<PAGE>
______________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
______________________
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
__ OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
or
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9018
METROPOLITAN FINANCIAL CORPORATION
_________________________________________
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 45-0388518
___________ _____________
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
333 SOUTH 7TH STREET, MINNEAPOLIS, MINNESOTA 55402
____________________________________________ _____________
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) (612) 399-6000
_____________
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
___ ___
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practical date.
Common Stock, $.01 Par Value--31,137,608 shares as of April 30, 1994
______________________________________________________________________
<PAGE>
INDEX
______________________________________________________________________
Part I. Financial Information Page
______________________________________________________________________
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of
Condition-March 31, 1994 and
December 31, 1993......................................1
Condensed Consolidated Statements of
Income--Three months ended
March 31, 1994 and 1993................................2
Condensed Consolidated Statement of
Changes in Shareholders' Equity--
Three months ended March 31, 1994......................3
Condensed Consolidated Statements of
Cash Flows--Three months ended
March 31, 1994 and 1993................................4
Notes to Condensed Consolidated Financial
Statements--March 31, 1994.............................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..........8
Part II. Other Information Page
______________________________________________________________________
Item 4. Submission of Matters to a Vote of Security Holders.....16
Item 5. Other Information.......................................16
Item 6. Exhibits and Reports on Form 8-K........................16
Signatures.........................................17
<PAGE>1
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(Dollar amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
Assets
Cash and due from banks $89,251 $85,084
Short term interest bearing deposits 50,644 82,364
Loans held-for-sale 31,659 60,645
Securities available-for-sale 604,406 813,293
Mortgage-backed securities (market: March 31, 1994-$1,092,878;
December 31, 1993-$954,908) 1,102,019 943,193
Loans (net of allowance: March 31, 1994-$42,832;
December 31, 1993-$42,905) 5,479,505 4,585,410
Federal Home Loan Bank stock, at cost 73,062 59,719
Accrued interest 42,260 36,817
Real estate (net of allowance: March 31, 1994-$7,144;
December 31, 1993-$9,533) 59,007 56,110
Office properties and equipment 101,631 91,632
Goodwill 90,874 61,517
Deferred taxes 57,173 53,089
Other assets 73,354 77,912
Total Assets $7,854,845 $7,006,785
Liabilities
Transaction and passbook deposits $1,663,892 $1,560,667
Certificates 4,033,849 3,793,968
Federal Home Loan Bank advances 1,248,141 921,801
Reverse repurchase agreements 175,000 --
Other borrowings 122,428 133,159
Accrued interest 45,593 42,485
Other liabilities 66,705 50,322
Total Liabilities 7,355,608 6,502,402
Shareholders' Equity
Preferred stock, par value
$.01 per share; authorized 10,000,000
shares; issued--488,750 5 5
Common stock, par value $.01 per share; authorized
60,000,000 shares; issued March 31, 1994-32,217,674 shares,
December 31, 1993-31,992,275 shares 322 320
Additional paid-in capital 234,537 231,881
Retained earnings 286,453 280,813
Net unrealized (losses) gains on securities available-for-sale (net of tax) (1,715) 4,209
Less: cost of common stock in treasury; March 31, 1994-1,305,338
shares; December 31, 1993-813,522 shares (20,365) (12,845)
Total Shareholders' Equity 499,237 504,383
Total Liabilities and Shareholders' Equity $7,854,845 $7,006,785
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>2
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollar amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Interest Income
Mortgage-backed securities $ 22,692 $ 32,169
Loans 95,178 74,557
Investments 4,157 5,347
122,027 112,073
Interest Expense
Transaction and passbook deposits 7,050 8,038
Certificates 46,649 51,080
Federal Home Loan Bank advances 12,679 3,628
Reverse repurchase agreements 609 --
Other borrowings 2,475 3,332
69,462 66,078
Net interest income 52,565 45,995
Provision for loan losses 2,575 1,500
Net interest income after provision for loan losses 49,990 44,495
Noninterest Income
Gains related to mortgage banking activities 347 525
Mortgage loan servicing fees 2,126 2,189
Realty commission income 6,306 5,379
Title closing fees 2,202 1,874
Service charges on deposit accounts 3,079 1,885
Financial services income 1,835 702
Other income 1,651 1,193
17,546 13,747
Noninterest Expense
Compensation and related items 19,751 20,163
Occupancy 6,474 5,864
Data processing 2,859 2,748
Advertising 2,942 2,909
Deposit insurance premium 3,102 2,372
Amortization of goodwill 1,035 1,016
Real estate owned expense 914 1,752
Other general and administrative 10,807 12,598
47,884 49,422
Income Before Income Taxes 19,652 8,820
Income tax expense (benefit) 7,467 (6,467)
Net Income $12,185 $15,287
Earnings Per Share:
Primary $0.37 $0.49
Fully diluted $0.37 $0.48
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>3
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Net
Unrealized
Gains (Losses)
Additional on Securities Total
Preferred Stock Common Stock Paid-In Retained Available- Treasury Stock Shareholders'
Shares Amount Shares Amount Capital Earnings For-Sale Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
December 31, 1993 488,750 $5 31,992,275 $320 $231,881 $280,813 $4,209 (813,522) $(12,845) $504,383
Issuance of common stock 105,610 1 1,825 1,826
Stock options exercised 85,337 1 669 670
Warrants exercised 34,452 162 162
Net treasury stock acquired (491,816) (7,520) (7,520)
Net unrealized losses on
securities available-for-sale (5,924) (5,924)
Dividends declared:
Preferred (351) (351)
Common-$.20 per share (6,194) (6,194)
Net income 12,185 12,185
March 31, 1994 488,750 $5 32,217,674 $322 $234,537 $286,453 $(1,715) (1,305,338) $(20,365) $499,237
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>4
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
<CAPTION> Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Operating Activities
Net income $12,185 $15,287
Reconciliation to cash provided by operating activities:
Net amortization of loan fees, discounts and premiums 6,801 5,744
Provision for loan losses 2,575 1,500
Decrease (increase) in deferred tax asset 3,479 (7,633)
Depreciation and amortization 2,692 2,091
Amortization of goodwill 1,035 1,016
Increase in accrued interest receivable (2,810) (1,704)
Increase in accrued interest payable 54 1,442
_____________________
Net Cash Provided by Operating Activities 26,011 17,743
Investing Activities
Acquisitions of subsidiaries, net of cash received (50,304) --
Increase in loans (267,059) (258,716)
Purchase of:
Loans (466,417) (100,000)
Investment securities available-for-sale (39,475) --
Mortgage-backed securities available-for-sale (9,945) (17,291)
Mortgage-backed securities held-to-maturity (233,446) (290,053)
Proceeds from the maturity of investment securities:
Available-for-sale 105,528 --
Held-to-maturity -- 193,849
Proceeds from the sale of:
Mortgage-backed securities available-for-sale 315,267 143,545
Loans held-for-sale 18,255 15,655
Real estate 10,192 6,450
Principal repayments of mortgage-backed securities:
Available-for-sale 82,082 704
Held-to-maturity 113,404 88,259
Other investing activities 7,336 32,521
______________________
Net Cash Used by Investing Activities (414,582) (185,077)
Financing Activities
Net increase (decrease) in:
Short-term borrowings 175,000 --
Deposits (90,939) (103,901)
Purchase of deposits 11,105 --
Proceeds from:
Federal Home Loan Bank advances 402,000 240,000
Issuance of common stock 1,826 1,914
Exercise of common stock options and warrants 528 1,118
Net purchase of stock (7,520) (21)
Repayment of:
Federal Home Loan Bank advances (120,195) (34,694)
Other borrowings (10,731) (22,653)
Cash dividends (6,545) (3,028)
Other financing activities 6,489 1,399
_____________________
Net Cash Provided by Financing Activities 361,018 80,134
_____________________
Net Decrease in Cash and Cash Equivalents (27,553) (87,200)
Cash and cash equivalents at beginning of year 167,448 252,859
_____________________
Ending Cash and Cash Equivalents $139,895 $165,659
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A--Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals and periodic changes in estimates) considered
necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1994, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1994. Amounts have been reclassified to conform to
the current period presentation. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
annual report on Form 10-K for the year ended December 31, 1993.
NOTE B--Income Taxes
<TABLE>
Income tax expense (benefit) consisted of the following:
<CAPTION>
Three Months Ended
March 31, March 31,
(In thousands) 1994 1993
<S> <C> <C>
Current
Federal $3,115 $ (53)
State 873 366
_________________
3,988 313
Deferred
Federal 2,930 (7,226)
State 549 446
_________________
3,479 (6,780)
_________________
$7,467 $(6,467)
</TABLE>
<TABLE>
The provision for federal income taxes differs from the statutory corporate tax
rate as follows:
<CAPTION>
Three Months Ended
March 31, March 31,
(In thousands) 1994 1993
<S> <C> <C>
Tax statutory rate $6,878 $ 2,999
State income taxes, net of federal benefit 1,057 531
Change in the deferred tax asset valuation allowance -- (10,000)
Tax effect of:
Amortization of goodwill 362 346
Other, net (830) (343)
$7,467 $ (6,467)
</TABLE>
<PAGE>6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
The components of and changes in the net deferred tax asset were as follows:
<CAPTION>
Effect of
Deferred Acquisitions
December 31, (Expense) and Other March 31,
(In thousands) 1993 Benefit Transactions 1994
<S> <C> <C>
Loan fees and discounts $ 5,526 $(1,289) $ 4,237
Discounts on loans and mortgage-backed securities 9,377 130 $ (898) 8,609
Bad debt deduction 7,220 (1,227) 1,159 7,152
Federal Home Loan Bank stock dividends (6,366) 92 (1,138) (7,412)
Other 1,878 1,536 3,967 7,381
_________________________________________________________
Net temporary differences 17,635 (758) 3,090 19,967
Carryforwards:
Federal regular tax operating loss carryforwards 15,778 (5,212) 251 10,817
Federal regular tax operating loss carryforwards
acquired in purchase business combinations 1,377 (158) 3,701 4,920
State regular tax operating loss carryforwards 3,644 (88) 16 3,572
State regular tax operating loss carryforwards
acquired in purchase business combinations 4,709 (440) -- 4,269
Federal AMT credit carryforwards 9,946 3,177 505 13,628
_________________________________________________________
Total carryforwards 35,454 (2,721) 4,473 37,206
_________________________________________________________
53,089 (3,479) 7,563 57,173
Less: Valuation allowance -- -- -- --
Deferred tax asset $53,089 $(3,479) $7,563 $57,173
</TABLE>
The adjustments to the net deferred tax asset in 1994 identified as the
"Effect of acquisitions and other transactions" result primarily from
the acquisition of Rocky Mountain Financial Corporation and the exercise
of compensatory stock options.
A valuation allowance is provided when it is more likely than not, that
some portion of the deferred tax asset will not be realized. The
Company established a valuation allowance for a portion of the operating
loss carryforwards as a result of unresolved matters with taxing
authorities. During 1993, certain tax issues were resolved which were
previously considered in management's assessment of the valuation
allowance. As a result, the Company reduced the valuation allowance by
$10 million during the first quarter of 1993. The remaining $6.5
million valuation allowance was eliminated in the last half of 1993.
Approximately $10.6 million of the change in the deferred tax asset
valuation allowance ($10 million in first quarter 1993) was allocated as
a reduction of income tax expense. At March 31, 1994, the Company had the
following net operating loss carryforwards available for income tax
purposes:
<TABLE>
<CAPTION>
Expiration
(Dollars in thousands) Date Amount
<S> <C> <C>
Federal regular tax
operating loss carryforwards
acquired through business
combinations 1995-2002 $13,366
Federal regular tax operating
loss carryforwards from
other than business
combinations 2005 29,071
42,437
Federal AMT operating loss
carryforwards 1995-2002 $14,718
</TABLE>
<PAGE>7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C--Acquisitions
On March 25, 1994, the Bank completed the acquisition of Rocky Mountain
Financial Corporation ("RMFC"), and its federally chartered thrift
subsidiary Rocky Mountain Bank, FSB ("Rocky Mountain"), Cheyenne,
Wyoming. Pursuant to the stock purchase agreement, the Bank purchased
all of the outstanding stock of RMFC, which was liquidated and dissolved
and Rocky Mountain was merged into the Bank. Total consideration of
$64.2 million was paid in cash to the stockholders of RMFC, after
consideration of approximately $3.0 million of transaction expenses.
The transaction was accounted for as a purchase. Rocky Mountain had
assets of $537 million and deposits of $428 million as of March 25,
1994. The results of operations of RMFC and Rocky Mountain for the
period March 26, 1994 through March 31, 1994 have been included in the
Company's consolidated first quarter results.
In addition, on March 11, 1994, the Bank completed the acquisition of
$12.5 million in deposits of two branches of Pioneer Federal Savings and
Loan Association, a failed thrift in Kansas.
Unaudited pro forma income and income per share information as if RMFC
and Rocky Mountain had been combined with the Company at the beginning
of each of the respective periods is as follows:
<TABLE>
<CAPTION>
Three Months Ended
(Amounts in thousands, except March 31,
per share data) 1994 1993
<S> <C> <C>
Net Interest Income $56,085 $49,998
Net Income 13,170 16,474
Per Share Data:
Primary $0.40 $0.52
Diluted $0.40 $0.52
</TABLE>
<PAGE>8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
The Company
Metropolitan Financial Corporation (the "Company") is a regional
financial services holding company. The Company's mission is to be the
premier provider of community financial and home ownership services
throughout its markets by offering exceptional value to its customers,
resulting in profitable growth, fulfilling careers and community
enhancement. The primary operations of the Company are in North Dakota,
Minnesota, Nebraska, Iowa, Kansas, South Dakota, Wisconsin, Wyoming and
Arizona.
The Company operates a Federal Deposit Insurance Corporation ("FDIC")
insured consumer savings bank, Metropolitan Federal Bank, fsb (the
"Bank"), which concentrates on the traditional thrift business of
soliciting deposits and making residential mortgage and other secured
consumer loans. The Company's residential real estate brokerage
subsidiary, Edina Realty, Inc. ("Edina Realty"), and title company
subsidiary, Equity Title Services ("Equity Title"), are among
Minnesota's largest providers of their respective services. Edina
Realty and Equity Title conduct their business in Minnesota and western
Wisconsin. Certain financial services products like annuities,
uninsured investments, such as mutual funds, and insurance are provided
to customers through a subsidiary operating as Metropolitan Financial
Services ("MFS").
Recent Acquisitions
On March 25, 1994, the Bank completed the acquisition of Rocky Mountain
Financial Corporation ("RMFC") and its bank subsidiary, Rocky Mountain
Bank, FSB. ("Rocky Mountain"). Rocky Mountain had assets and deposits
of approximately $537 million and $428 million at March 25, 1994,
respectively. The Bank paid RMFC shareholders approximately $64.2
million in cash as consideration after payment of approximately $3.0
million of transaction expenses.
On March 11, 1994, the Bank completed the acquisition of approximately
$12.5 million in deposits of two branches of Pioneer Federal Savings and
Loan Association, a failed thrift in Kansas.
Results of Operations
Overview. The Company earned net income of $12.2 million or $.37 per
fully diluted share for the quarter ended March 31, 1994, compared to
$15.3 million or $.48 per share for the first quarter of 1993. Pretax
income increased to $19.7 million, up $10.9 million or 122.8 percent
from the first quarter last year. The results of the first quarter of
1993 reflect a net tax credit of $6.5 million resulting from a $10
million tax benefit associated with a reduction of the deferred tax
asset valuation allowance. The reduction of the valuation allowance
resulted from the favorable resolution of a number of outstanding tax
issues raised by the Internal Revenue Service for which the Company had
established reserves.
Net Interest Income. The Company earned net interest income of $52.6
million for the first quarter of 1994, an increase of $6.6 million or
14.3 percent from the $46.0 million for the same period in 1993. Net
interest income increased $10.7 million during the first quarter of
1994, due to asset growth associated with acquisitions, new loan
production and loan and mortgage-backed securities purchases, compared
to the same period in 1993. The decrease in the net interest margin
from 3.26 percent in the first quarter of 1993 to 3.15 percent during
the same quarter in 1994 had an offsetting impact of reducing net
interest income by $4.1 million. The net interest margin began to
narrow in early 1993 reflecting reduced average yields on earning assets
resulting from the high rate of prepayments which continued in the first
two months of the current quarter. Recent increases in interest rates
are expected to result in a reduced level of mortgage prepayments.
The net margin of 3.15 percent for the first quarter of 1994 represents
a decrease of 11 basis points from the same period in 1993. For the
quarter, yields on interest earning assets declined at a faster pace
than declines in rates paid on interest-bearing liabilities resulting in
the reduced net interest margin. The weighted average rate paid on
interest bearing liabilities decreased 51 basis points to 4.27 percent
for the quarter ended March 31, 1994, while yields earned on interest
earning assets decreased 61 basis points to 7.32 percent during the same
period. Growth in equity has also increased the net interest margin as
it has effectively provided funds for earning assets with no direct
cost.
<PAGE>9
<TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
(Unaudited)
<CAPTION>
Three Months Ended March 31, 1994
vs. Same Period in 1993
Increase (Decrease) Due To
(In thousands) Volume Rate Total
<S> <C> <C> <C>
Interest Income
Mortgage-backed securities $ (6,756) $ (2,721) $(9,477)
Loans 30,254 (9,633) 20,621
Investments and other (1,449) 259 (1,190)
Total Interest Income 22,049 (12,095) 9,954
Interest Expense
Transaction and passbook deposits 490 (1,478) (988)
Certificates 1,437 (5,868) (4,431)
FHLB advances 9,359 (308) 9,051
Reverse repurchase agreements 609 -- 609
Other borrowings (554) (303) (857)
Total Interest Expense 11,341 (7,957) 3,384
Increase in Net Interest Income $10,708 $ (4,138) $ 6,570
</TABLE>
[FN]
The Rate/Volume Analysis presents the dollar amount of changes in
interest income and interest expense for interest earning assets and
interest bearing liabilities. The table distinguishes between the
changes related to average outstanding balances (changes in volume
holding the average interest rate constant) and changes related to
average interest rates (changes in average interest rates holding the
initial balance constant.) Changes in rate/volume (changes in rate
times the changes in volume) are allocated ratably between the rate and
volume variances.
<PAGE>10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
(Unaudited)
Yields Earned and Rates Paid. The following table presents for the
periods indicated average interest earning assets and the related
interest income, and average interest bearing liabilities and the
related interest expense, expressed both in dollars and percentages.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
Yields Yields
Average and Average and
(Dollars in thousands) Balance Interest Rates Balance Interest Rates
<S> <C> <C> <C> <C> <C> <C>
Assets
Mortgage-backed securities $1,410,870 $ 22,692 6.43% $1,819,241 $ 32,169 7.07%
Loans 4,956,424 95,178 7.68 3,423,833 74,557 8.71
Investment securities and other
interest earning assets 301,904 4,157 5.51 407,984 5,347 5.24
Total Interest Earning Assets 6,669,198 $122,027 7.32% $5,651,058 $112,073 7.93%
Cash and due from banks 72,451 57,675
Other assets 379,461 411,255
Total Assets $7,121,110 $6,119,988
Liabilities & Shareholders' Equity
Transaction and passbook deposits $1,521,393 $ 7,050 1.85% $1,429,921 $ 8,038 2.25%
Certificates 3,785,620 46,649 4.93 3,679,686 51,080 5.55
FHLB advances 1,001,195 12,679 5.07 263,863 3,628 5.50
Reverse repurchase agreements 70,000 609 3.48 -- -- --
Other borrowings 128,655 2,475 7.69 156,389 3,332 8.52
Total Interest Bearing Liabilities 6,506,863 69,462 4.27% 5,529,859 66,078 4.78%
Other liabilities 110,491 158,401
Shareholders' equity 503,756 431,728
Total Liabilities &
Shareholders' Equity $7,121,110 $6,119,988
Net Interest Income $52,565 $45,995
Gross Interest Margin 3.05% 3.15%
Net Interest Margin 3.15% 3.26%
</TABLE>
<PAGE>11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
(Unaudited)
Asset and Liability Management. The Company is subject to interest rate
risk to the extent that its interest earning assets reprice or mature
differently than its interest bearing liabilities. The Company manages
interest rate risk through production of interest earning assets with
repricing or maturity characteristics similar to its retail deposit
funding source, as well as concentrating on the gathering of retail
deposits which match the repricing and maturity characteristics of the
assets produced. This strategy emphasizes the production of fifteen
year fixed rate, five and seven year balloon and adjustable rate
mortgage loans and consumer loans. The Company augments its interest
rate risk management strategy by purchasing assets or borrowing funds
with comparable maturity and repricing characteristics to its loans or
deposits. Finally, when considered necessary and cost effective, the
Company uses hedging instruments, such as interest rate caps and swaps,
to reduce its exposure to interest rate risk.
An industry gauge of exposure to interest rate risk is the one year
interest rate sensitivity "gap" (the difference between interest earning
assets and interest bearing liabilities maturing or repricing within one
year). See table below. The Company mitigates its exposure to interest
rate risk by striving to maintain a neutral "gap" between the maturities
of its interest earning assets and interest bearing liabilities. This
strategy results in a stable net interest margin in periods of either
rising or falling interest rates.
<TABLE>
<CAPTION>
Maturing or Repricing in
1 Year Over 1 to Over 3 to Over 5
(Dollars in thousands) or Less 3 Years 5 Years Years Total
<S> <C> <C> <C> <C> <C>
Interest Earning Assets
Mortgage-backed securities
Fixed rate $ 390,384 $ 334,782 $ 193,751 $ 122,360 $1,041,277
Adjustable rate 530,111 -- -- -- 530,111
920,495 334,782 193,751 122,360 1,571,388
Loans
Real estate
Fixed rate 373,029 520,150 434,000 1,353,123 2,680,302
Adjustable rate 1,040,926 124,709 -- -- 1,165,635
Consumer and other 724,964 870,724 37,758 74,613 1,708,059
Investment securities and other 189,420 27,084 33,393 8,846 258,743
3,248,834 1,877,449 698,902 1,558,942 7,384,127
Interest Bearing Liabilities
Transaction and savings accounts 800,260 191,449 191,832 480,351 1,663,892
Certificate accounts 2,402,694 1,166,586 175,614 288,955 4,033,849
Borrowings 529,399 440,993 391,117 184,060 1,545,569
3,732,353 1,799,028 758,563 953,366 7,243,310
Net Gap (483,519) 78,421 (59,661) 605,576 $ 140,817
Cumulative Gap $(483,519) $(405,098) $(464,759) $ 140,817 --
Cumulative ratio of interest earning
assets to interest bearing liabilities 87.05% 92.68% 92.61% 101.94%
Cumulative ratio of Gap to total
interest earning assets (6.55)% (5.49)% (6.29)% 1.91%
</TABLE>
[FN]
Major balance sheet categories in the preceding table are based on
estimated mortgage loan and mortgage-backed securities prepayment rates
ranging from 4% to 50% depending on maturity and yield. Assets
available for sale are included in the 1 year or less category if there
is a firm sale commitment outstanding. Assets available-for-sale
without a firm commitment are based on their contractual maturity
considering amortization and prepayments. Passbook savings and checking
account balances assume a 10% annual decay rate and money market demand
and tiered rate savings accounts are included in the one year or less
category. Loan balances, which are prior to discounts and the allowance
for loan losses, include non accrual loans.
<PAGE>12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
(Unaudited)
Provision for loan losses. The provision for loan losses reflects
management's estimate of the allowance for loan losses necessary to
provide for anticipated credit losses. The provision for loan losses
was $2.6 million for the first quarter of 1994, compared with $1.5
million in the first quarter of 1993. The increase in the provision
reflects an overall increase in the loan portfolio of $1.9 billion, or
54 percent from a year ago. The Company anticipates further growth in
the loan portfolio and commensurate increases in the provision
throughout 1994. Also, see Nonperforming Assets and Allowance for Loan
Losses.
Noninterest Income. Noninterest income in the first quarter of 1994
was $17.5 million, an increase of $3.8 million, or 27.6 percent, from
the first quarter of 1993. Realty commissions from the company's real
estate brokerage subsidiary, Edina Realty, were up 17.2 percent to $6.3
million reflecting continued strength of the real estate market and
acquisitions during the past year. Edina Realty continues to be one of
the largest residential real estate brokerage companies in the Twin
Cities, of Minneapolis and St. Paul, participating in more than 40
percent of all residential real estate transactions. Title closing
fees from the title services subsidiary, Equity Title, were up 17.5
percent to $2.2 million. Financial services income was up 161.4
percent to $1.8 million. Financial services income represents
commission associated with the sales of fixed and variable annuities,
mutual funds and other uninsured financial products. Service charges
on deposits accounts and other income increased 53.7 percent to $4.7
million. The increase is a result of acquisitions and the strategic
evaluation of fees and implementation of a new fee structure for
deposit accounts.
Noninterest Expense. Noninterest expense in the first quarter of 1994
was $47.9 million, compared with $49.4 million in the first quarter of
1993. Included in the first quarter of 1993 is a one-time charge of
$4.0 million related to the closing of 17 retail bank offices and other
reorganization activities. Excluding this charge, noninterest expense
increased $2.5 million, or 5.5 percent, from the prior year's first
quarter, reflecting the banking and real estate brokerage acquisition
activity. The bank-only efficiency ratio, defined as noninterest
expense less amortization of goodwill and real estate expense as a
percent of net interest income before the provision for loan losses and
noninterest income, improved to 55 percent in the first quarter of 1994
from 62 percent in the first quarter of 1993.
Compensation, occupancy, data processing, advertising and amortization
of goodwill expense increased $361 thousand, or 1.1 percent, reflecting
the acquisitions during the past year of Eureka Savings Bank, fsb and
Western Financial Corporation and its subsidiary, Columbia Savings
Association, F.A. Both companies were located in Kansas and had
combined assets of $813 million. Deposit insurance premiums increased
$730 thousand reflecting deposit growth associated with acquisitions,
as the rate paid for insurance premiums has remained constant. Real
estate owned expense declined $838 thousand as a result of improved
results from certain income-producing properties, as well as a
reduction in charge-offs.
Income Taxes. The provision for income taxes was $7.5 million in the
first quarter of 1994, compared with a net tax credit of $6.5 million
(which included a $10 million tax benefit) recognized in the first
quarter of 1993. The $10 million benefit in the first quarter of 1993
resulted from the favorable resolution of a number of outstanding tax
issues raised by the Internal Revenue Service for which the Company had
earlier established an allowance.
Loan Portfolio. The Company's loan portfolio totaled $5.5 billion at
March 31, 1994, an increase of $.9 billion from December 31, 1993. The
increase is due to new production of residential mortgage and consumer
loans, as well as the addition of loans through acquisitions and
wholesale purchases.
Consumer loan originations and origination of first mortgage loans for
the purchase or construction of one to four family residential property
continue to be the main emphasis of the Company. Of the $.9 billion
increase in loans in 1994, $.6 billion related to residential real
estate mortgage loans and $.3 billion related to consumer loans. While
the level of refinancings has subsided from the elevated 1993 levels,
the Company believes that acquisitions and the introduction of new
mortgage loan products will provide future increases in mortgage loan
originations. The Company's current policy is to sell agency conforming
FHA/VA 30-year fixed rate mortgage loans, thus significantly reducing
interest rate risk.
The Company generally maintains the servicing rights on mortgage loans
sold to preserve the customer relationship, create opportunities to
cross sell other banking services and generate fee income.
<PAGE>13
<TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
(Unaudited)
<CAPTION>
March 31, December 31,
(In thousands) 1994 1993
<S> <C> <C>
Real Estate:
Residential (One to four family) $3,266,137 $2,700,214
Commercial 524,271 513,870
Construction 23,871 12,185
Commercial 10,951 6,402
Manufactured home 41,213 41,797
Consumer and other 1,655,894 1,353,847
5,522,337 4,628,315
Less:
Allowance for loan losses 42,832 42,905
$5,479,505 $4,585,410
</TABLE>
Nonperforming Assets and Allowance for Loan Losses. Nonperforming
assets are nonaccruing loans and real estate owned. The Company places
loans on a nonaccrual status when the loans are contractually
delinquent more than 90 days. The table below presents a summary of
nonperforming assets at the dates indicated.
Nonperforming assets at March 31, 1994, totaled $98.8 million, a
decrease of $16.6 million, or 14.4 percent from the $115.4 million
total reported at December 31, 1993. The decrease is principally
related to the sale or disposition of commercial real estate. The
allowance for loan losses at March 31, 1994, remained relatively
consistent with year end 1993 at $42.8 million. The allowance for loan
losses as a percentage of nonperforming loans increased from 70.0
percent at December 31, 1993 to 102.5 percent at March 31, 1994.
Nonperforming loans to total loans and nonperforming assets to total
assets decreased to .76 percent and 1.26 percent, respectively, at
March 31, 1994 from 1.32 percent and 1.65 percent at year end 1993,
respectively. Charge-offs associated with consumer loans increased to
$3.3 million for the first quarter of 1994 due principally to increases
in the consumer loan portfolio, principally in the indirect auto
portfolio.
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1994 1993
<S> <C> <C>
Nonperforming Loans:
Single family $16,383 $ 15,150
Commercial real estate 20,962 42,330
Non real estate 4,443 3,810
________________________
41,788 61,290
Real Estate Owned:
Single family 8,329 6,857
Commercial real estate 48,702 47,277
________________________
57,031 54,134
________________________
$98,819 $115,424
</TABLE>
<PAGE>14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
(Unaudited)
Mortgage-Backed Securities and Available-For-Sale Securities.
Mortgage-backed securities held for investment totaled $1.1 billion at
March 31, 1994, compared to $.9 billion at December 31, 1993. The
slight increase in mortgage-backed securities relates to wholesale
purchases of adjustable rate mortgage-backed securities during the
first quarter of 1994. Securities available-for-sale decreased
slightly from year end 1993 to $604 million at March 31, 1994,
principally as a result of the settlement of certain sales transactions
executed in the fourth quarter of 1993.
Sources of Funds. Deposits at March 31, 1994, totaled $5.7 billion, an
increase of $343 million or 6.4 percent from the December 31, 1993
total of $5.3 billion. The increase is due to the acquisition of Rocky
Mountain offset by general deposit outflow as a result of depositors
reinvesting their funds in mutual funds and other non FDIC insured
instruments, consistent with current industry experience.
Capital Adequacy. Shareholders' equity decreased to $499,237 million
at March 31, 1994, a decrease of $5.1 million or 1 percent from
December 31, 1993. The decrease is related to the recording of an
unrealized loss associated with securities available-for-sale as a
result of increases in interest rates and, correspondingly, decreases
in the market values. Shareholders' equity as a percentage of assets
was 6 percent at March 31, 1994. Common shareholders' equity at March
31, 1994 was $487,018 million or $15.75 per share compared with
$493,075 or $15.79 per share at December 31, 1993.
Under minimum regulatory capital regulations issued by the OTS, thrift
institutions are required to meet the following three capital
requirements:
Tangible Capital Requirement--Generally, this requirement measures an
institution's tangible capital, as defined in the regulations, after
deductions for certain intangible assets and investments in certain
subsidiaries. Tangible capital must meet or exceed 1.50 percent of
adjusted total assets, as defined in the regulations.
Core Capital Requirement--This requirement measures an institution's
core capital (tangible capital plus includable supervisory goodwill,)
less deductions for certain intangible assets and investments in
certain subsidiaries that are, on the whole, not as substantial as
those mandated under the tangible capital measurement. The core capital of
a thrift must meet or exceed 3 percent of adjusted total assets.
Risk-Based Capital Requirement--The risk-based capital ratio measures
capital adequacy, taking into account the level of risk of an
institution's assets. The OTS has also issued a rule which creates an
interest rate risk component which potentially increases and
institution's risk-based capital requirement. In sum, institutions
with more than a "normal" amount of interest rate risk are required to
maintain additional total capital. The Bank is currently not subject
to any additional risk-based capital requirements related to interest
rate risk. As of March 31, 1994, a thrift's risk-based capital must
meet or exceed 8 percent of risk adjusted assets.
The Bank, including its subsidiaries, exceeded the fully phased-in
capital requirements at March 31, 1994, as detailed below:
<TABLE>
<CAPTION>
Metropolitan
Federal Bank, fsb July 1, 1994
and Subsidiaries Requirement
Capital Measure Consolidated (Fully Phased In)
<S> <C> <C>
Tangible Capital 5.61% 1.50%
Core Capital 5.99% 3.00%
Risk Based Capital 10.42% 8.00%
</TABLE>
<PAGE>15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--CONTINUED
(Unaudited)
In September 1992, the Federal Deposit Insurance Company ("FDIC")
issued standards by which thrifts will be rated in determining their
deposit insurance assessments. The Company qualifies as a "well
capitalized" institution as defined by the FDIC, which places it in the
lowest premium range established by the FDIC.
<PAGE>16
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The following is a report of the voting results of the
Registrant's May 4, 1994, Annual Meeting of Shareholders:
1. Three directors, William O. Nilles, Charles D. Kalil and
Karol D. Emmerich were elected for three year terms
expiring in 1997. A total of 26,600,054; 26,600,660; and
26,714,230 votes were cast in favor of the election of Mr.
Nilles, Mr. Kalil and Ms. Emmerich, respectively and
752,521; 751,919; and 638,349 votes were withheld,
respectively. There were no broker non-votes. The terms
of the six other directors continued after the meeting.
R. Douglas Larsen, William C. Marcil and Steven G.
Rothmeier have one year remaining, expiring in 1995
and Norman M. Jones, Truman E. Tryhus and Lawrence E.
Davis have two years remaining, expiring in 1996.
2. The Company's 1993 Stock Incentive Plan (the "Plan") was
approved. The Plan provides for the grant to
participating eligible recipients of the Company and its
subsidiaries of stock options, including both incentive
and non-statutory stock options, restricted stock awards,
performance units, stock bonuses and stock appreciation
rights. The purpose of the plan is to advance the
interest of the Company and its stockholders by
enabling the Company to attract and retain the services of
experienced and knowledgeable employees. 15,078,947 votes
were cast in favor of the proposal, while 5,506,464 voted
against and 357,710 abstained. There were 6,469,719
broker non-votes.
3. The Company's Directors' Retirement Plan was approved.
The Plan provides for benefits to eligible directors for a
period after they cease to be directors equal to the
period of their service on the Board. 21,951,617 votes
were cast in favor of the proposal, while 5,014,215 voted
against and 386,747 abstained. There were 16 broker non-
votes.
4. The appointment of Ernst & Young as auditors of the
Company for the fiscal year ending December 31, 1994 was
ratified. 26,987,462 votes were cast in favor of the
appointment while 171,254 voted against and 193,863
abstained. There were 7 broker non-votes.
There were 30,923,586 shares of common stock of the Company
outstanding on March 9, 1994, the record date. There were
present at the Annual Meeting in person or by proxy 27,352,849
shares of common stock of the Company entitled to vote.
Item 5. Other Information.
The Board of Directors of the Company declared an increase of
10 cents or 100 percent in the regular quarterly dividend to
20 cents per common share. The dividend was payable April 29,
1994 to shareholders of record at the close of business on
April 15, 1994.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
11.1 Computation of Net Income Per Common Share
(b) Reports on Form 8-K
During the quarter ended March 31, 1994, the Company did not
file any reports on Form 8-K.
<PAGE>17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
METROPOLITAN FINANCIAL CORPORATION
Date 5/16/94 /s/ Norman M. Jones
__________ NORMAN M. JONES
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date 5/16/94 /s/ Steven B. Dewald
___________ STEVEN B. DEWALD
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
Date 5/16/94 /s/ William T. Cox
____________ WILLIAM T. COX
Senior Vice President and Controller
(Principal Accounting Officer)
<PAGE>
METROPOLITAN FINANCIAL CORPORATION
Exhibit Index to 10-Q
For Quarter Ended March 31, 1994
Item No. Item Method of Filing
______________________________________________________________________________
11.1 Computation of Per Share Earnings........Filed herewith.
<PAGE>E
<TABLE>
Exhibit 11.1
METROPOLITAN FINANCIAL CORPORATION: COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Three Months Ended
(Amounts in thousands, except per share data) March 31, 1994 March 31, 1993
<S> <C> <C>
Primary:
Average number of common shares outstanding 31,042 29,441
Net effect of dilutive stock options/warrants--based on the treasury
stock method using average market price 1,028 1,592
32,070 31,033
Net Income $12,185 $15,287
Dividends on preferred stock (351) (351)
Net Income Applicable to Common $11,834 $14,936
Net Income Per Share $ 0.37 $ 0.49
Fully Diluted:
Average number of common shares outstanding 31,042 29,441
Net effect of dilutive stock options/warrants--based on the treasury
stock method using closing market price if higher than average market price 1,046 1,729
32,088 31,170
Net income $12,185 $15,287
Dividends on nonconvertible preferred stock (351) (351)
Net Income $11,834 $14,936
Net Income Per Share $ 0.37 $ 0.48
</TABLE>
