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, 1995
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8186
Inter-Regional Financial Group, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1228350
(State or other jurisdiction 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 29, 1996, 12,093,319 shares of common stock were
outstanding, and the aggregate market value of the common shares
(based upon the closing price at February 29, 1996, on the New
York Stock Exchange) of Inter-Regional Financial Group, Inc.,
held by non-affiliates was approximately $150,185,044.
Documents Incorporated by Reference
Portions of the Proxy Statement of Registrant to be
filed within 120 days of December 31, 1995 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. At December 31, 1995 Dain Bosworth had
1,896 employees located in 18 states. Rauscher Pierce Refsnes
primarily serves the Southwest region of the United States. At
December 31, 1995 Rauscher Pierce Refsnes had 970 employees
located in eight states. Each of Dain Bosworth and Rauscher
Pierce Refsnes, as well as 169 correspondent brokerage firms
serviced through Rauscher Pierce Refsnes' RPR Correspondent
Services unit ("RPR Correspondent 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 technology and
information services to IFG and its subsidiaries, had 326
employees at December 31, 1995. IFG Asset Management Services,
Inc. ("AMS"), 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 restructured 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, cash management
products and other externally managed packaged 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.
<PAGE>
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.
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
REVENUES BY SOURCE
(Dollars in thousands)
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1995 1994 1993
------------------ ----------------- ----------------
Percent Percent Percent
Amount -age Amount -age Amount -age
--------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Principal Transactions:
Corporate securities $107,406 17.7% $86,825 17.5% $87,498 17.1%
Municipal obligations 33,245 5.5 26,343 5.3 23,324 4.6
Government obligations
and other 38,529 6.3 25,959 5.2 28,482 5.5
-------- ---- -------- ---- -------- ----
Total 179,180 29.5 139,127 28.0 139,304 27.2
-------- ---- -------- ---- -------- ----
Commissions:
Listed securities 79,634 13.1 68,037 13.7 71,768 14.0
Mutual funds 45,198 7.4 41,717 8.4 45,913 9.0
Over-the-counter
securities 29,507 4.9 16,033 3.2 16,408 3.2
Insurance and annuity
products 12,703 2.1 11,241 2.3 7,822 1.6
Options 5,845 1.0 4,434 0.9 3,919 0.8
Commodities and other 3,100 0.5 1,422 0.3 1,280 0.2
-------- ---- -------- ---- -------- ----
Total 175,987 29.0 142,884 28.8 147,110 28.8
-------- ---- -------- ---- -------- ----
Investment Banking and
Underwriting:
Corporate 44,432 7.3 44,775 9.0 57,911 11.3
Municipal 42,262 7.0 49,433 10.0 71,239 13.9
Other 3,069 0.5 2,503 0.5 453 0.1
-------- ---- -------- ---- -------- ----
Total 89,763 14.8 96,711 19.5 129,603 25.3
-------- ---- -------- ---- -------- ----
Interest:
Customer margin accounts 55,603 9.2 37,307 7.5 23,375 4.6
Trading inventories
and other 30,596 5.0 20,477 4.1 15,319 3.0
Deposits and short-term
investments 23,194 3.8 17,386 3.5 16,173 3.1
-------- ---- -------- ---- -------- ----
Total 109,393 18.0 75,170 15.1 54,867 10.7
-------- ---- -------- ---- -------- ----
Asset Management:
Individual and
institutional accounts 16,521 2.7 11,349 2.3 6,483 1.3
Money market funds 9,972 1.7 7,115 1.4 5,915 1.1
Other mutual funds 595 0.1 489 0.1 419 0.1
-------- ---- -------- ---- -------- ----
Total 27,088 4.5 18,953 3.8 12,817 2.5
-------- ---- -------- ---- -------- ----
Correspondent Clearing 12,484 2.1 11,590 2.4 11,499 2.3
Other 12,852 2.1 11,854 2.4 16,415 3.2
-------- ---- -------- ---- -------- ----
Total revenues $606,747 100.0% $496,289 100.0% $511,615 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
(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, 1995 Dain Bosworth had 834 retail sales
representatives and 75 institutional sales representatives in 67
offices located in 18 states and Rauscher Pierce Refsnes had 294
retail sales representatives and 40 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, 1995 Dain Bosworth was registered as a market maker
for 318 companies and Rauscher Pierce Refsnes was registered as a
market maker for 235 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
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 and Underwriting 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 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 RPR
Correspondent Services 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, 1995 Dain Bosworth had 20 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 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 Correspondent 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 Securities and
Exchange 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 approximately $1.4 million and
$1.0 million, respectively. At all times, Dain Bosworth,
Rauscher Pierce Refsnes and ROG have maintained their net capital
above the required levels. See Note J to "Consolidated Financial
Statements."
Money Management
AMS, formerly known as Insight Investment Management, Inc.,
was restructured in January 1995 into a new financial services
organization supporting all mutual fund and cash management
products sold by Dain Bosworth and Rauscher Pierce Refsnes. This
shared service strategy was expanded in early 1996 to include
product management responsibility for all externally managed
packaged products and services sold by Dain Bosworth and Rauscher
Pierce Refsnes. In addition, AMS, a registered investment
advisor, continues to conduct the portfolio management business
of Insight Investment Management, 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.
Clearing and Other Services
ROG clears and settles trades on a fully disclosed basis for
Dain Bosworth, Rauscher Pierce Refsnes and the correspondent
introducing firms clearing through them. RPR Correspondent
Services, formerly known as 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, 1995 ROG provided clearing services to 169 correspondent
introducing firms introduced through RPR Correspondent Services
and one correspondent firm introduced through Dain Bosworth. ROG
also provides data processing and technology services to the
Company and its subsidiaries. Correspondent firms introduced
through RPR Correspondent Services or otherwise and cleared
through ROG are charged fees based on their use of services.
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 Correspondent 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 service.
Employees
At December 31, 1995 the Company had approximately 3,270
full-time employees. Of these, 1,896 were employed by Dain
Bosworth, 970 were employed by Rauscher Pierce Refsnes, 326 were
employed by ROG and the rest were employed by AMS or the holding
company. 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 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 began to occupy 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. 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 H to the "Consolidated Financial
Statements."
ITEM 3. LEGAL PROCEEDINGS:
The Company and/or its subsidiaries, Dain Bosworth and
Rauscher Pierce Refsnes, are defendants in various civil actions
and arbitrations incidental to their businesses involving alleged
violations of federal and state securities laws and other laws.
Some of these actions, including the actions described in more
detail below, claim substantial damages. Some of the actions
have also been brought on behalf of purported classes of
plaintiffs and relate to underwritings of securities.
Midwest Life Insurance Litigation
The Company and Dain Bosworth have been named as
defendants in ten actions brought by insurance guaranty
associations and certain individuals in connection with
losses suffered under single premium deferred annuities
issued by the Midwest Life Insurance Company ("MWL"), a
former subsidiary acquired by the Company in 1980 and sold
by it in early 1986. Rauscher Pierce Refsnes has also been
named as a defendant in one of such actions. Such annuities
were primarily sold through the private client sales force
of Dain Bosworth and, to a limited extent, Rauscher Pierce
Refsnes. MWL, which was sold two times subsequent to its
sale by the Company in 1986 and was relocated from Nebraska
to Louisiana by the final owners, Southshore Holding Corp.,
was declared insolvent and ordered liquidated by the State
of Louisiana in August 1991. Generally, MWL policyholders
have been reimbursed for their losses up to $100,000 per
holder by the state guaranty funds. The plaintiffs (or real
parties in interest) in these cases are certain individual
policyholders and/or the Life and Health Guaranty
Associations of each of Colorado, Iowa, Minnesota, Montana,
Nebraska, North Dakota, Oregon, South Dakota, Washington and
Wyoming, which claim to have succeeded to the rights of
policyholders they reimbursed for MWL losses. Plaintiffs in
the aggregate seek to recover in excess of $64 million in
compensatory damages, as well as punitive damages, interest,
costs, attorneys' fees and other relief.
The first of these actions, Karsian, et al. v.
Inter-Regional Financial Group, Inc., Dain Bosworth
Incorporated and Rauscher Pierce Refsnes, Inc., is pending
in the United States District Court for the District of
Colorado and was initially brought in August 1993 as a
purported class action. The court has since held, however,
that there are no proper class claims. The plaintiffs in
this action seek approximately $10.7 million in compensatory
damages and allege common law fraud, breach of fiduciary
duty, negligence and negligent misrepresentation, civil
conspiracy, RICO claims, breach of contract, and claims
under the Investment Advisors Act of 1940 and various state
laws. The RICO, breach of contract, and Investment Advisors
Act claims were dismissed by the trial court along with the
class claims in July 1995.
The other nine actions, which were brought in
April and May 1995, allege similar claims to the Colorado
action. In the South Dakota and Minnesota cases, the
Guaranty Associations also allege intentional infliction of
economic harm. These actions are captioned and pending as
follows, and the plaintiffs in each action seek the amount
of compensatory damages indicated in parentheses:
Iowa Life and Health Insurance Guaranty Ass'n v. Inter-
Regional Financial Group, Inc. and Dain Bosworth
Incorporated (Iowa Dist. Ct., Polk County) ($5.7 million)
C. Randolph, L. Schnobrich, V. Troumbly, P. Dumke, E. Davis
and Minnesota Life and Health Insurance Guaranty Ass'n v.
Inter-Regional Financial Group, Inc. and Dain Bosworth
Incorporated (Dakota County Dist. Ct.) ($32.2 million)
Montana Life and Health Insurance Guaranty Ass'n v. Inter-
Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (Montana First Judicial Court, Lewis & Clark
County) ($3.4 million)
Nebraska Life and Health Insurance Guaranty Ass'n v. Inter-
Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (Nebraska Dist. Ct., Lancaster County) ($2.8
million)
North Dakota Life and Health Insurance Guaranty Ass'n v.
Inter-Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (District Court, Cass County, North Dakota)
($2.1 million)
Oregon Life and Health Insurance Guaranty Ass'n v. Inter-
Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (Oregon Circuit Court of Multnomah County)
($.5 million)
South Dakota Life and Health Insurance Guaranty Ass'n v.
Inter-Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (South Dakota Second Judicial Circuit,
Minnehaha County) ($1.7 million)
Washington Life and Health Insurance Guaranty Ass'n v.
Inter-Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (Washington Superior Court for King County)
($2.1 million)
Wyoming Life and Health Insurance Guaranty Ass'n v. Inter-
Regional Financial Group, Inc. and Dain Bosworth
Incorporated, (Wyoming District Court for Laramie County)
($2.7 million)
Motions to dismiss have been filed and denied in
each of these actions, except that (a) claims for punitive
damages were dismissed in the Montana, Oregon, South Dakota
and Wyoming cases, (b) claims for attorney's fees were
dismissed in the Montana and Oregon cases, (c) certain
specific causes of action were dismissed or withdrawn in the
Montana, North Dakota, Oregon and South Dakota cases, and
(d) the Iowa Guaranty Association was ordered to
particularize its claims on an individual policyholder
basis.
The Company, Dain Bosworth and Rauscher Pierce
Refsnes believe that they have substantial and meritorious
defenses available, and they are defending themselves
vigorously in these actions.
The Resolution Trust Corporation
Rauscher Pierce Refsnes and Robert H. Brown,
Rauscher Pierce Refsnes' executive vice president of equity
capital markets, have been named as defendants in an action
Resolution Trust Corporation, as receiver for Western
Savings & Loan Association, F.A. vs. Express America
Holdings Corporation; Smith Barney Harris Upham & Co.;
Rauscher Pierce Refsnes, Inc., et al, brought in the U.S.
District Court in Phoenix, Arizona in December 1995. The
Resolution Trust Corporation (the "RTC") in connection with
the May 1991 sale by the RTC of the stock of WESAV Mortgage
Corporation ("WESAV"), a subsidiary of Western Savings &
Loan Association, F.A., through an auction process in which
Rauscher Pierce Refsnes acted as broker and Smith Barney
Harris Upham & Co. ("Smith Barney") acted as financial
advisor for the RTC. WESAV was sold to First Western
Partners, the predecessor to Express America Holdings
Corporation ("Express America") for a gross acquisition
price of approximately $45 million, including the assumption
of approximately $19 million in liabilities. In addition to
the corporate defendants and Mr. Brown, the RTC also named
as defendants in the action Smith Barney, Express America,
Express America's chief executive officer and chief
financial officer, the former chief executive officer and
former chief financial officer of WESAV, and certain other
individuals. The RTC alleges negligence, breach of
contract, breach of fiduciary duty and fraud and seeks
compensatory damages in excess of $20 million and punitive
damages of $60 million, along with interest, costs and other
relief. Effective January 1, 1996 the RTC was merged into
the Federal Deposit Insurance Corporation.
Rauscher Pierce Refsnes, Mr. Brown and the other
defendants have filed motions to dismiss these claims.
Rauscher Pierce Refsnes and Mr. Brown believe that they have
substantial and meritorious defenses available, and they are
defending themselves vigorously in this action.
While the outcome of any litigation is uncertain,
management, based in part upon consultation with legal counsel as
to certain of the actions pending against the Company and/or its
subsidiaries, believes that the resolution of all such matters
will not have a material adverse effect on the consolidated
financial condition or results of operations of the Company as
set forth in the consolidated financial statements contained
herein.
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, 1995.
<PAGE>
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 47 President and Chief Operating
Officer, Dain Bosworth
Incorporated, since February 1994.
Executive Vice President, IFG,
since April 1990; Executive Vice
President and Chief Financial
Officer, Dain Bosworth
Incorporated, April 1990 to
February 1994. Senior Vice
President, IFG, from May 1986 to
April 1990; Chief Financial
Officer, IFG, from May 1986 to
February 1994. Member of IFG
Executive Committee.
Angela M. Chicoine 33 Controller and Acting Director of
Corporate Audit, IFG, since March
1995; Vice President, IFG, since
June 1993; Director of Corporate
Audit, IFG, from June 1993 to March
1995. Field Audit Manager,
Honeywell, Inc., from January 1992
to June 1993. Audit Manager,
Coopers & Lybrand, from June 1989
to January 1992.
B. J. French 59 Vice President and Director of
Corporate and Investor
Communications, IFG, since November
1991. Director of Corporate
Communications and Investor
Relations, Tonka Corporation, from
December 1989 to September 1991.
Louis C. Fornetti 46 Executive Vice President, Chief
Financial Officer and Treasurer,
IFG, since August 1995. Senior
Vice President and Chief Financial
Officer, American Express Financial
Advisors, Inc. (formerly IDS), from
October 1993 to July 1995; Senior
Vice President and Corporate
Controller, American Express
Financial Advisors, Inc., from
March 1988 to October 1993. Member
of IFG Executive Committee.
Jerry W. Hayes 50 President and Chief Executive
Officer, Regional Operations Group,
Inc., since May 1992. Senior Vice
President, 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.
Carla J. Smith 38 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.
President and Chief Executive
J. Scott Spiker 40 Officer, IFG Asset Management
Services, Inc., 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., from June 1989 to
January 1994. Vice President,
Strategic Planning and
Acquisitions, Norwest Corporation,
from December 1987 to June 1989.
Member of IFG Executive Committee.
Irving Weiser 48 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. Acting President and Chief
Executive Officer, Rauscher Pierce
Refsnes, Inc., since September
1995; Chairman, Rauscher Pierce
Refsnes, Inc., since September
1995. President, Dain Bosworth
Incorporated, from April 1990 to
February 1994. Member of IFG
Executive Committee
<PAGE>
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, as adjusted for the 3-for-2 split
effected on December 20, 1995, by quarter for the last two years
were as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- --------------------
QUARTER HIGH LOW HIGH LOW
- ------- --------------------- --------------------
<S> <C> <C> <C> <C>
First $17 $14-27/32 $21-3/4 $17-1/2
Second 19-27/32 16-5/32 18-1/2 14-27/32
Third 24-5/32 19 17-3/4 13-11/32
Fourth 27-5/32 23 16 14-22/32
</TABLE>
(b) Holders.
At February 29, 1996, 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, as
adjusted for the 3-for-2 split effected December 20, 1995, by
quarter for the last two years were as follows:
<TABLE>
<CAPTION>
Quarter 1995 1994
-------------------------------
<S> <C> <C>
First $.10-2/3 $.05-1/3
Second .10-2/3 .10-2/3
Third .10-2/3 .10-2/3
Fourth .10-2/3 .10-2/3
</TABLE>
The company declared a regular quarterly cash dividend of
$.11 per share in February 1996 which was paid in March 1996.
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.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in thousands, --------------------------------------------------
except per-share amounts) 1995 1994 1993 1992 1991
--------------------------------------------------
(s) <C> <C> <C> <C> <C>
Net revenues: (A)
Dain Bosworth
Incorporated $351,463 $290,753 $301,808 $255,324 $204,346
Rauscher Pierce Refsnes,
Inc. 187,484 163,905 179,649 150,522 120,817
Corporate, other and
eliminations 3,023 2,693 1,503 62 (2,571)
---------- ---------- ---------- ---------- ---------
Total net revenues $541,970 $457,351 $482,960 $405,908 $322,592
========== ========== ========== ========== =========
Total revenues $606,747 $496,289 $511,615 $438,261 $378,274
========== ========== ========== ========== =========
Earnings (Loss) before
income taxes and
extraordinary items:
Dain Bosworth
Incorporated $43,282 $27,961 $51,717 $38,912 $26,072
Rauscher Pierce Refsnes,
Inc. 18,026 14,551 30,080 21,183 12,839
Corporate, other
and eliminations (5,037) (2,717) (4,444) (6,404) (5,893)
---------- ---------- ---------- ---------- ---------
$56,271 $39,795 $77,353 $53,691 $33,018
========== ========== ========== ========== =========
Net earnings:
Before extraordinary
items $35,873 $25,453 $47,649 $34,523 $21,130
Extraordinary items, net - - - - 6,611
---------- ---------- ---------- ---------- ---------
$35,873 $25,453 $47,649 $34,523 $27,741
========== ========== ========== ========== =========
Earnings before
extraordinary items,
per common and common
equivalent share: (B)
Primary $2.86 $2.03 $3.78 $2.68 $1.66
========== ========== ========== ========== =========
Fully diluted $2.81 $2.03 $3.75 $2.61 $1.53
========== ========== ========== ========== =========
Total assets $2,021,908 $1,952,611 $1,786,022 $1,270,945 $1,464,359
========== ========== ========== ========== =========
Long-term debt $41,410 $47,023 $22,166 $16,364 $26,686
========== ========== ========== ========== ==========
Shareholders' equity $222,494 $195,420 $177,683 $131,953 $104,110
========== ========== ========== ========== ==========
Other information:
Equity per common
share (B) $18.44 $16.20 $14.57 $10.88 $8.37
Cash dividends per
common share (B & C) $.42-2/3 $.37-1/3 $.18-2/3 $.08 $-
Common shares outstanding
at year-end,
in thousands (B) 12,065 12,062 12,196 12,122 12,257
Pretax margin - before
extraordinary items,
based on net revenues 10.4% 8.7% 16.0% 13.2% 10.2%
Net return on average
equity-before
extraordinary items 17.3% 13.5% 31.0% 28.9% 23.8%
Net return on average
equity-net earnings 17.3% 13.5% 31.0% 28.9% 31.3%
Long-term debt-to-equity
ratio 18.6% 24.1% 12.5% 12.4% 25.6%
Average number of
employees 3,285 3,133 2,806 2,591 2,391
Average number of
investment executives 1,271 1,205 1,084 1,009 943
Operating office locations
at year end 91 95 81 78 74
</TABLE>
[FN]
(A) Net revenues equal total revenues less interest expense.
(B) Adjusted for a three-for-two stock split effected in December
1995.
(C) 1992 dividends exclude a $.10-2/3 per share special dividend
paid in February 1992.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
Business Environment
The Company's subsidiaries are primarily 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 where the Company
does business, income tax legislation and demand for investment
banking and securities brokerage services. While revenues are
dependent upon the level of trading and underwriting 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, 1995
Summary of Operating Results
During 1995 net earnings totaled $35.9 million, an increase
of $10.4 million or 41 percent over 1994. Net revenues (revenues
less interest expense) for 1995 reached $542.0 million, a Company
record. The Company, along with the rest of the securities
industry benefited in 1995 from the resurgence in the financial
markets in the third and fourth quarters and accompanying
stabilization of interest rates and high securities prices. The
Company also benefited in 1995 from the substantial investments
in growth made during 1994, including investments in the size and
quality of Dain Bosworth's and Rauscher Pierce Refsnes' private
client sales forces and operating office locations, as well as
Dain Bosworth's integration of its October 1994 acquisition,
Chicago-based Clayton Brown Holding Company ("Clayton Brown").
Such 1994 growth investments positioned the Company to capitalize
on opportunities afforded by 1995's more favorable operating
environment. While the Company generated record revenues in
1995, net earnings were 25-percent less than 1993 due to the
effects of a larger expense structure and a change in business
mix from higher margin investment banking activities to lower
margin commission and principal transaction activities.
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 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 has 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 $.06 per share. While this
investment and others, including growth in the private client
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.
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>
1995 vs. 1994 1994 vs. 1993
------------------ ------------------
(Dollars in thousands) Amount Percent Amount Percent
------------------ ------------------
<S> <C> <C> <C> <C>
Net Revenues:
Principal transactions.. $40,053 29% $(177) -%
Commissions............. 33,103 23 (4,226) (3)
Investment banking and
underwriting.......... (6,948) (7) (32,892) (25)
Net interest............ 8,384 23 10,020 38
Asset management........ 8,135 43 6,136 48
Correspondent clearing.. 894 8 91 1
Other................... 998 8 (4,561) (28)
------- --- ------- ---
84,619 19 (25,609) (5)
------- --- ------- ---
Expenses excluding interest:
Compensation and
benefits.............. 52,158 18 1,089 -
Communications.......... 3,601 10 6,298 20
Occupancy and equipment
rental................ 4,324 15 4,020 16
Travel and promotional.. 984 5 3,792 24
Floor brokerage and
clearing fees.......... 497 5 1,011 12
Other................... 6,579 23 (4,261) (13)
------- --- ------- ---
68,143 16 11,949 3
------- --- ------- ---
Earnings before income
taxes.................. $16,476 41% $(37,558) (49)%
======= === ======== ===
</TABLE>
Principal Transactions
Principal transaction revenues increased $40.1 million or 29
percent from 1994 to 1995 due primarily to more stable interest
rates, an improved trading environment and increased demand for
over-the-counter equity, taxable and tax-exempt fixed income
securities generated, in part, from comparatively larger sales
forces. Principal transaction revenues related to sales and
trading of over-the-counter equity, taxable fixed income and tax-
exempt fixed income securities, respectively, were 28 percent, 32
percent and 26 percent higher in 1995 than in the previous year.
Principal transaction revenues 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 1993,
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 the
previous year 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 sales forces, as well as
comparatively higher yields offered by such fixed income
investments than in the prior year.
Commissions
Commission revenues increased $33.1 million or 23 percent
during 1995 as a result of higher sales of over-the-counter
equity securities sold on an agency basis, as well as higher
sales of listed securities, mutual funds and insurance and
annuity products to individual and institutional investors.
Contributing to the increase was a 5-percent rise in the average
number of investment executives and an 18-percent rise in the New
York Stock Exchange's average daily trading volume.
The $4.2 million or 3-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.
Investment Banking and Underwriting
Investment banking and underwriting revenues declined $6.9
million or 7 percent from 1994 to 1995 chiefly as a result of
lower levels of municipal underwriting activity, principally
municipal refunding transactions. A portion of this decline was
offset by increases in fee-based, financial advisory service
revenue earned from municipal, governmental and corporate
clients. Despite a significant industry-wide increase in
initial public offering transactions, underwriting revenues
earned from corporate clients were roughly equal in 1995 and
1994. Such result was due, in large part, to the 1995
reorganization of Dain Bosworth's equity capital markets group,
which caused the group's initial public offering market share to
decline in 1995 relative to 1994.
Over the course of 1995, regulatory requirements and
scrutiny related to municipal underwriting activities throughout
the securities industry increased. Uncertainty caused by such
heightened regulation and scrutiny could negatively impact future
levels of municipal underwriting-related activities and could
also increase costs related to such activities for both the
Company and the securities industry as a whole.
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. 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, restructurings and
private placement services performed for corporate clients.
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) 1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Revenues:
Customer margin accounts....... $55,603 $37,307 $23,375
Trading inventories and other.. 30,596 20,477 15,319
Deposits and short-term
investments................... 23,194 17,386 16,173
------- ------- -------
109,393 75,170 54,867
------- ------- -------
Expenses:
Customer funds on deposit...... 35,922 22,125 16,249
Short-term bank loans and
other......................... 25,154 14,946 10,850
Subordinated and other
long-term debt................ 3,701 1,867 1,556
------- ------- -------
64,777 38,938 28,655
------- ------- -------
Net interest income............. $44,616 $36,232 $26,212
======= ======= =======
</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 1995 and 1994 versus 5 percent in 1993. The
majority of the 1995 and 1994 increases were due to 19-percent
and 35-percent rises in margin loan balances, respectively, which
resulted largely from the 5-percent and 11-percent increases in
the average number of investment executives. Also, a portion of
the 1994 increase was the result of increasing spreads on all
customer balances. 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 result in higher asset management
revenues, but would be offset by lower net interest income and,
accordingly, would not have a material effect on net earnings.
Average balances and interest rates for 1993 through 1995
are:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
(Dollars in thousands) 1995 1994 1993
------------------------------
<S> <C> <C> <C>
Interest revenues:
Margin loans to customers
Average balance $628,392 $526,088 $388,398
Average interest rate 8.8% 7.1% 6.0%
-------- -------- --------
$55,603 $37,307 $23,375
======== ======== ========
Deposits and short-term
investments
Average balance $398,027 $409,648 $534,723
Average interest rate 5.8% 4.2% 3.0%
-------- -------- --------
$23,194 $17,386 $16,173
======== ======== ========
Interest expense:
Interest-bearing customer funds
on deposit
Average balance $723,803 $679,305 $685,194
Average interest rate 5.0% 3.3% 2.4%
-------- -------- --------
$35,922 $22,125 $16,249
======== ======== ========
</TABLE>
Asset Management
Asset management revenues increased 43 percent in 1995 from
1994 and 48 percent from 1993 to 1994 as a result of 47-percent
and 34-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
Revenues from correspondent clearing rose $.9 million or 8
percent during 1995 as RPR Correspondent Services, the Rauscher
Pierce Refsnes unit that markets and coordinates correspondent
clearing services, increased the number of its correspondent
brokerage firms from 130 to 169 and benefited from increased
trade volumes from such correspondents. Correspondent clearing
revenues increased less than 1 percent from 1993 to 1994 as the
positive effect of increased trade volumes handled by RPR
Correspondent Services was offset by the discontinuance of
service for a significant correspondent in 1994.
Other Revenues
Other revenues increased approximately $1.0 million in 1995
over 1994 due principally to gains on the sale of securities
previously obtained as a portion of compensation for certain
corporate underwriting activity. 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 $.19. Partially offsetting
the absence of this gain in 1994 were increased revenues from
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. During 1995 compensation and benefits expense
increased 18 percent from the previous year, largely the result
of increased commissions, incentive compensation and related
benefits that rose in conjunction with operating revenues and
earnings, as well as a 5-percent increase in the average number
of employees and general salary increases.
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.
Other Expenses
Expenses other than compensation and benefits increased
$16.0 million or 13 percent from 1994 to 1995 principally due to:
(1) increased litigation-related expenses; (2) increased
occupancy costs related to the full-year effect of a significant
number of operating office additions during the previous year,
the move of Rauscher Pierce Refsnes into a new headquarters and
the expansion of numerous operating office locations during 1995;
and, (3) volume-driven increases in communications, market-data
and clearing services and increased travel costs associated with
the generation of new business.
During 1994 expenses other than compensation and benefits
increased $10.9 million or 10 percent largely as the result of
transaction volume and incremental employee costs 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.
During the 1995 first half, management took steps to
selectively reduce expenses or defer spending in light of the
market uncertainty that characterized the first half of the year.
During the 1995 second half, expense levels increased somewhat as
management began to selectively make investments to grow certain
parts of the business, primarily AMS and equity capital markets
groups within Dain Bosworth and Rauscher Pierce Refsnes, and
build its infrastructure. Though operating expense levels in the
1996 first half will likely remain at levels above those
experienced in the first half of 1995, management continues to
emphasize prudent expense control throughout the organization.
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 29, 1996, approximately $272 million of a
total of $465 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 29, 1996, all 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
Correspondent 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 1995 Dain Bosworth, Rauscher Pierce Refsnes
and Regional Operations Group all operated above the minimum net
capital standards. At December 31, 1995, regulatory net capital
was $58.4 million at Regional Operations Group, which was 7.2
percent of aggregate debit balances and $17.6 million in excess
of the 5-percent requirement. Dain Bosworth's and Rauscher
Pierce Refsnes' net capital requirements are $1.4 million and
$1.0 million, respectively, as neither firm carries customer
balances on its balance sheet. At December 31, 1995, Dain
Bosworth and Rauscher Pierce Refsnes had net capital of $26.8
million and $18.2 million, respectively, in excess of their
minimum requirements.
The Company paid a regular quarterly cash dividend of $.02-
2/3 per share during the first quarter of 1993 and regular
quarterly cash dividends of $.05-1/3 per share each quarter
thereafter through the first quarter of 1994. In the second
quarter of 1994 the regular quarterly dividend was increased to
$.10-2/3 per share. During the 1996 first quarter, the Company
declared and paid a regular quarterly cash dividend of $.11 per
share. 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.
In April 1994 the Company's Board of Directors authorized a
plan to repurchase up to 600,000 shares of the Company's common
stock. 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
29, 1996, the Company had repurchased 541,000 shares in
accordance with this program at a cost of $10.4 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' individual 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 including
position limits, aging, duration and credit requirements. These
policies are intended to limit the size of and risk in the
Company's trading inventories.
The Company periodically hedges its fixed income trading
inventories with financial futures or interest-rate option
contracts. The Company may also trade treasury option contracts
for its own account to minimize interest rate risk. At December
31, 1995, the Company had open commitments under financial
futures contracts with notional amounts of $3.0 million. At the
same date the Company had open commitments to purchase $27.5
million and sell $25.0 million of treasury securities under
option contracts. At December 31, 1995, the Company owned no
interest rate option contracts. The fair market value of these
option and financial futures contracts was not material at
December 31, 1995. In addition, the average fair market value
and trading revenues associated with these contracts during 1995
were not material. Such option and financial futures contracts
expose the Company to off-balance-sheet market risk in the event
that the changes in interest rates do not closely correlate with
the change in the inventory price. Transactions in futures
contracts are conducted through regulated exchanges which
guarantee performance of counterparties and are settled in cash
on a daily basis, thereby minimizing credit risk. Maintaining
futures contracts typically requires the Company to deposit cash
or securities with an exchange or other financial intermediary as
security for its obligations. Additional cash or securities may
be required to be deposited thereafter due to fluctuations in the
market value of the futures contract. In writing option
contracts, the Company receives a premium from the purchaser in
exchange for incurring an obligation to purchase or sell
securities upon exercise of the option. These obligations may
require the Company to purchase securities at prices higher than
prevailing market prices or sell securities at prices below
prevailing market prices in order to fulfill its obligations
under the contracts. Other than as described, the Company does
not enter into interest-rate swap agreements, foreign currency
contracts or other derivative financial instruments with off-
balance-sheet risk.
In January 1996 the Company entered into a $4.6 million
operating lease agreement to finance the acquisition of state-of-
the-art technology in the form of investment executive
workstations, which the Company believes will improve the
productivity and client service of Dain Bosworth and Rauscher
Pierce Refsnes investment executives. Minimum lease payments for
the three-year term are included under "operating leases" in Note
H to the Consolidated Financial Statements.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
As of December 31, 1995 and 1994, and for each of
the years in the three-year period ended December 31, 1995
and Supplementary Data
Page
----
Independent Auditors' Report.................................20
Consolidated Financial Statements:
Consolidated statements of operations...................21
Consolidated balance sheets.............................22
Consolidated statements of shareholders' equity.........23
Consolidated statements of cash flows...................24
Notes to consolidated financial statements..............25
Quarterly Financial Information (unaudited)..................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, 1995 and 1994, 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,
1995. 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, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, 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 7, 1996
<PAGE>
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per-share amounts)
<CAPTION>
Year ended December 31,
-------------------------------
1995 1994 1993
-------------------------------
<S> <C> <C> <C>
Revenues:
Principal transactions......... $179,180 $139,127 $139,304
Commissions.................... 175,987 142,884 147,110
Interest....................... 109,393 75,170 54,867
Investment banking and
underwriting.................. 89,763 96,711 129,603
Asset management............... 27,088 18,953 12,817
Correspondent clearing......... 12,484 11,590 11,499
Other.......................... 12,852 11,854 16,415
-------- -------- --------
Total revenues.................. 606,747 496,289 511,615
-------- -------- --------
Interest expense................ (64,777) (38,938) (28,655)
-------- -------- --------
Net revenues.................... 541,970 457,351 482,960
-------- -------- --------
Expenses excluding interest:
Compensation and benefits...... 345,834 293,676 292,587
Communications................. 40,624 37,023 30,725
Occupancy and equipment rental. 33,019 28,695 24,675
Travel and promotional......... 20,665 19,681 15,889
Floor brokerage and clearing
fees.......................... 10,120 9,623 8,612
Other.......................... 35,437 28,858 33,119
-------- -------- --------
Total expenses excluding
interest....................... 485,699 417,556 405,607
-------- -------- --------
Earnings:
Earnings before income
taxes......................... 56,271 39,795 77,353
Income tax expense............. (20,398) (14,342) (29,704)
-------- -------- --------
Net earnings ................... $35,873 $25,453 $47,649
======== ======== ========
Earnings per common and common
equivalent share:
Primary........................ $2.86 $2.03 $3.78
======== ======== ========
Fully diluted.................. $2.81 $2.03 $3.75
======== ======== ========
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
December 31,
1995 1994
---------------------
<S> <C> <C>
Assets:
Cash and cash equivalents................. $26,167 $22,764
Cash and short-term investments
segregated for regulatory purposes....... 411,000 338,000
Receivable from customers................. 763,793 710,647
Receivable from brokers and dealers....... 257,717 207,512
Securities purchased under agreements
to resell................................ 80,233 198,561
Trading securities owned.................. 322,892 319,222
Equipment, leasehold improvements
and buildings, at cost, less
accumulated depreciation of $22,141
and $19,707, respectively................ 31,108 30,082
Other receivables......................... 80,838 78,787
Deferred income taxes..................... 31,993 29,001
Other assets.............................. 16,167 18,035
---------- ----------
$2,021,908 $1,952,611
========== ==========
Liabilities and Shareholders' Equity:
Liabilities:
Short-term borrowings..................... $97,000 $150,193
Drafts payable............................ 50,431 35,021
Payable to customers...................... 982,098 868,541
Payable to brokers and dealers............ 254,542 212,954
Securities sold under repurchase
agreements............................... 120,808 173,972
Trading securities sold, but not
yet purchased........................... 61,050 116,883
Accrued compensation...................... 95,988 68,755
Other accrued expenses and
accounts payable........................ 84,973 77,344
Accrued income taxes...................... 11,114 6,505
Subordinated and other debt............... 41,410 47,023
---------- ----------
1,799,414 1,757,191
---------- ----------
Shareholders' equity:
Common stock (issued and outstanding,
12,064,969 and 8,041,158 shares,
respectively)............................ 1,508 1,005
Additional paid-in capital................ 76,623 73,924
Retained earnings......................... 144,363 120,491
---------- ----------
222,494 195,420
---------- ----------
$2,021,908 $1,952,611
========== ==========
</TABLE>
[FN]
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per-share amounts)
<CAPTION>
Additional Re- Share
Common Stock Paid-In tained holders'
Shares Amount Capital Earnings Equity
-------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balances at
December 31, 1992 8,082 $1,010 $73,128 $57,815 $131,953
------ ------ ------- ------- --------
Net earnings - - - 47,649 47,649
Common stock issued
upon exercise of
stock options 49 6 347 - 353
Cash dividends on
common stock
($.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
stock options 73 9 449 - 458
Cash dividends on
common stock
($.56 per share) - - - (4,536) (4,536)
------ ------ ------- ------- --------
Balances at
December 31, 1994 8,041 1,005 73,924 120,491 195,420
------ ------ ------- ------- --------
Net earnings - - - 35,873 35,873
Repurchase of
common stock (201) (25) - (6,824) (6,849)
Common stock issued
upon exercise of
stock options 194 24 2,289 - 2,313
Restricted common
stock issued 12 2 53 - 55
Stock credited to
Wealth Accumulation
Plan participants - - 859 - 859
Cash dividends on
common stock ($.64
per share) - - - (5,177) (5,177)
Three-for-two stock
split 4,019 502 (502) - -
------ ------ ------- ------- --------
Balances at
December 31, 1995 12,065 $1,508 $76,623 $144,363 $222,494
====== ====== ======= ======== ========
<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,
----------------------------
1995 1994 1993
----------------------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $35,873 $25,453 $47,649
Adjustments to reconcile net
earnings to cash provided
(used) by operating activities,
net of effect of acquisition:
Depreciation and amortization 8,973 8,415 5,812
Deferred income taxes (2,992) (5,302) (6,759)
Other non-cash items 10,486 11,388 11,274
Cash and short-term investments
segregated for regulatory
purposes (73,000) 244,005 (79,300)
Securities purchased under
agreements to resell 118,328 (25,737) (71,304)
Net trading securities owned
and trading securities sold,
but not yet purchased (59,503) 16,021 (92,182)
Other receivables (2,051) (38,032) (12,027)
Drafts payable and short-term
borrowings of securities
companies (22,783) (13,147) 108,731
Net payable to customers 60,411 (174,425) (59,456)
Net receivable from/payable
to brokers and dealers (8,617) (99,114) 56,322
Securities sold under
repurchase agreements (53,164) 89,994 56,863
Accrued compensation 27,233 (14,884) 18,678
Other 3,412 (12,582) 8,264
------- ------- -------
Cash provided (used) by
operating activities 42,606 12,053 (7,435)
------- ------- -------
Cash flows from financing
activities:
Proceeds from:
Issuance of common stock 2,368 458 353
Subordinated and other debt - 27,237 7,427
Revolving credit agreement,
net - 15,000 -
Payments for:
Revolving credit agreement,
net (15,000) - (5,450)
Purchase of common stock (6,849) (3,638) -
Subordinated and other debt (5,613) (2,380) (1,625)
Dividends on common stock (5,177) (4,536) (2,272)
------- ------- -------
Cash provided (used) by financing
activities (30,271) 32,141 (1,567)
------- ------- -------
Cash flows from investing
activities:
Proceeds from investment
dividends and sales 1,826 934 1,613
Payments for:
Equipment, leasehold
improvements and other (10,758) (13,044) (13,025)
Acquisition, net of cash
acquired - (23,367) -
------- ------- -------
Cash (used) by investing
activities (8,932) (35,477) (11,412)
------- ------- -------
Increase (Decrease) in cash and
cash equivalents 3,403 8,717 (20,414)
Cash and cash equivalents:
At beginning of year 22,764 14,047 34,461
------- ------- -------
At end of year $26,167 $22,764 $14,047
======= ======= =======
</TABLE>
Cash income tax payments totaled $18,884,000 in 1995, $19,916,000
in 1994 and $33,053,000 in 1993. Cash interest payments totaled
$64,592,000, $37,959,000, and $28,494,000 in 1995, 1994 and
1993, respectively.
[FN]
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
Inter-Regional Financial Group, Inc. and Subsidiaries
A. Summary of Significant Accounting Policies
Nature of Business: Inter-Regional Financial Group, Inc.
(the "Company") is a holding company formed in 1973 and is based
in Minneapolis, Minnesota. Through its wholly owned
subsidiaries, Dain Bosworth Incorporated, headquartered in
Minneapolis, Minnesota, and Rauscher Pierce Refsnes, Inc.,
headquartered in Dallas, Texas, the Company offers regional
securities broker-dealer and investment banking services to
individual, institutional, corporate and governmental clients
predominantly in the western half of the United States. The
Company is also parent to Regional Operations Group, Inc., which
provides brokerage operations and technology services to the
Company's broker-dealers and correspondent firms, and IFG Asset
Management Services, Inc., which is developing services to
support the sale of externally managed mutual funds and cash
management products and which, through its Insight Investment
Management division, manages the Great Hall Investment Funds and
institutional fixed income accounts.
Basis of Presentation: The consolidated financial
statements include the Company and its subsidiaries, all of which
are wholly owned. All 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 1995 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, trading securities sold, but not
yet purchased, and derivative financial instruments 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.
The Company may, from time to time, receive equity
instruments as a portion of its compensation for certain
underwriting activity. Such instruments are accounted for as
investments and are recorded at the lower of cost or market,
which is generally zero.
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
forgivable loans made to investment executives and other revenue-
producing employees, typically in connection with their
recruitment. Such forgivable 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: The Company accounts for income taxes in
accordance with 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 differences 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.
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, 1995.
Recent Accounting Pronouncements: In October 1995 the
Financial Accounting Standards Board issued Statement No. 123 -
"Accounting for Stock-Based Compensation." In 1996 the Company
intends to adopt the disclosure provisions of the Statement while
continuing to account for options and other stock-based
compensation using the intrinsic value based method.
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. The weighted
average number of shares used in the primary and fully diluted
computations, respectively, are: 1995 - 12,546,290 and
12,744,593; 1994 - 12,541,626 and 12,541,626; and 1993 -
12,606,752 and 12,700,196.
Use of Estimates: Management of the Company has made
certain estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent
liabilities to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results
could differ from those estimates.
B. 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 $706 million and $674
million as of December 31, 1995 and 1994, respectively. The
Company pays interest on such funds at varying rates, the
weighted average of which was 4.9 percent at December 31, 1995.
C. Receivable from and Payable to Brokers and Dealers
<TABLE>
<CAPTION>
December 31,
----------------------
(In thousands) 1995 1994
----------------------
<S> <C> <C>
Receivable from brokers and dealers:
Deposits for securities borrowed $226,062 $164,111
Securities failed to deliver 24,833 42,922
Clearing organizations, correspondent
brokers and other 6,822 479
-------- --------
$257,717 $207,512
======== ========
Payable to brokers and dealers:
Deposits for securities loaned $223,685 $181,017
Securities failed to receive 25,293 28,507
Clearing organizations, correspondent
brokers and other 5,564 3,430
-------- --------
$254,542 $212,954
======== ========
</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.
<PAGE>
D. Trading Securities
The market values of trading security positions are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------
(In thousands) 1995 1994
----------------------
<S> <C> <C>
Owned:
Government securities $185,268 $129,302
Municipal securities 76,209 136,304
Corporate fixed income and other
securities 50,298 42,809
Equity securities 11,117 10,807
-------- --------
$322,892 $319,222
======== ========
Sold, but not yet purchased:
Government and municipal securities $56,166 $110,957
Corporate and other securities 4,884 5,926
-------- --------
$61,050 $116,883
======== ========
</TABLE>
E. Short-Term Borrowings
<TABLE>
<CAPTION>
December 31,
----------------------
(In thousands) 1995 1994
----------------------
<S> <C> <C>
Loans to the securities subsidiaries $97,000 $135,193
Revolving credit loan - 15,000
-------- --------
$97,000 $150,193
======== ========
</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 basis points above the Federal Funds rate (5.5
percent as of December 31, 1995). The market value of trading
securities pledged as collateral at December 31, 1995 was $133
million. At December 31, 1995, approximately $368 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
(none of which was used as of December 31, 1995) which expires
June 30, 1997. 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.
F. Subordinated and Other Debt
<TABLE>
<CAPTION>
December 31,
----------------------
(In thousands) 1995 1994
----------------------
<S> <C> <C>
Subordinated debt of securities
subsidiaries $32,333 $35,000
Other debt:
Capital lease obligations (Note H) 6,174 7,087
Other 2,903 4,936
-------- --------
$41,410 $47,023
======== ========
</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, 1995, 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 8.3 percent at December 31, 1995. 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: 1996-$13,289,000; 1997-
$12,932,000; 1998-$9,015,000; 1999-$0; 2000-$0.
G. 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 600,000 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 1995 and 1994,
respectively, the Company repurchased 297,000 and 244,000 shares
in accordance with this program at a cost of $6.8 million and
$3.6 million.
On October 31, 1995, the Company's Board of Directors
declared a three-for-two stock split effected in the form of a
50-percent stock dividend payable on December 20, 1995, to
shareholders of record at the close of business on December 6. A
total of 4,018,880 shares of common stock were issued in
connection with the split. All references in the financial
statements to average numbers of shares outstanding and related
prices and per-share amounts have been restated to reflect the
split.
At December 31, 1995, 2,227,000 shares of the Company's
common stock were reserved for the 1986 Stock Option Plan,
159,000 shares were reserved for issuance to the IFG Stock Bonus
Plan and 132,000 shares were reserved for issuance to the IFG
Restricted Stock Plan for Non-Employee Directors.
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, 1995, 983,000 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,
-----------------------------------------
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
Options outstanding at
beginning of year 1,303,500 1,040,250 740,850
Granted 357,900 402,000 407,850
Exercised (298,493) (109,425) (75,900)
Canceled (118,920) (29,325) (32,550)
--------- --------- ---------
Options outstanding at end
of year 1,243,987 1,303,500 1,040,250
========= ========= =========
Options exercisable at end
of year 268,837 301,410 195,300
Price range of outstanding
options $4.33-$20.83 $4.33-$20.83 $4.33-$13.50
Price range of options
exercised $4.67-$20.83 $4.58-$11.75 $4.58-$5.67
</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, 1995, was $25.25.
H. 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,
1995, are as follows:
<TABLE>
<CAPTION>
Capital Operating
(In thousands) leases leases
--------- ---------
<S> <C> <C>
1996 $1,325 $20,243
1997 1,176 18,864
1998 1,056 15,788
1999 940 12,286
2000 940 9,937
Thereafter 6,896 61,076
------- --------
Total minimum lease payments $12,333 $138,094
========
Less amount representing interest (6,159)
-------
Present value of minimum lease payments $6,174
=======
</TABLE>
Rental expense for operating leases was $25,771,000,
$22,414,000 and $19,085,000, for the years ended December 31,
1995, 1994 and 1993, respectively. Included in net equipment,
leasehold improvements and buildings at December 31, 1995 and
1994, is $4,483,000 and $5,037,000, respectively, for leases
which have been capitalized.
Litigation: The Company and/or its securities subsidiaries
are defendants in various civil actions and arbitrations
incidental to their businesses involving alleged violations of
federal and state securities laws and other laws. Some of these
actions, including the actions described in more detail below,
claim substantial damages. Some of these actions have also been
brought on behalf of purported classes of plaintiffs and relate
to underwritings of securities.
The Company and Dain Bosworth have been named as defendants
in ten actions brought by insurance guaranty associations and
certain individuals in connection with losses suffered under
single premium deferred annuities issued by The Midwest Life
Insurance Company ("MWL") and sold primarily through the private
client sales force of Dain Bosworth. MWL was a subsidiary that
the Company acquired in 1980 and sold in 1986. MWL was sold twice
more thereafter, relocated to Louisiana and ultimately declared
insolvent and placed in liquidation by the State of Louisiana in
August 1991. Generally, MWL policyholders have been reimbursed
for their losses up to $100,000 per holder by the state guaranty
funds which claim to have succeeded to the rights of the
policyholders they reimbursed. Plaintiffs allege common law
fraud, breach of fiduciary duty, negligence and negligent
misrepresentation, civil conspiracy and various state law
violations and seek in the aggregate in excess of $64 million in
compensatory damages, as well as punitive damages, interest,
costs, attorney's fees and other relief. The Company and Dain
Bosworth believe they have substantial and meritorious defenses
available and are defending themselves vigorously in these
actions.
Rauscher Pierce Refsnes and one of its officers have been
named as defendants in an action brought by The Resolution Trust
Corporation (the "RTC") alleging negligence, breach of contract,
breach of fiduciary duty and fraud in connection with the May
1991 sale by the RTC of the stock of WESAV Mortgage Corporation
("WESAV"). Rauscher Pierce Refsnes acted as the broker for the
sale. Smith Barney, which acted as the RTC's financial advisor,
Express America Holdings Corporation, the successor to the
winning bidder, and certain individual officers of Express
America and WESAV have also been named as defendants in this
action. The RTC seeks alleged damages of at least $20 million
and punitive damages of $60 million. Rauscher Pierce Refsnes and
its officer believe they have substantial and meritorious
defenses available and are defending themselves vigorously in
this action.
While the outcome of any litigation is uncertain,
management, based in part upon consultation with legal counsel as
to certain of the actions pending against the Company and/or its
subsidiaries, believes that the resolution of these matters will
not have a material adverse effect on the Company's consolidated
financial condition or results of operations of the Company as
set forth in the consolidated financial statements contained
herein.
I. 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 two years ended December 31, 1995, originate
from the following:
<TABLE>
<CAPTION>
December 31,
----------------------
(In thousands) 1995 1994
----------------------
<S> <C> <C>
Equity securities $87,381 $68,466
Municipal securities 33,245 26,343
Government securities 27,021 17,351
Corporate fixed income securities 20,025 18,359
Mortgage-backed and other securities 11,508 8,608
-------- --------
$179,180 $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 market risk in the event prices increase, as the
Company may be obligated to acquire the securities at prevailing
market prices.
The Company periodically hedges its fixed income trading
inventories with financial futures or interest-rate option
contracts. The Company may also trade treasury option contracts
for its own account to minimize interest rate risk. At December
31, 1995, the Company had open commitments under financial
futures contracts with notional amounts of $3.0 million. At the
same date the Company had open commitments to purchase $27.5
million and sell $25.0 million of treasury securities under
option contracts. At December 31, 1995, the Company owned no
interest rate option contracts. The fair market value of these
option and financial futures contracts was not material at
December 31, 1995. In addition, the average fair market value
and trading revenues associated with these contracts during 1995
were not material. Such option and financial futures contracts
expose the Company to off-balance-sheet market risk in the event
that the changes in interest rates do not closely correlate with
the change in the inventory price. Transactions in futures
contracts are conducted through regulated exchanges which
guarantee performance of counterparties and are settled in cash
on a daily basis, thereby minimizing credit risk. Maintaining
futures contracts typically requires the Company to deposit cash
or securities with an exchange or other financial intermediary as
security for its obligations. Additional cash or securities may
be required to be deposited thereafter due to fluctuations in the
market value of the futures contract. In writing option
contracts, the Company receives a premium from the purchaser in
exchange for incurring an obligation to purchase or sell
securities upon exercise of the option. These obligations may
require the Company to purchase securities at prices higher than
prevailing market prices or sell securities at prices below
prevailing market prices in order to fulfill its obligations
under the contracts. Other than as described, the Company does
not enter into interest-rate swap agreements, foreign currency
contracts or other derivative financial instruments with off-
balance-sheet risk.
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. All
repurchase agreements are collateralized by cash or securities
received by the Company. 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, 1995, the market value of such securities pledged
approximated the borrowings outstanding.
J. 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 Correspondent 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, 1995, net capital was $58.4 million
at Regional Operations Group, which was 7.2 percent of aggregate
debit balances and $17.6 million in excess of the 5-percent
requirement. Dain Bosworth's and Rauscher Pierce Refsnes' net
capital requirements are $1.4 and $1.0 million, respectively, as
neither firm carries customer balances on its balance sheet. At
December 31, 1995, Dain Bosworth and Rauscher Pierce Refsnes had
net capital of $26.8 million and $18.2 million, respectively, in
excess of their minimum requirements.
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,
1995, Regional Operations Group had $411.0 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.
K. 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 six months. Participants may contribute
on a pretax basis up to 12 percent of eligible compensation to
the stock bonus plan and/or the profit sharing plan subject to
certain aggregate limitations; the Company then matches up to 5
percent of eligible compensation at a 40-percent rate. Matching
contributions are limited to $3,000 per employee annually and are
paid to the stock bonus plan. At the end of each calendar year,
a contribution to the profit sharing plan is determined by each
participating company's board of directors. The minimum
contribution is 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) 1995 1994 1993
----------------------------------
<S> <C> <C> <C>
Profit sharing plan $14,168 $11,489 $15,863
Stock bonus plan 2,712 2,763 2,885
------- ------- -------
$16,880 $14,252 $18,748
======= ======= =======
</TABLE>
L. Income Taxes
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
(In thousands) 1995 1994 1993
----------------------------------
<S> <C> <C> <C>
Current:
Federal $20,183 $16,526 $30,557
State 3,207 3,118 5,906
Deferred:
Federal (2,410) (4,287) (5,741)
State (582) (1,015) (1,018)
------- ------- -------
$20,398 $14,342 $29,704
======= ======= =======
</TABLE>
A reconciliation of ordinary federal income taxes (based on
a rate of 35 percent) with the actual tax expense provided on
earnings is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
(Dollars in thousands) 1995 1994 1993
--------------------------------
<S> <C> <C> <C>
Ordinary federal income
tax expense $19,695 $13,928 $27,074
State income taxes, net of
federal tax benefit 1,599 1,367 3,178
Tax-exempt interest, net of
related interest expense (1,324) (863) (780)
Other 428 (90) 232
------- ------- -------
$20,398 $14,342 $29,704
======= ======= =======
Effective tax rate 36.3% 36.0% 38.4%
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to
the deferred tax assets and deferred tax liabilities are:
<TABLE>
<CAPTION>
December 31,
----------------------
(In thousands) 1995 1994
----------------------
<S> <C> <C>
Deferred tax assets:
Accruals not currently deductible $28,591 $23,597
Tax attributes acquired 2,443 3,612
Fixed assets 398 645
Other 775 1,369
32,207 29,223
Deferred tax liabilities:
Partnership investments (214) (222)
-------- --------
$31,993 $29,001
======== ========
</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>
1995
Net revenues $118,841 $130,373 $143,106 $149,650
======== ======== ======== ========
Earnings before income
taxes $8,726 $13,547 $16,966 $17,032
======== ======== ======== ========
Net earnings $5,563 $8,636 $10,816 $10,858
======== ======== ======== ========
Per share data: (A)
Primary net earnings
per share $.45 $.69 $.86 $.86
======== ======== ======== ========
Fully diluted net
earnings per share $.45 $.69 $.85 $.86
======== ======== ======== ========
Dividends $.10-2/3 $.10-2/3 $.10-2/3 $.10-2/3
======== ======== ======== ========
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: (A)
Primary net earnings
per share $.80 $.47 $.47 $.28
======== ======== ======== ========
Fully diluted net
earnings per share $.80 $.47 $.47 $.28
======== ======== ======== ========
Dividends $.05-1/3 $.10-2/3 $.10-2/3 $.10-2/3
======== ======== ======== ========
</TABLE>
[FN]
(A) Adjusted for three-for-two stock split effected on December
20, 1995.
<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 Incorporated by reference
of 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 29, 1995. to Exhibit 4.1 to the
Company's Quarterly Report
on Form 10-Q dated June
30, 1995.
4.2 First Amendment to Filed herewith.
Credit Agreement dated
March 14, 1996.
4.3 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.
4.4 First Amendment to Incorporated by reference
Term Loan Agreement to Exhibit 4(g) to the
dated March 12, 1993. Company's Annual Report on
Form 10-K for the year
ended December 31, 1992.
4.5 Second Amendment to Incorporated by reference
Term Loan Agreement to Exhibit 4(b) to the
dated June 23, 1993. Company's Current Report
on Form 8-K dated July 15,
1993.
4.6 Third Amendment to Incorporated by reference
Term Loan Agreement to Exhibit 4(b) to the
dated November 30, Company's Current Report
1993. on Form 8-K dated February
11, 1994.
4.7 Fourth Amendment to Incorporated by reference
Term Loan Agreement to Exhibit 4 (b) to the
dated June 27, 1994. Company's Quarterly Report
on Form 10-Q dated June
30, 1994.
4.8 Fifth Amendment to Incorporated by reference
Term-Loan Agreement to Exhibit 4 (b) to the
dated September 30, Company's Current Report
1994. on Form 8-K dated
September 26, 1994.
4.9 Sixth Amendment to Incorporated by reference
Term-Loan Agreement to Exhibit 4 (b) to the
dated June 29, 1995. Company's Quarterly Report
on form 10-Q dated June
30, 1995.
4.10 Seventh Amendment to Filed herewith.
Term-Loan Agreement
dated March 15, 1996.
10.1* 1986 Stock Option Incorporated by reference
Plan, as amended on to Exhibit 10(b) to the
April 24, 1987, May Company's Current Report
9, 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 to Exhibit 10(c) to the
Directors and Officers Company's Annual Report on
of the Company. 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 Company's Annual Report on
Agreement. Form 10-K for the year
ended December 31, 1992.
10.4* IFG Executive Incorporated by reference
Deferred Compensation to Exhibit 10(a) to the
Plan dated March 31, Company's Current Report
1993. on Form 8-K dated July 15,
1993.
10.5 Trust Agreement for Incorporated by reference
IFG Executive Deferred to Exhibit 10.5 to the
Compensation Plan Company's Annual Report on
dated February 11, Form 10-K dated December
1994. 31, 1994.
10.6* Restricted Stock Incorporated by reference
Plan for Non-Employee to Exhibit 10.6 to the
Directors Company's Amendment to its
Annual Report on Form 10-
K/A-1 dated December 31,
1994.
10.7* Offer of Employment Filed herewith.
and Restricted Stock
Agreements between the
Company and Louis C.
Fornetti dated July
14, 1995, and July 17,
1995, respectively.
10.8* Agreement between Incorporated by reference
the Company and David to Exhibit 10.1 to the
A. Smith dated Company's Quarterly Report
September 26, 1995. on Form 10-Q dated
September 30, 1995.
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 Filed herewith.
Schedule
* 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
of 1995.
Items Reported
Item 5 - Other events (Three-for-two stock split effected
in the form of a 50-percent stock dividend)
Item 7 - Financial Statement and Exhibits
Exhibit 99 - Press release regarding three-for-two stock
split effected in the form of a 50-percent stock dividend.
Date of earliest event reported - October 31, 1995.
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 Louis C. Fornetti
---------------------------
Louis C. Fornetti
Executive Vice President
Chief Financial Officer and Treasurer
Dated: March 26, 1996
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 Chairman of the Board, President,
- -------------------------- Chief Executive Officer
Irving Weiser and Director
(Principal Executive Officer)
Louis C. Fornetti Executive Vice President,
- -------------------------- Chief Financial Officer and
Louis C. Fornetti Treasurer
(Principal Financial Officer)
Angela M. Chicoine Vice President and Controller
- -------------------------- (Principal Accounting Officer)
Angela M. Chicoine
Susan S. Boren Director
- --------------------------
Susan S. Boren
F. Gregory Fitz-Gerald Director By: Louis C. Fornetti
- -------------------------- ------------------
F. Gregory Fitz-Gerald Louis C. Fornetti
Pro Se and as
Attorney-in-Fact
Dated: March 26, 1996
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.
John C. Appel Executive Vice President
- -------------------------- and Director
John C. Appel
<PAGE>
INTER-REGIONAL FINANCIAL GROUP, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
As of December 31, 1995 and 1994 and for each
of the years in the three-year period
ended December 31, 1995
TABLE OF CONTENTS
Page
----
Independent Auditors' Report...................................20
Consolidated Financial Statements:
Consolidated statements of operations..........................21
Consolidated balance sheets....................................22
Consolidated statements of shareholders' equity................23
Consolidated statements of cash flows..........................24
Notes to consolidated financial statements.....................25
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,
----------------------------------
1995 1994 1993
----------------------------------
<S> <C> <C> <C>
Revenues:
Management fees $5,980 $3,650 $3,114
Facilities rental 1,057 1,056 1,055
Interest 1,365 1,126 291
------- ------- -------
8,402 5,832 4,460
------- ------- -------
Expenses:
Compensation and benefits 4,988 3,002 2,417
Interest 1,947 1,386 1,226
Other operating expenses 5,960 3,967 3,669
------- ------- -------
12,895 8,355 7,311
------- ------- -------
Loss before income taxes
and equity in subsidiaries'
earnings (4,493) (2,523) (2,852)
Income tax benefit 1,929 953 1,125
------- ------- -------
Loss before equity in
subsidiaries' earnings (2,564) (1,570) (1,727)
Equity in subsidiaries'
earnings 38,437 27,023 49,376
------- ------- -------
Net earnings $35,873 $25,453 $47,649
======= ======= =======
</TABLE>
[FN]
See accompanying notes to condensed financial information.
<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,
----------------------
1995 1994
----------------------
<S> <C> <C>
Assets:
Cash $918 $875
Advances to subsidiaries (eliminated
in consolidation) 28,130 34,035
Equipment, leasehold improvements and
building, at cost, less accumulated
depreciation of $8,484 and $5,291,
respectively 13,976 13,997
Investment in subsidiaries, at cost,
plus equity in undistributed earnings
(eliminated in consolidation) 283,276 254,512
Other assets 4,611 2,473
-------- --------
$330,911 $305,892
======== ========
Liabilities and Shareholders' Equity:
Liabilities:
Short-term borrowings $0 $15,000
Advances from subsidiaries (eliminated
in consolidation) 72,144 62,220
Accounts payable and accrued expenses 27,215 21,721
Capital lease obligations and other
debt 9,058 11,531
-------- --------
108,417 110,472
-------- --------
Shareholders' equity:
Common stock 1,508 1,005
Additional paid-in capital 76,623 73,924
Retained earnings 144,363 120,491
-------- --------
222,494 195,420
-------- --------
$330,911 $305,892
======== ========
</TABLE>
[FN]
See accompanying notes to condensed financial information.
<PAGE>
SCHEDULE III __ CONDENSED FINANCIAL INFORMATION
OF THE REGISTRANT __ (Continued)
INTER-REGIONAL FINANCIAL GROUP, INC.
(Parent Company)
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1995 1994 1993
----------------------------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings $35,873 $25,453 $47,649
Non-cash items included
in earnings:
Equity in net earnings of
subsidiaries (38,437) (27,023) (49,376)
Depreciation and
amortization 3,299 3,537 2,024
------- ------- -------
735 1,967 297
Change in operating assets
and liabilities 4,423 3,617 4,781
------- ------- -------
Cash provided by operating
activities 5,158 5,584 5,078
Cash flows from financing
activities:
Proceeds from:
Advances from subsidiaries,
net 15,829 - 39,393
Issuance of common stock 2,368 458 353
Revolving credit agreement - 15,000 -
Long-term debt - 237 4,427
Payments for:
Revolving credit agreement (15,000) - (5,450)
Purchases of common stock (6,849) (3,638) -
Dividends on common stock (5,177) (4,536) (2,272)
Subordinated and other debt (2,473) (2,340) (1,505)
Advances to subsidiaries,
net - (5,763) -
------- ------- -------
Cash provided (used) by
financing activities (11,302) (582) 34,946
------- ------- -------
Cash flows from investing
activities:
Dividends from subsidiaries 18,700 8,468 19,571
Investment in subsidiaries (9,000) (8,300) (52,270)
Purchases of fixed assets (3,513) (4,340) (7,528)
------- ------- -------
Cash provided (used) by
investing activities 6,187 (4,172) (40,227)
------- ------- -------
Increase/(Decrease) in cash 43 830 (203)
Cash at beginning of year 875 45 248
------- ------- -------
Cash at end of year $918 $875 $45
======= ======= =======
</TABLE>
[FN]
See accompanying notes to condensed financial information.
<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
21.
B. Investments in subsidiaries are carried at cost plus equity in
undistributed earnings. See Note J 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
and 1995, respectively, the Parent received $8 million and $9
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 8.3 percent at December 31, 1995. 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: 1996 - $1,621,000; 1997 - $1,265,000; 1998 -
$16,000; 1999 - $0; 2000 - $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 F to
the consolidated financial statements.
Aggregate minimum rental commitments as of December 31, 1995,
are as follows:
<TABLE>
<CAPTION>
Capital Operating
(In thousands) leases leases
------- ---------
<S> <C> <C>
1996 ......................... $1,325 $5,973
1997 ......................... 1,176 6,389
1998 ......................... 1,056 5,235
1999 ......................... 940 3,885
2000 ......................... 940 3,971
Thereafter...................... 6,896 24,314
------ -------
12,333 $49,767
=======
Less amount representing interest (6,159)
------
Present value of minimum lease
payments $6,174
======
</TABLE>
EXHIBIT 10.7
July 14, 1995
Mr. Louis C. Fornetti
13153 Hanover Court
Apple Valley, MN 55124
Dear Lou:
I am very pleased to present to you this offer of
employment with Inter-Regional Financial Group (IFG). This
letter outlines the terms and conditions of your employment with
IFG, most of which we have previously discussed. Upon acceptance
of this letter, we are anticipating that you will commence your
employment on or about July 31, 1995.
We offer you the position of Executive Vice President,
Chief Financial Officer and Treasurer for Inter-Regional
Financial Group. This is all subject to IFG Board approval. You
will serve in the capacity of Chief Financial Officer and will be
an "executive officer" for purposes of all SEC reporting. You
will be a member of the Executive Committee of IFG, as well as a
member of the Senior Executive Group, which is comprised of all
Executive Committee members for IFG, Dain Bosworth, and Rauscher
Pierce Refsnes.
In your role as Chief Financial Officer for IFG, you
will have the following functions reporting in to you: IFG
Controller (Accounting and Tax function) which is held by Angela
Chicoine; Internal Audit function (which is currently open); IFG
Legal function which is managed by Carla Smith as General
Counsel; Corporate Treasury function which is managed, in part,
by Patrick Colbert; and the Investor Relations/Communications
function which is managed by B. J. French. You will also have
dual reporting relationships with the four CFOs who will also
continue to report into their respective subsidiary president;
this includes Ken Hanks at Rauscher Pierce Refsnes, Dan Reuss at
Dain Bosworth, Peter Morton at Regional Operations Group, and
Julie Getchell at Asset Management Services.
Your base salary will be $175,000 on an annualized
basis ($14,583 on a monthly basis). For the calendar year 1995,
we will pay you a bonus of $400,000 payable to you in February of
1996. This will compensate you for amounts which would otherwise
be payable to you by your current employer were you to remain
there for the full year. For the calendar year 1996, we will
guarantee you minimum total cash compensation (base and bonus) of
$500,000. These guarantees assume that you are currently
employed by the organization at the time bonus payments are made,
and that you have performed in a satisfactory and ethical manner.
As you know, on an ongoing basis, bonuses are paid
annually in February of each year, and they are driven primarily
by Return on Equity (ROE). You can expect total cash
compensation (including base salary) in the following ranges,
based upon the following Returns on Equity and assuming
commendable performance:
Return on Equity Total Cash Compensation (including bonus)
---------------- -----------------------------------------
10% $300,000 - $350,000
18% $450,000 - $500,000
26% $650,000 - $700,000
Below 10% and above 26%, bonus amounts are
discretionary.
Beginning in 1996, you will be eligible to participate
in the IFG Executive Deferred Compensation Plan. Under this
plan, you may elect, in the year before the salary is earned, to
defer up to 30% of your year-end bonus. The deferred amount is
matched at 50% if used to buy IFG stock. Deferrals may also be
invested in a bond fund, but there is no match made in that case.
It is your discretion as to how much of your bonus you choose to
defer. The match fully vests after four (4) years (cliff
vesting).
You will receive stock options under the IFG Executive
Stock Option Plan. Upon your employment date, you will receive
25,000 options which will be granted at an exercise price equal
to the market value on the day on which they are granted (closing
price). These are ten-year options with a graduated vesting
schedule (0% at the end of the first year, 20% at the end of the
second year, 50% at the end of the third year, and 100% vested at
the end of the fourth year). Your next stock option grant will
be in February, 1997, per the IFG Executive Stock Option Plan.
Subject to IFG Board approval, you will be granted
12,200 shares of restricted stock upon your hire. This one-time
grant is to compensate you for comparable long-term incentive
payments due you by your current employer, but which will be
forfeited by you upon your resignation. This restricted share
grant will be in accordance with the terms described in the
Restricted Stock Agreement to be executed by you and the company.
In addition, you will be eligible to receive the
following company perquisites: a downtown club membership, a car
allowance in an amount provided to comparable executives, and
paid parking.
You will be eligible for a broad range of IFG benefit
plans including: Medical/Dental, Vision, Life Insurance,
Supplemental Life Insurance, Long-Term Disability, and
Health/Dependent Care Spending Accounts. In addition, on July 1,
1996, you will be eligible to participate in the IFG Profit
Sharing and Stock Bonus Plans. Specific information regarding
these benefits is included in the enclosed new employee packet.
Finally, the U.S. Immigration and Reform Act requires
you to provide us with proof of U.S. Citizenship (see enclosed
materials). Please plan to bring proof of citizenship with you
to your new employee orientation session which will be scheduled
for you upon your arrival.
Lou, my colleagues and I are all quite delighted at the
prospect of your joining our organization. We really think that
you would be an invaluable member of the IFG team! If the terms
of employment as outlined in this letter are acceptable to you,
please indicate your acceptance by signing below and returning
one copy of this letter to Mary Melbo, Executive Vice President,
Director of Human Resources.
Please don't hesitate to call me if you have any
questions or concerns.
Sincerely,
Irving Weiser
--------------------
Irving Weiser
Signature of Acceptance
Louis C. Fornetti July 17, 1995
- -------------------- -------------------------
Louis C. Fornetti Date
Enclosure
<PAGE>
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT, dated as of this 17th day of July, 1995, is
made by and between Louis C. Fornetti, a resident of the State of
Minnesota ("Employee"), and Inter-Regional Financial Group, Inc.,
a Delaware corporation (the "Company").
WHEREAS, Employee has been offered and has accepted the
position of Executive Vice President, Chief Financial Officer and
Treasurer of the Company; and
WHEREAS, the Company has agreed to grant Employee restricted
shares of the Company's Common Stock, par value $.125 per share
(the "Common Stock"), upon the terms and subject to the
conditions and other provisions set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Grant of Shares. Upon the terms and subject to the
conditions and other provisions set forth herein, effective upon
the commencement of Employee's employment by the Company,
Employee shall be and is hereby granted 12,200 restricted shares
of Common Stock (the "Shares"). The Shares may be either
authorized but unissued shares of shares purchased by the Company
in the open market.
Section 2. Vesting Schedule. The Shares granted to Employee
under this Agreement shall be subject to certain restrictions and
forfeiture as set forth in Section 3 below until vested in
accordance with the terms of this Agreement. Unless forfeited
pursuant to Section 3 below or accelerated pursuant to Section 4
below, the Shares shall become vested according to the following
schedule: 50% on December 31, 1996 and 50% on December 31, 1997.
Section 3. Restrictions and Forfeiture. Except as otherwise
set forth in Section 4 below, Employee may not sell, transfer,
pledge, subject to lien, assign or otherwise hypothecate the
Shares until such Shares have become vested in accordance with
the terms of Section 2 above. Any unvested Shares shall be
entirely forfeited (but any cash dividends previously paid with
respect thereto shall be retained by Employee) in the event that
Employee resigns from or abandons his employment with the Company
or is terminated by the Company for "cause" (as defined below)
prior to the vesting date with respect thereto. For purposes of
this Agreement, termination for "cause" shall mean any
termination of Employee's employment with the Company as the
result of any misconduct the Company reasonably believes has been
engaged in by Employee, including, without limitation, Employee's
violation of any law, rule or regulation applicable to the
Company or its business, Employee's wrongful appropriation of
funds or violation of any other applicable Company policy,
Employee's commission of any gross misdemeanor or felony or any
sanction of Employee by the Securities Exchange Commission or any
other governmental or self-regulatory body having jurisdiction
over the Company and/or its business.
Section 4. Lapse of Restrictions and Acceleration of Vesting.
All restrictions on the Shares set forth in Section 3 above shall
lapse and the Shares shall become immediately fully vested upon
the earliest to occur of the following:
(a) The date of Employee's death or "disability" (as defined
below);
(b) The date on which Employee's employment with the Company
terminates,
other than as a result of Employee's resignation from or
abandonment of his
employment or as a result of any termination by the Company for
"cause";
(c) The tenth day following the date on which a "change in
control" (as
defined below) has occurred.
For purposes of this Agreement, "disability" shall mean long-
term disability as defined in the Company's Profit Sharing Plan
or any other plan of the Company then in effect which generally
defines "disability" for its participants.
For purposes of this Agreement, "change in control" shall mean:
(i) 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 the Company or any of its
subsidiaries, or the IFG Stock Bonus Plan or any other
employee benefit plan of the Company or any of its
subsidiaries, or any entity holding shares of 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 the Company's then
outstanding voting securities in a transaction or
series of transactions;
(ii) The "continuing directors" (as defined below)
cease to constitute a majority of the Company's Board
of Directors;
(iii) The Company's shareholders approve (A) any
consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation
or pursuant to which shares of the Company's stock
would be converted into cash, securities or other
property, other than a merger of the Company in which
shareholders immediately prior to the merger have the
same proportionate ownership of stock of the surviving
corporation immediately after the merger; (B) 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 the Company; or (C)
any plan of liquidation or dissolution of the Company;
or
(iv) A majority of the continuing directors
determine, in their sole and absolute discretion, that
there has been a change in control of the Company.
For purposes of this Agreement, "continuing director" shall
mean any person who is a member of the Company's Board of
Directors, while such person is a member of the Board, who is not
an "acquiring person" (as defined below) or an "affiliate" or
"associate" (as defined below) 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 on the date of
this Agreement, or (B) subsequently becomes a member of the
Board, if such person's initial nomination for election or
initial election to the Board is recommended or approved by a
majority of the continuing directors. "Acquiring person" shall
mean any "person" (as such term in 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 the Company
representing 35% or more of the combined voting power of the
Company's then outstanding securities, but shall not include the
Company, any subsidiary of the Company or any employee benefit
plan of the Company or of any subsidiary of the Company or any
entity holding shares of 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.
Section 5. Rights as a Shareholder. The Shares will be
represented by a stock certificate registered in the name of
Employee. Except as otherwise provided in this Agreement,
Employee will have all voting, dividend, liquidation and other
rights with respect to the Shares as if such Employee were a
holder of record of shares of unrestricted Common Stock;
provided, however, that if any dividend is declared and paid by
the Company in any form other than cash, such non-cash dividend
shall be subject to the same vesting schedule, forfeiture terms
and other restrictions as are applicable to the Shares on which
such dividends were paid.
Section 6. Enforcement of Restrictions. To enforce the
restrictions contained in this Agreement, a legend will be placed
on the stock certificates representing the shares stating that
such shares are subject to certain restrictions and referencing
this Agreement. In addition, until all of the Shares become
fully vested, the Company will retain the stock certificates,
together with duly endorsed stock powers therefor, in its
custody, subject, however, to the right of the Employee to
request delivery of any vested Shares as set forth in Section 7
below.
Section 7. Distribution of Shares. Upon becoming fully vested
in accordance with the terms of this Agreement, the Shares shall
become shares of unrestricted Common Stock and any legends
regarding the restrictions contained in this Agreement affixed to
the certificates representing the Shares shall be removed.
Employee shall be entitled to request delivery of the certificate
or certificates representing such unrestricted Shares at any time
after such vesting has occurred. The Company shall cause
delivery of such certificate or certificates to be made as soon
as practicable after all of the Shares become vested or after
receipt of a request from Employee with respect to any vested
portion of the Shares.
Section 8. Adjustments to Shares. In the event of any
reorganization, merger, consolidation, recapitalization,
liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, divestiture or
extraordinary dividend (including a spin-off or any other change
in the corporate structure or shares of the Company), the Shares
shall be adjusted or replaced with the number and kind of
securities determined on the same basis as for all other issued
and outstanding shares of Common Stock.
Section 9. Securities Law and Other Restrictions.
Notwithstanding any other provision of this Agreement, Employee
may not sell, assign, transfer or otherwise dispose of the Shares
unless there is in effect with respect to such shares a
registration statement under the Securities Act of 1933, as
amended (the "Securities Act") and any applicable state
securities laws or an exemption from such registration under the
Securities Act and applicable state securities laws. The Company
may condition any such sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the
placement of any legends on certificates representing shares of
Common Stock, as may be deemed necessary or advisable by the
Company in order to comply with such securities law or other
restrictions.
Section 10. Beneficiaries. Employee shall have the right to
designate in writing one or more beneficiaries to receive the
Shares in the event of his death prior to receiving full
distribution thereof, and may change or revoke any prior
beneficiary designation by similar instrument in writing prior to
his death. No such designation, change or revocation shall be
effective unless executed by Employee and delivered to the
Company during the lifetime of the Employee. If Employee shall
fail to designate a beneficiary or, having revoked a prior
beneficiary designation, shall fail to designate a new
beneficiary, or in the event the Employee's beneficiary
designation shall fail, in whole or in part, for any reason, then
the undistributed Shares shall be paid to the personal
representative of Employee's estate.
Section 11. Amendments. No change, modification or amendment
of this Agreement shall be valid unless the same is in writing
and signed by both parties hereto.
Section 12. Governing Law. This Agreement shall be construed
in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed effective as of the date and year first written
above.
Louis C. Fornetti
- -------------------------------
Louis C. Fornetti
Inter-Regional Financial Group, Inc.
By Irving Weiser
--------------------------------
Irving Weiser,
Chairman, President and Chief Executive Officer
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,
----------------------------
1995 1994 1993
----------------------------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net earnings $35,873 $25,453 $47,649
======= ======= =======
Average number of common and
common equivalent shares outstanding:
Average common shares
outstanding 12,115 12,155 12,170
Diluted effect of stock
options 431 387 438
------- ------- -------
12,546 12,542 12,608
======= ======= =======
Primary earnings per share $2.86 $2.03 $3.78
======= ======= =======
EARNINGS PER SHARE ASSUMING
FULL DILUTION:
Net earnings $35,873 $25,453 $47,649
======= ======= =======
Average number of common and
common equivalent shares outstanding:
Average common shares
outstanding 12,115 12,155 12,170
Dilutive effect of stock options 630 387 531
------- ------- -------
12,745 12,542 12,701
======= ======= =======
Fully diluted earnings per share $2.81 $2.03 $3.75
======= ======= =======
</TABLE>
EXHIBIT 22
INTER-REGIONAL FINANCIAL GROUP, INC.
LIST OF SUBSIDIARIES
December 31, 1995
Percentage
State in of Voting
Which Securities
Name Incorporated Owned
- ---- ---------------------------
Consolidated subsidiaries of Registrant:
Dain Bosworth Incorporated Delaware 100%
IFG Asset Management Services, 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
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The 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 7, 1996, relating to the consolidated balance sheets of
Inter-Regional Financial Group, Inc. and subsidiaries as of
December 31, 1995 and 1994, 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, 1995, which report appears in the
December 31, 1995 Annual Report on Form 10-K of Inter-Regional
Financial Group, Inc.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 26, 1996
EXHIBIT 24
POWER OF ATTORNEY
The undersigned hereby constitute and appoint IRVING WEISER
and DANIEL J. REUSS and each of them his true and lawful
attorneys-in-fact and agents, with full powers of substitution
and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign the Annual Report on Form 10-K of
Inter-Regional Financial Group, Inc. for the fiscal year ending
December 31, 1994 and all amendments to such Annual Report on
Form 10-K, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, 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 might or could do in
person, hereby ratifying all that said attorneys-in-fact and
agents, each acting alone, or his substitutes, may lawfully do or
cause to be done by virtue thereof.
SIGNATURE DATE
--------- ----
John C. Appel February 7, 1996
- -----------------------
John C. Appel
Susan S. Boren February 14, 1996
- -----------------------
Susan S. Boren
Angela M. Chicoine February 7, 1996
- -----------------------
Angela M. Chicoine
F. Gregory Fitz-Gerald February 7, 1996
- -----------------------
F. Gregory Fitz-Gerald
Louis C. Fornetti February 7, 1996
- -----------------------
Louis C. Fornetti
Lawrence Perlman February 7, 1996
- -----------------------
Lawrence Perlman
C. A. Rundell, Jr. February 7, 1996
- -----------------------
C.A. Rundell, Jr.
Robert L. Ryan February 7, 1996
- -----------------------
Robert L. Ryan
Arthur R. Schulze, Jr. February 7, 1996
- -----------------------
Arthur R. Schulze, Jr.
Irving Weiser February 7, 1996
- -----------------------
Irving Weiser
<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
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 437,167
<RECEIVABLES> 1,102,348
<SECURITIES-RESALE> 80,233
<SECURITIES-BORROWED> 0<F1>
<INSTRUMENTS-OWNED> 322,892
<PP&E> 31,108
<TOTAL-ASSETS> 2,021,908
<SHORT-TERM> 97,000
<PAYABLES> 1,372,044
<REPOS-SOLD> 120,808
<SECURITIES-LOANED> 0<F2>
<INSTRUMENTS-SOLD> 61,050
<LONG-TERM> 41,410
<COMMON> 1,508
0
0
<OTHER-SE> 222,494
<TOTAL-LIABILITY-AND-EQUITY> 2,021,908
<TRADING-REVENUE> 179,180
<INTEREST-DIVIDENDS> 109,393
<COMMISSIONS> 175,987
<INVESTMENT-BANKING-REVENUES> 89,763
<FEE-REVENUE> 27,088<F3>
<INTEREST-EXPENSE> 64,777
<COMPENSATION> 345,834
<INCOME-PRETAX> 56,271
<INCOME-PRE-EXTRAORDINARY> 35,873
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,873
<EPS-PRIMARY> 2.86
<EPS-DILUTED> 2.81
<FN>
<F1>Included in Receivables
<F2>Included in Payables
<F3>Includes fees from Asset Management only
</FN>
</TABLE>
EXHIBIT 4.2
FIRST AMENDMENT TO CREDIT AGREEMENT
This Amendment is made as of this 14th day of March, 1996, by
and among INTER-REGIONAL FINANCIAL GROUP, INC., a Delaware
corporation (the "Borrower"), the financial institutions that
have executed this Amendment (the "Banks") and Norwest Bank
Minnesota, National Association, a national banking association,
as agent for the Banks (the "Agent").
The Borrower, the Banks and the Agent have entered into a
Credit Agreement dated as of June 29, 1995 (the "Credit
Agreement"). The Banks have agreed, severally but not jointly,
to make loans to the Borrower on the terms and conditions set
forth in the Credit Agreement.
Loans made by the Banks under the Credit Agreement are
evidenced by promissory notes dated as of June 29, 1995 executed
by the Borrower in favor of each Bank (each, a "Note"). The
Notes mature on June 30, 1997.
The Borrower has requested that the Banks and the Agent amend
certain provisions of the Credit Agreement, and the Banks and the
Agent are willing to do so pursuant to the terms and conditions
set forth in this Agreement.
ACCORDINGLY, the parties hereto hereby agree as follows:
1. Terms used in this Amendment which are defined in the
Credit Agreement shall have the same meanings as defined therein,
unless otherwise defined herein.
2. Section 6.3(c) of the Credit Agreement is hereby amended
by deleting existing Section 6.3(c) in its entirety and by
substituting therefor the following new Section 6.3(c):
"(c) in addition to any guaranties set forth in Exhibit E,
guaranties by the Borrower of indebtedness (including capitalized
lease obligations) and operating leases of the Subsidiaries
(other than the guaranties permitted by Sections 6.3(d) and
6.3(e)); provided that the sum of the aggregate principal amount
of indebtedness guaranteed plus the aggregate amount of all
payments under operating leases guaranteed under this
clause shall not exceed $6,000,000;"
3. Except as explicitly amended by this Amendment, all of
the terms and conditions of the Credit Agreement shall remain in
full force and effect.
4. The Borrower hereby represents and warrants to the Banks
as follows:
(a) The Borrower has all requisite power and authority to execute
this Amendment and to perform all of its obligations hereunder,
and this Amendment has been duly executed and delivered by the
Borrower and constitutes the legal, valid and binding obligation
of the Borrower, enforceable in accordance with its terms.
(b) The execution, delivery and performance by the Borrower of
this Amendment have been duly authorized by all necessary
corporate action and do not (i) require any authorization,
consent or approval by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign,
(ii) violate any provision of any law, rule or regulation or of
any order, writ, injunction or decree presently in effect, having
applicability to the Borrower, or the articles of incorporation
or by-laws of the Borrower, or (iii) result in a breach of or
constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be
bound or affected.
(c) All of the representations and warranties contained in
Article IV of the Credit Agreement are correct on and as of the
date hereof as though made on and as of such date, except to the
extent that such representations and warranties relate solely to
an earlier date.
5. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as
amended hereby; and any and all references in the Loan Documents
shall be deemed to refer to the Credit Agreement as amended
hereby.
6. The execution of this Amendment and acceptance of any
documents related hereto shall not be deemed to be a waiver of
any Default or Event of Default under the Credit Agreement, or
breach, default or event of default under any Loan Document or
other document held by the Agent, whether or not known to the
Agent and whether or not existing on the date of this Amendment.
7. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Agent and the Banks, and any
and all participants, parent corporations, subsidiary
corporations, affiliated corporations, insurers, indemnitors,
successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of
the foregoing, from any and all claims, demands or causes of
action of any kind, nature or description, whether arising in law
or equity or upon contract or tort or under any state or federal
law or otherwise, which the Borrower has had, now has or has made
claim to have against any such person for or by reason of any
act, omission, matter, cause or thing whatsoever relating to the
Credit Agreement and the other Loan Documents arising from the
beginning of time to and including the date of this Amendment,
whether such claims, demands and causes of action are matured or
unmatured or known or unknown.
8. The Borrower hereby reaffirms its agreement under the
Credit Agreement to pay or reimburse the Agent on demand for all
costs and expenses incurred by the Agent in connection with the
Loan Documents and all other documents contemplated thereby,
including without limitation all reasonable fees and
disbursements of legal counsel. Without limiting the generality
of the foregoing, the Borrower specifically agrees to pay all
fees and disbursements of counsel to the Agent for the services
performed by such counsel in connection with the preparation of
this Amendment and the documents and instruments incidental
hereto.
9. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall
be deemed an original and all of which counterparts, taken
together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
INTER-REGIONAL FINANCIAL GROUP, INC.
By Louis C. Fornetti
------------------------------------
Louis C. Fornetti
Its EVP and CFO
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as agent
By Edward Meyer, Jr.
------------------------------------
Its Vice President
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By Edward Meyer, Jr.
------------------------------------
Edward Meyer, Jr.
Its Vice President
FIRST BANK NATIONAL ASSOCIATION
By Jose Peris
------------------------------------
Jose Peris
Its Vice President
EXHIBIT 4.10
SEVENTH AMENDMENT TO TERM LOAN AGREEMENT
This Amendment is made as of this 15th day of March, 1996, by
and between INTER-REGIONAL FINANCIAL GROUP, INC., a Delaware
corporation (the "Borrower") and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, a national banking association (the "Bank").
The Borrower and the Bank have entered into a Term Loan
Agreement dated as of October 16, 1992, as amended by a First
Amendment to Term Loan Agreement dated as of March 12, 1993, a
Second Amendment to Term Loan Agreement dated as of June 23,
1993, a Third Amendment to Term Loan Agreement dated as of
November 30, 1993, a Fourth Amendment to Term Loan Agreement
dated as of June 27, 1994, a Fifth Amendment to Term Loan
Agreement dated as of September 30, 1994, and a Sixth Amendment
to Term Loan Agreement dated as of June 29, 1995 (as amended, the
"Loan Agreement"), pursuant to which the Bank made the Term Loan
to the Borrower subject to the terms and conditions set forth in
the Loan Agreement.
The Term Loan made by the Bank to the Borrower under the Loan
Agreement is evidenced by the Term Note of the Borrower dated
October 16, 1992, payable to the order of the Bank in the
original principal of $2,000,000 (the "Term Note").
The Borrower has requested that the Bank amend certain
provisions of the Loan Agreement and the Bank is willing to do so
pursuant to the terms and conditions set forth in this Agreement.
ACCORDINGLY, the parties hereto agree as follows:
1. All capitalized terms used in this Amendment, unless
specifically defined herein, shall have the meanings given to
such terms in the Loan Agreement.
2. Section 6.03(c) of the Loan Agreement is hereby amended
by deleting existing Section 6.03(c) in its entirety and by
substituting therefor the following new Section 6.03(c):
"(c) in addition to any guaranties set forth in Exhibit D,
guaranties by the Borrower of indebtedness (including
capitalized lease obligations) and operating leases of the
Subsidiaries (other than the guaranties permitted by
Sections 6.03(d) and 6.03(e)); provided that the sum of the
aggregate principal amount of indebtedness guaranteed plus
the aggregate amount of all payments under operating leases
guaranteed under this clause shall not exceed $6,000,000;"
3. The Borrower hereby represents and warrants to the Bank
that:
(a) The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver this Amendment and
perform all of its obligations under the Loan Agreement, as
amended by this Amendment, and under the Term Note.
(b) The execution, delivery and performance by the
Borrower of its obligations under the Loan Agreement, as
amended by this Amendment, and under the Term Note have been
duly authorized by all necessary corporate action on the
part of the Borrower and do not and will not (1) require any
consent or approval of the stockholders of the Borrower, or
any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (2) violate any
provision of any law, rule or regulation (including, without
limitation, Regulation X of the Board of Governors of the
Federal Reserve System) or of any order, writ, injunction or
decree presently in effect having applicability to the
Borrower or of the Certificate of Incorporation or Bylaws of
the Borrower, (3) result in a breach of or constitute a
default under any indenture or loan or credit agreement or
any other agreement, lease or instrument to which the
Borrower is a party or by which the Borrower or its
properties may be bound or affected, or (4) result in, or
require, the creation or imposition of any mortgage, deed of
trust, pledge, lien, security interest or other charge or
encumbrance of any nature upon or with respect to any of the
properties now owned or hereafter acquired by the Borrower.
(c) The Loan Agreement, as amended by this Amendment,
and the Term Note constitute the legal, valid and binding
obligations of the Borrower enforceable against the Borrower
in accordance with their respective terms.
(d) All of the representations and warranties contained
in Article IV of the Loan Agreement are correct on and as of
the date hereof, except to the extent that such
representations and warranties relate solely to an earlier
date.
4. On the date this Amendment becomes effective, all
references in the Loan Agreement to "this Agreement" and all
references in the Term Note to the "Term Loan Agreement" shall be
deemed to refer to the Loan Agreement as amended by this
Amendment.
5. Except as explicitly amended by this Amendment, all of
the original terms and conditions of the Loan Agreement and the
Term Note shall remain in full force and effect.
6. The Borrower hereby agrees to pay all reasonable fees and
disbursements of counsel to the Bank for the services performed
by such counsel in connection with the preparation of this
Amendment and any documents or instruments incidental thereto.
7. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original and
all such counterparts, taken together, shall constitute but one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and year first above
written.
INTER-REGIONAL FINANCIAL GROUP, INC.
By Louis C. Fornetti
----------------------------
Louis C. Fornetti
Its EVP and CFO
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By Edward Meyer, Jr.
-----------------------------
Edward Meyer, Jr.
Its Vice President
