREEMENT
IFG EXECUTIVE DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
Page
SECTION 1. INTRODUCTION 2
SECTION 2. ESTABLISHMENT OF TRUST 4
SECTION 3. PAYMENTS TO PLAN PARTICIPANTS AND
THEIR BENEFICIARIES 4
SECTION 4. PAYMENTS TO COMPANY 5
SECTION 5. TRUSTEE RESPONSIBILITY REGARDING
PAYMENTS TO TRUST BENEFICIARY WHEN
COMPANY IS INSOLVENT 5
SECTION 6. INVESTMENT AUTHORITY 6
SECTION 7. DISPOSITION OF INCOME 6
SECTION 8. ACCOUNTING BY TRUSTEE 6
SECTION 9. RESPONSIBILITY OF TRUSTEE 7
SECTION 10. COMPENSATION AND EXPENSES OF TRUSTEE 7
SECTION 11. RESIGNATION AND REMOVAL OF TRUSTEE 7
SECTION 12. APPOINTMENT OF SUCCESSOR 8
SECTION 13. AMENDMENT OR TERMINATION 8
SECTION 14. MISCELLANEOUS 9
SECTION 15. EFFECTIVE DATE 9
SIGNATURES 9
TRUST AGREEMENT
IFG EXECUTIVE DEFERRED COMPENSATION PLAN
THIS TRUST AGREEMENT, Made and entered into as of February 11,
1994, by and between INTER-REGIONAL FINANCIAL GROUP, INC., a
Delaware corporation (hereinafter sometimes referred to as
"IFG"), and First Trust National Association, a national banking
association, as trustee (said trustee and its successor or
successors in trust from time to time being hereinafter
collectively referred to as the "Trustee"):
WHEREAS, IFG has established a nonqualified deferred compensation
plan for the benefit of its eligible employees and eligible
employees of affiliated corporations by the adoption of a
document known as the "IFG EXECUTIVE DEFERRED COMPENSATION PLAN"
(the "Plan"); and
WHEREAS, IFG may from time to time hereafter amend, renew and
extend such Plan; and
WHEREAS, the Plan is unfunded and is maintained by IFG primarily
for the purpose of providing deferred compensation for a select
group of management or highly compensated employees for purposes
of Title I of the Employee Retirement Income Security Act of
1974; and
WHEREAS, IFG has determined that it will establish a trust fund
which, subject to the claims of creditors of IFG, shall be held
to pay such portion of the benefits under the Plans which IFG
does not directly pay; and
WHEREAS, the creation of such a trust fund requires that IFG
select a Trustee and enter into a Trust Agreement; and
WHEREAS, this is the Trust Agreement so contemplated; and
WHEREAS, the Trustee has agreed to serve as Trustee according to
the terms of this Trust Agreement and the officers of IFG are
authorized to execute this Trust Agreement on behalf of IFG;
NOW, THEREFORE, in consideration of the premises, the parties
hereto do hereby agree as follows:
SECTION 1
INTRODUCTION
1.1. Definitions. When used herein with initial capital letters,
the following words have the following meanings:
1.1.1. Beneficiary - a person designated by a Participant (or
automatically by operation of the Plan Statement) to receive any
benefit remaining at the death of a Participant under the terms
of the Plan Statement.
1.1.2. Change in Control -
(1) the public announcement (which, for purposes of this
definition), shall include, without limitation, a report filed
pursuant to Section 13(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") that any person, entity or
"group," within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act, other than IFG or any of its subsidiaries, or
the IFG Stock Bonus Plan or any other employee benefit plan of
IFG or any of its subsidiaries, or any entity holding shares in
IFG's Common Stock organized, appointed or established for, or
pursuant to the terms of, any such plan, has become the
beneficial owner (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 35% or more of the combined voting
power of IFG's then outstanding voting securities in a
transaction or series of transactions;
(2) the Continuing Directors cease to constitute a majority of
IFG's Board of Directors;
(3) the shareholders of IFG approve (1) any consolidation or
merger of IFG in which IFG is not the continuing or surviving
corporation or pursuant to which shares of IFG's stock would be
converted into cash, securities or other property, other than a
merger of IFG in which shareholders immediately prior to the
merger have the same proportionate ownership of stock of the
surviving corporation immediately after the merger; (2) any sale,
lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all of the
assets of IFG; or (3) any plan of liquidation or dissolution of
IFG; or
(4) the majority of the Continuing Directors determine in their
sole and absolute discretion that there has been a change in
control of IFG.
"Continuing Director" shall mean any person who is a member of
the Board of Directors of IFG, while such a person is a member of
the Board of Directors, who is not an Acquiring Person (as
hereinafter defined) or an Affiliate or Associated (as
hereinafter defined) of an Acquiring Person, or a representative
of an Acquiring Person or of any such Affiliate or Associate, and
who (A) was a member of the Board of Directors on the date of
this Agreement or (B) subsequently becomes a member of the Board
of Directors, if such person's initial nomination for election or
initial election to the Board of Directors is recommended or
approved by a majority of the Continuing Directors.
For purposes of this Section, "Acquired Person" shall mean any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) who or which, together with all Affiliates and
Associates of such person, is the "beneficial owner" (as defined
in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of IFG representing 35% or more of the
combined voting power of IFG's then outstanding securities, but
shall not include IFG, any subsidiary of IFG or any employee
benefit plan of IFG or of any subsidiary of IFG or any entity
holding shares of IFG's Common Stock organized, appointed or
established for, or pursuant to the terms of, any such plan; and
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the
Exchange Act.
1.1.3. C ompany - Inter-Regional Financial Group, Inc., a
Delaware corporation, and any successor thereof that adopts the
Plan.
1.1.4. Compensation Committee - the Compensation and
Organization Committee of the Board of Directors of IFG or any
successor Committee thereto established by such Board of
Directors.
1.1.5. Fund - the assets held under this Trust Agreement by the
Trustee from time to time, including all contributions of the
Company and the investments and reinvestments, earnings and
profits thereon.
1.1.6. Insolvent, Insolvency - the condition which exists when
Company is: (i) generally unable to pay its debts when they are
due, or (ii) subject to a pending proceeding as a debtor under
the United States Bankruptcy Code.
1.1.7. Participant - an employee of the Company who has become
and remains a participant in the Plan in accordance with the
provisions of the Plan Statement.
1.1.8. Plan - the unfunded, nonqualified "IFG Executive Deferred
Compensation Plan" of the Company which is established for the
benefit of a select group of management or highly compensated
employees eligible to participate therein, as set forth in the
Plan Statement and as amended, renewed or extended from time to
time.
1.1.9. Plan Statement - the separate written documents, as
adopted by Company which sets forth the terms, conditions and
provisions of the Plan, as the same may be amended, renewed or
extended from time to time thereafter.
1.1.10. Trust Agreement - this written document entitled "TRUST
AGREEMENT, IFG EXECUTIVE DEFERRED COMPENSATION PLAN" entered into
by and between Company and the Trustee effective as of February
11, 1994, as the same may be amended from time to time
thereafter.
1.1.11. Trustee - the Trustee originally named hereunder and its
successor in trust.
1.1.12. Valuation Date - each December 31.
1.2. Rules of Interpretation. Whenever appropriate, words used
herein in the singular may be read in the plural, or words used
herein in the plural may be read in the singular; the masculine
may include the feminine; and the words "hereof," "herein" or
"hereunder" or other similar compounds of the word "here" shall
mean and refer to this entire Trust Agreement and not to any
particular paragraph or section of this Trust Agreement unless
the context clearly indicates to the contrary. The titles given
to the various sections of this Trust Agreement are inserted for
convenience of reference only and are not part of this Trust
Agreement, and they shall not be considered in determining the
purpose, meaning or intent of any provision hereof. Any
reference in this Trust Agreement to a statute or regulation
shall be considered also to mean and refer to any subsequent
amendment or replacement of that statute or regulation. This
instrument has been executed and delivered in the State of
Minnesota and has been drawn in conformity to the laws of that
State and shall be construed and enforced in accordance with the
laws of the State of Minnesota.
SECTION 2
ESTABLISHMENT OF TRUST
2.1. Establishment Of Trust. Company hereby deposits with
Trustee in trust $2,832,193.00, which shall become the principal
of the Trust to be held, administered and disposed of by Trustee
as provided in this Trust Agreement. The Company shall make
additional deposits of cash or other property from time to time
as it may determine in its sole and absolute discretion. Neither
Trustee nor any Participant or beneficiary shall have any right
to compel any additional deposits.
2.2. Fund Established. A Fund is hereby established by Company.
The Fund shall be held by Trustee in trust and dealt with in
accordance with the provisions of this Trust Agreement. This
Trust Agreement is intended to create a trust which is a grantor
trust within the meaning of section 671 of the Internal Revenue
Code, as amended, and shall be construed accordingly. Subject to
all other terms and provisions of this Trust Agreement, the Fund
shall be held and disposed of:
2.2.1. For the purpose of paying benefits required to be paid
under the Plan Statement to Participants and Beneficiaries, as
provided in Section 3; and
2.2.2. To satisfy claims of creditors of Company in the event
Company is determined to be Insolvent; and
2.2.3. To return assets to Company which both are requested by
Company and are determined by the Trustee to be in excess of
amounts reasonably believed necessary to satisfy the claims of
all Participants and Beneficiaries under the terms of the Plan,
as provided in Sections 3 and 4.
2.3. Valuation. Trustee shall value the Fund as of each
Valuation Date, which valuation shall reflect, as nearly as
possible, the then fair market value of the assets comprising the
Fund (including income accumulations therein).
2.4. Irrevocability of Trust. The Trust hereby established shall
be irrevocable by Company.
SECTION 3
PAYMENTS TO PLAN PARTICIPANTS
AND THEIR BENEFICIARIES
3.1. Payments to Plan Participants -
3.1.1. Company shall deliver to Trustee from time to time one or
more schedules (the "Payment Schedule") that indicate the amounts
payable in respect of each Participant (and his or her
Beneficiaries), that provides a formula or other instructions
acceptable to Trustee for determining the amounts so payable, the
form in which such amount is to be paid (as provided for or
available under the Plan), and the time of commencement for
payment of such amounts. Except as otherwise provided herein,
Trustee shall make payments to the Participants and their
Beneficiaries in accordance with the Payment Schedule. Trustee
shall make provision for the reporting and withholding of any
federal, state or local taxes that may be required to be withheld
with respect to the payments of benefits pursuant to the terms of
the Plan and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported,
withheld and paid by Company.
3.1.2. The entitlement of a Participant or his Beneficiaries to
benefits under the Plan shall be determined by Company or such
party as it shall designate under the Plan, and any claim for
such benefits shall be considered and reviewed under the
procedures set forth in the Plan.
3.1.3. Company may make payment of benefits directly to
Participants or their Beneficiaries as they become due under the
terms of the Plan. Company shall notify Trustee of its decision
to make payment of benefits directly prior to the time amounts
are payable to Participants or their Beneficiaries. In addition,
if the principal of the Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the
terms of the Plan, Company shall make the balance of each such
payment as it falls due. Trustee shall notify Company where
principal and earnings are not sufficient. Trustee shall also
notify the Company when and if any assets may be returned to the
Company as provided in Section 2.2.3 hereof.
SECTION 4
PAYMENTS TO COMPANY
Except as provided in Section 2.2.3 and Section 3 hereof, Company
shall have no right or power to direct Trustee to return to
Company or to divert to others any of the Trust assets before all
benefits have been paid to all Participants and Beneficiaries
pursuant to the terms of the Plan.
SECTION 5
TRUSTEE RESPONSIBILITY REGARDING PAYMENTS
TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT
5.1. Cease Payments. Trustee shall cease payment of benefits to
Participants and Beneficiaries if the Company is Insolvent.
5.2. Claims of Creditors. At all times during the continuance of
this Trust, the principal and income of the Trust shall be
subject to claims of general creditors of Company under federal
and state law as set forth below.
5.2.1. The Compensation Committee shall have the duty to inform
Trustee in writing of Company's Insolvency. If a person claiming
to be a creditor of Company alleges in writing to Trustee that
Company has become Insolvent, Trustee shall determine whether
Company is Insolvent and, pending such determination, Trustee
shall discontinue payment of benefits to Participants or
Beneficiaries.
5.2.2. Unless Trustee has actual knowledge of Company's
Insolvency, or has received notice from Company or a person
claiming to be a creditor alleging that Company is Insolvent,
Trustee shall have no duty to inquire whether Company is
Insolvent. Trustee may in all events rely on such evidence
concerning Company's solvency as may be furnished to Trustee and
that provides Trustee with a reasonable basis for making a
determination concerning Company's solvency.
5.2.3. If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to Participants and
Beneficiaries and shall hold the assets of the Trust for the
benefit of Company's general creditors. Nothing in this Trust
Agreement shall in any way diminish any rights of Participants
and Beneficiaries to pursue their rights as general creditors of
Company with respect to benefits due under the Plan or otherwise.
5.2.4 .Trustee shall resume the payment of benefits to
Participants and Beneficiaries in accordance with Section 3 of
this Trust Agreement only after Trustee has determined that
Company is not Insolvent (or is no longer Insolvent).
5.3. Resumption of Payments. Provided that there are sufficient
assets, if Trustee discontinues the payment of benefits from the
Trust pursuant to Section 5 hereof and subsequently resumes such
payments, the first payment following such discontinuance shall
include the aggregate amount of all payments due to Participants
and Beneficiaries under the terms of the Plan for the period of
such discontinuance, less the aggregate amount of payments, if
any, made to Participants and Beneficiaries by Company pursuant
to the Plan during any such period of discontinuance.
SECTION 6
INVESTMENT AUTHORITY
Trustee shall invest any funds transferred to it by Company in
such manner as may reasonably be requested by Company. In the
event Company fails to give such instructions to Trustee or
Trustee determines such instructions are grossly unreasonable,
Trustee shall then have full authority to invest any funds
transferred to it by Company as Trustee sees fit, consistent with
the terms and conditions of this Trust Agreement and the Plan.
Trustee may invest in securities (including stock or rights to
acquire stock) or obligations issued by Company. All rights
associated with assets of the Trust, including voting rights with
respect to any equity securities held by the Trust (including
shares of IFG's Common Stock), shall be exercised by Trustee or
the person designated by Trustee, and shall in no event be
exercisable by or rest with Participants.
Company shall have the right at any time, and from time to time
in its sole discretion, to substitute assets, acceptable to
Trustee, of equal fair market value for any asset held by the
Trust. This right is exercisable by Company in a nonfiduciary
capacity without the approval or consent of any person in a
fiduciary capacity.
SECTION 7
DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust,
net of expenses and taxes, if any, shall be accumulated and
reinvested in accordance with the terms hereof.
SECTION 8
ACCOUNTING BY TRUSTEE
Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions
required to be made, including such specific records as shall be
agreed upon in writing between Company and Trustee. Within sixty
(60) days following the close of each calendar year and within
sixty (60) days after the removal or resignation of Trustee,
Trustee shall deliver to Company a written account of its
administration of the Trust during such year or during the period
from the close of the last preceding year to the date of such
removal or resignation, setting forth all investments, receipts,
disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued
interest paid or receivable being shown separately), and showing
all cash, securities and other property held in the Trust at the
end of such year or as of the date of such removal or
resignation, as the case may be.
SECTION 9
RESPONSIBILITY OF TRUSTEE
9.1 General Duty of Care. Trustee shall act with the care,
skill, prudence and diligence under the circumstances then
prevailing that a prudent person acting in like capacity and
familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided,
however, that Trustee shall incur no liability to any person for
any action taken pursuant to a direction, request or approval
given by Company which is contemplated by, and in conformity, the
terms of the Plan or this Trust and is given in writing by
Company. In the event of a dispute between Company and any
person, Trustee may apply to a court of competent jurisdiction to
resolve the dispute.
9.2. Litigation Expenses. If Trustee undertakes or defends any
litigation arising in connection with this Trust, Company agrees
to indemnify Trustee against Trustee's costs, expenses and
liabilities (including, without limitation, attorneys' fees and
expenses) relating thereto and to be primarily liable for such
payments. If Company does not pay such costs, expenses and
liabilities in a reasonably timely manner, Trustee may obtain
payment from the Trust.
9.3 Use of Counsel. Trustee may consult with legal counsel (who
may also be counsel for Company generally) with respect to any of
its duties or obligations hereunder.
9.4 Use of Agents. Trustee may hire agents, accountants,
actuaries, investment advisors, financial consultants or other
professionals to assist it in performing any of its duties or
obligations hereunder.
9.5. General Grant of Authority. Trustee shall have, without
exclusion, all powers conferred on trustees by applicable law,
unless expressly provided otherwise herein.
9.6. No Business Obligation. Notwithstanding any powers granted
to Trustee pursuant to this Trust Agreement or to applicable law,
Trustee shall not have any power that could give this Trust the
objective of carrying on a business and dividing the gains
therefrom, within the meaning of Section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to
the Internal Revenue Code of 1986, as amended.
SECTION 10
COMPENSATION AND EXPENSES OF TRUSTEE
Company shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid
from the Trust.
SECTION 11
RESIGNATION AND REMOVAL OF TRUSTEE
11.1. Resignation. Trustee may resign at any time by written
notice to Company, which shall be effective thirty (30) days
after receipt of such notice unless Company and Trustee agree
otherwise.
11.2. Removal. Trustee may be removed by Company on thirty (30)
days notice or upon shorter notice accepted by Trustee
11.3. Change in Control. Upon a Change in Control, as defined
herein, Trustee may not be removed by Company for ninety (90)
days. If for any reason Trustee resigns or is removed within
ninety (90) days of a Change in Control, Trustee shall select a
successor Trustee in accordance with the provisions of
Section 12.2 hereof prior to the effective date of Trustee's
resignation or removal.
11.4. Transfer of Assets. Upon resignation or removal of Trustee
and appointment of a successor Trustee, all assets shall
subsequently be transferred to the successor Trustee. The
transfer shall be completed within thirty (30) days after receipt
of notice of resignation, removal or transfer, unless Company
extends the time limit.
11.5. Court Appointment. If Trustee resigns or is removed, a
successor shall be appointed, in accordance with the terms
hereof. If no such appointment has been made, Trustee may apply
to a court of competent jurisdiction for appointment of a
successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative
expenses of the Trust.
SECTION 12
APPOINTMENT OF SUCCESSOR
12.1. New Trustee. If Trustee resigns or is removed in
accordance with Section 11 hereof,the Compensation Committee may
appoint any third party, such as a bank trust department or other
party that may be granted corporate trustee powers under
Minnesota law, as a successor to replace Trustee upon resignation
or removal. The appointment shall be effective when accepted in
writing by the new Trustee, who shall have all of the rights and
powers of the former Trustee, including ownership rights in the
Trust assets. The former Trustee shall execute any instrument
necessary or reasonably requested by Company or the successor
Trustee to evidence the transfer.
12.2. Change in Control. Upon a Change in Control, if Trustee
resigns or is removed and selects a successor Trustee pursuant to
Section 11.3, Trustee may appoint any third party such as a bank
trust department or other party that may be granted corporate
trustee powers under Minnesota law. The appointment of a
successor Trustee shall be effective when accepted in writing by
the new Trustee. The new Trustee shall have all the rights and
powers of the former Trustee, including ownership rights in Trust
assets. The former Trustee shall execute any instrument
necessary or reasonably requested by the successor Trustee to
evidence the transfer.
12.3. Successor Trustee Not Liable. The successor Trustee need
not examine the records and acts of any prior Trustee and may
retain or dispose of existing Trust assets, subject to the terms
hereof. The successor Trustee shall not be responsible for and
Company shall indemnify and defend the successor Trustee from any
claim or liability resulting from any action or inaction of any
prior Trustee or from any other past event, or any condition
existing at the time it becomes successor Trustee.
SECTION 13
AMENDMENT OR TERMINATION
13.1. Amendment. This Trust Agreement may be amended by a
written instrument executed by Trustee and Company.
Notwithstanding the foregoing, no such amendment shall conflict
with the terms of the Plan or shall make the Trust revocable.
Notwithstanding the foregoing, after a Change in Control, and
prior to the time that all liabilities to all Participants and
all Beneficiaries under the Plan have been satisfied in full, no
amendment to this Trust Agreement shall be effective without the
affirmative, prior written concurrence of all Participants and
all Beneficiaries of deceased Participants (determined as of the
time any such amendment is to be adopted).
13.2. Termination. Subject to Company's powers set forth in
Sections 13.1 hereof, which may not be exercised to commence an
early termination of the Trust, the Trust shall not terminate
until the date on which all Participants and Beneficiaries are no
longer entitled to benefits pursuant to the terms of the Plan.
Notwithstanding the foregoing, Company may terminate the Trust
prior to the satisfaction of all such benefits if Company obtains
the prior written concurrence of Participants and Beneficiaries
of deceased Participants (determined as of the time of such
termination) whose accounts are credited with seventy-five
percent (75%) of all of the assets of the Trust. All assets
remaining a part of the Trust at its termination shall be
returned to Company.
SECTION 14
MISCELLANEOUS
14.1. Separability. Any provision of this Trust Agreement
prohibited by law shall be ineffective to the extent of any such
prohibition, without invalidating the remaining provisions
hereof.
14.2. Spendthrift Provision. Benefits payable to Participants
and Beneficiaries under this Trust Agreement may not be
anticipated, assigned (either at law or in equity), alienated,
pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
SECTION 15
EFFECTIVE DATE
The effective date of this Trust Agreement shall be February 11,
1994.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Trust Agreement to be executed as of the day and year first above
written.
INTER-REGIONAL FINANCIAL GROUP, INC.
By Connie L. Bush By Daniel J. Reuss
------------------------- -------------------------
Its Vice President Its Senior Vice President
FIRST TRUST NATIONAL ASSOCIATION
By Beth A. Mega By Dale M. Schumacher
------------------------- -------------------------
Its Vice President Its Vice President
EXHIBIT 11
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC.
COMPUTATION OF NET EARNINGS PER SHARE
(Amounts in thousands, except per share data)
<CAPTION>
Year ended December 31,
----------------------------
1994 1993 1992
----------------------------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net earnings $25,453 $47,649 $34,523
Preferred stock dividend
requirement __ __ __
------ ------ ------
Net earnings applicable to
common stock $25,453 $47,649 $34,523
====== ====== ======
Average number of common and common
equivalent shares outstanding:
Average common shares
outstanding 8,103 8,113 8,302
Incentive stock options 258 292 217
Dilutive effect of preferred stock __ __ 55
------ ------ ------
8,361 8,405 8,574
====== ====== ======
Primary earnings per share $3.04 $5.67 $4.03
====== ====== ======
EARNINGS PER SHARE ASSUMING FULL
DILUTION:
Net earnings $25,453 $47,649 $34,523
Interest added back assuming
conversion of convertible
subordinated debentures
(net of tax) __ __ 531
Preferred stock dividend requirement __ __ __
------ ------ ------
Net earnings for fully diluted
computation $25,453 $47,649 $35,054
====== ====== ======
Average number of common and common
equivalent shares outstanding:
Average common shares outstanding 8,103 8,113 8,302
Dilutive effect of:
Incentive stock options 258 354 236
Preferred stock __ __ 55
Convertible subordinated
debentures __ __ 368
------ ------ ------
8,361 8,467 8,961
====== ====== ======
Fully diluted earnings per share $3.04 $5.63 $3.91
====== ====== ======
</TABLE>
EXHIBIT 22
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC.
LIST OF SUBSIDIARIES
December 31, 1994
<CAPTION>
Percentage
of Voting
State in Which Securities
Name Incorporated Owned
- ---- -------------- ----------
<S> <C> <C>
Consolidated subsidiaries of
Registrant:
Dain Bosworth Incorporated Delaware 100%
IFG Asset Management Services, Inc.
(formerly known as Insight
Investment Management, Inc.). Minnesota 100
Rauscher Pierce Refsnes, Inc. Delaware 100
Regional Operations Group, Inc. Minnesota 100
Consolidated subsidiaries of Dain
Bosworth Incorporated:
Clayton Brown Capital Corp. Delaware 100
Dain Equity Partners, Inc. Minnesota 100
Dain Kalman & Quail
Municipal-Nebraska, Inc. Nebraska 100
Consolidated subsidiaries of
Rauscher Pierce Refsnes, Inc.:
Rauscher Pierce Refsnes
Leasing, Inc. Arizona 100
RP Transportation Corp. Delaware 100
RPR Mortgage Finance Corporation Texas 100
</TABLE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Inter-Regional Financial Group, Inc.:
We consent to the incorporation by reference in Registration
Statement No. 33-58069, Registration Statement No. 33-
54223, Registration Statement No. 33-54907, Registration
Statement No. 33- 59426, Registration Statement No. 33-
39182, Registration Statement No. 33- 25979, post-effective
amendment No. 1 to Registration Statement No. 33-13068, post-
effective amendment No. 2 to Registration Statement No. 33-10243,
post-effective amendment No. 2 to Registration Statement No. 33-
10242, post-effective amendment No. 4 to Registration Statement
No. 2-90634, post-effective amendment No. 8 to Registration
Statement No. 2-61514, post-effective amendment No. 11 to
Registration Statement No. 2-57759, post-effective amendment No.
15 to Registration Statement No. 2-53289 and post-effective
amendment No. 16 to Registration Statement No. 2-51150, on Form
S-8 of Inter-Regional Financial Group,Inc., and subsidiaries of
our report dated February 1, 1995, except as to Note I which is
as of March 7, 1995, relating to the consolidated balance
sheets of Inter-Regional Financial Group, Inc. and subsidiaries
as of December 31, 1994 and 1993, and the consolidated
statements of operations, shareholders' equity and cash
flows and the related financial statement schedule for each
of the years in the three-year period ended December 31, 1994,
which report appears in the December31, 1994 Annual Report on
Form 10-K of Inter-Regional Financial Group, Inc.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 23, 1995
EXHIBIT 24
POWER OF ATTORNEY
NOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints Irving
Weiser, Daniel J. Reuss and Carla J. Smith, and each of them, his
or her true and lawful attorneys-in-fact and agents, each acting
alone, with full power of substitution and resubstitution, for
him or her and in his or her name, place and stead, in any and
all capacities, to sign a Registration Statement on Form S-8 of
Inter-Regional Financial Group, Inc. (the "Company") relating to
the Company's Long Term Incentive Compensation Plan, and any and
all amendments thereto, including post-effective amendments, and
to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange
Commission and with such state securities commissions and other
agencies as necessary; granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and
perform to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or the
substitutes for such attorneys-in-fact and agents, may lawfully
do or cause to be done by virtue hereof.
Signature Title Date
- --------- ----- ----
Susan S. Boren Director February 20, 1995
- -----------------------------
Susan S. Boren
F. Gregory Fitz-Gerald Director February 1, 1995
- -----------------------------
F. Gregory Fitz-Gerald
Richard D. McFarland Chairman and February 1, 1995
- ----------------------------- Director
Richard D. McFarland
Lawrence Perlman Director February 20, 1995
- -----------------------------
Lawrence Perlman
C.A. Rundell, Jr. Director February 1, 1995
- -----------------------------
C.A. Rundell, Jr.
Robert L. Ryan Director February 1, 1995
- -----------------------------
Robert L. Ryan
Arthur R. Schulze, Jr. Director February 1, 1995
- -----------------------------
Arthur R. Schulze, Jr.
David A. Smith Director February 1, 1995
- -----------------------------
David A. Smith
Irving Weiser President, February 1, 1995
- ----------------------------- Chief Executive
Irving Weiser Officer and
Director
Daniel J. Reuss Senior Vice February 1, 1995
- ----------------------------- President,
Daniel J. Reuss Treasurer and acting
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from
Inter-Regional Financial Group, Inc.'s December 31, 1995 Form 10-K and is
qualifed in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 360,764
<RECEIVABLES> 996,946
<SECURITIES-RESALE> 198,561
<SECURITIES-BORROWED> 0<F1>
<INSTRUMENTS-OWNED> 319,222
<PP&E> 30,082
<TOTAL-ASSETS> 1,952,611
<SHORT-TERM> 150,193
<PAYABLES> 1,193,860
<REPOS-SOLD> 173,972
<SECURITIES-LOANED> 0<F2>
<INSTRUMENTS-SOLD> 116,883
<LONG-TERM> 47,023
<COMMON> 1,005
0
0
<OTHER-SE> 194,415
<TOTAL-LIABILITY-AND-EQUITY> 1,952,611
<TRADING-REVENUE> 139,127
<INTEREST-DIVIDENDS> 75,170
<COMMISSIONS> 131,643
<INVESTMENT-BANKING-REVENUES> 96,711
<FEE-REVENUE> 18,953<F3>
<INTEREST-EXPENSE> 38,938
<COMPENSATION> 293,676
<INCOME-PRETAX> 39,795
<INCOME-PRE-EXTRAORDINARY> 25,453
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,453
<EPS-PRIMARY> 3.04
<EPS-DILUTED> 3.04
<FN>
<F1>Included in Receivables
<F2>Included in Payables
<F3>Includes fees from Asset Management only
</FN>
</TABLE>
